Assume that your audit partner has asked you to design detailed substantive testing programs for the accounts receivable and sales; inventory; purchases and accounts payable; and payroll systems of Square Pharma. Your partner also asked you to incorporate all or some of the following types of tests: Specific analytical procedures, tests of detail (i.e. direct tests on balances and tests of transactions of a balance). While designing the testing programs, assume that the Tests of Control identify the weaknesses as described in each of the following situations, but no other. In summary: (a)Consider the control weaknesses for each subsystem as set out below; (b)Design and develop a substantive audit tests program using information from last three year annual reports and explain and justify your audit program in terms of audit objectives (also called 'audit assertions' ) Note: The risk situations below are created for purposes of teaching and bear no relationship to events in Briscoe Group Ltd or any other known organization. Questions to be addressed by those presenting and for those not presenting, in your bullet-point summaries are: a. Trade and Other Receivables and Sales/Revenue: You have assessed the risk of management distortion, and overstatement of Sales, to be high this year because senior management is trying to obtain an extended loan from their financial institution. You have also noticed that the client has high level of credit sales which extend over several months. However, controls in this system are very strong, the only weakness being a lack of review of adjusting journal entries. b. Inventories: A perpetual stock system is in place and a stock count is performed every six months by off-shift employees after the business closes. The employees complete stock forms (not pre-numbered) each with the following headings: Stock Item #, Stock count. When they’re done, they sign off the form and leave. c. Trade and Others Payable: Your client has many suppliers, but several of them are particularly large. Controls over purchases include a separate Purchases Officer who must seek at least 2 quotes for each large order, and whose purchase costs (and product quality complaints) are reviewed each month by the Internal Auditor. M r . Karim been the sole Purchasing Manager for the last 10 years. d. Employee entitlements, Bonus plan, Long service leave: Employee benefits includes both hourly wage earners and ‘managers’ who are paid a set monthly wage. Net wages are made by auto-deposit to the employee’s bank account. No comparisons are made between employee records and this payment system. Also assume that in recent years’ average staff turnover is very high and processes to close personnel files when someone leaves are weak.
Assume that your audit partner has asked you to design detailed substantive testing
programs for the
payable; and payroll systems of Square Pharma. Your partner also asked you to
incorporate all or some of the following types of tests: Specific analytical procedures,
tests of detail (i.e. direct tests on balances and tests of transactions of a balance).
While designing the testing programs, assume that the Tests of Control identify
the weaknesses as described in each of the following situations, but no other. In
summary:
(a)Consider the control weaknesses for each subsystem as set out below;
(b)Design and develop a substantive audit tests program using information from
last three year annual reports and explain and justify your audit program in terms
of audit objectives (also called 'audit assertions' )
Note: The risk situations below are created for purposes of teaching and bear no
relationship to events in Briscoe Group Ltd or any other known organization.
Questions to be addressed by those presenting and for those not presenting, in your
bullet-point summaries are:
a. Trade and Other Receivables and Sales/Revenue: You have assessed the risk of
management distortion, and overstatement of Sales, to be high this year because
senior management is trying to obtain an extended loan from their financial
institution. You have also noticed that the client has high level of credit sales which
extend over several months. However, controls in this system are very strong, the only
weakness being a lack of review of
b. Inventories: A perpetual stock system is in place and a stock count is performed every
six months by off-shift employees after the business closes. The employees complete
stock forms (not pre-numbered) each with the following headings: Stock Item #,
Stock count. When they’re done, they sign off the form and leave.
c. Trade and Others Payable: Your client has many suppliers, but several of them are
particularly large. Controls over purchases include a separate Purchases Officer who
must seek at least 2 quotes for each large order, and whose purchase costs (and
product quality complaints) are reviewed each month by the Internal Auditor. M r .
Karim been the sole Purchasing Manager for the last 10 years.
d. Employee entitlements, Bonus plan, Long service leave: Employee benefits includes
both hourly wage earners and ‘managers’ who are paid a set monthly wage. Net wages
are made by auto-deposit to the employee’s bank account. No comparisons are made
between employee records and this payment system. Also assume that in recent
years’ average staff turnover is very high and processes to close personnel files when
someone leaves are weak.
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