1) Genius Homey Bhd is a public company that operates in a highly competitive market for household products. The company is dominated by Bob, the chairman and chief executive officer, who has guided the company since it was a private company and has extensive influence on all aspects of company operations. Bob is known to have short temper and, in the past, has threatened individuals in the accounting department with no pay rise if they fail to help him to achieve company goals. Furthermore, the company has extended its influence over customers and has dictated terms of sale to ensure that customers are able to obtain desired quantities of their most popular products. Bonuses based on sales are a significant component of the compensation package for individual product sales managers. Sales managers who do not meet sales targets three quarters in a row are often replaced. The company has performed well up until a recent recession, but now the company is havingdifficulty clearing the inventory in most product lines as retailers havedifficulty selling in a depressed economy. (i) Identify THREE (3) types of potential fraud risk factors that arepresent in the case above.
1)
Genius Homey Bhd is a public company that operates in a highly competitive market for household products. The company is dominated by Bob, the chairman and chief executive officer, who has guided the company since it was a private company and has extensive influence on all aspects of company operations. Bob is known to have short temper and, in the past, has threatened individuals in the accounting department with no pay rise if they fail to help him to achieve company goals. Furthermore, the company has extended its influence over customers and has dictated terms of sale to ensure that customers are able to obtain desired quantities of their most popular products. Bonuses based on sales are a significant component of the compensation package for individual product sales managers. Sales managers who do not meet sales targets three quarters in a row are often replaced. The company has performed well up until a recent recession, but now the company is havingdifficulty clearing the inventory in most product lines as retailers havedifficulty selling in a depressed economy.
(i) Identify THREE (3) types of potential fraud risk factors that arepresent in the case above.
(i) Identify THREE (3) types of potential fraud risk factors that arepresent in the case above.
2)
You are the audit senior assigned to audit the wages function of Wolters Bhd. Wolters uses two methods of remuneration; employees are paid on the basis of hours worked and quantities produced. Hours worked are recorded on clock cards and quantities produced are confirmed by the production manager. Wages are paid in cash each Friday for the previous week’s work. Appointment of employees is authorized by the managing director and the personnel department maintains employee records and rates of pay. The cashier is separate from the wages department. Previous years’ audits have highlighted weakness in internal controls in the company’s wages system. This has allowed an employee in the wages department to perpetrate a fraud by creating fictitious employees on the payroll and misappropriating wages. Some audit tests have been designed to detect whether this fraud is still taking place. A ‘starters and leavers’ test is carried out to ensure that employees are not paid before they commence employment or after they have left.
(i)Evaluate any SIX (6) principal controls that should exist in a wages system and explain their purpose
(ii)You decided not to attend a weekly wages payout. Outline THREE (3) appropriate techniques used to check the existence of employees.
3)
Mini Nikee Sdn Bhd is a company engaged as a wholesaler of garments, purchasing stocks mainly from local suppliers on credit terms. Recently your firm has been appointed as an external auditor for this company. As an Audit Senior, you are about to commence substantive procedures on the trade payables figure reported in the company’s accounts for the year ended 30 September 2020. The company operates a computer-based accounting system, incorporating fully integrated purchase and nominal ledgers, and following an initial review you concluded that the system should meet its designated objectives. Tests of control on the internal control system of purchasing process, including application and general controls with regard to the computer-based accounting system, proved to be satisfactory. After the preliminary evaluation of internal control system of Mini Nikee Sdn Bhd, you have raised the need to maintain a strong internal control system to the Board of Directors. The directors are very concerned of the need but are also aware of the inherent limitations of such systems. To enhance the control environment of the company, an internal audit department has been established and its first task is to conduct a review of the internal controls relating to the accounting systems of the company.
(i)Briefly describe FOUR (4) limitations that are inherent in most internal
(ii)List SIX (6) examples of internal control measures that should exist inthe Purchases and Trade Payables system of Mini Nikee Sdn Bhd.
(iii)
Draft FIVE (5) substantive procedures that you would wish to be included in the audit programme to verify the trade payables figure in the accounts of Mini Nikee Sdn Bhd for the year ended 30 September 2020.
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