AUE2601 EXAM PACK 2024

University of South Africa - AUE2601 - Auditing Theory And Practice EXAM PACK 2024 OCTOBER/NOVEMBER 2024 1.5) Password controls  Passwords should be unique to each individual (group passwords should not be used).  Passwords should consist of at least six characters, be random not obvious, and a mix of letters, numbers, upper/lower case and symbols.  Passwords/user-IDs for terminated or transferred personnel should be removed/disabled at the time of termination or transfer.  Passwords should be changed regularly and users should be forced by the system, to change their password (system sends the user a screen message to change his password and allows a limited number of attempts to enter his existing password. After this, access will not be granted until a new password has been registered).  The first time a new employee accesses the system, he should be prompted to change his initial password.  Passwords should not be displayed on PCs at any time, be printed on any reports or logged in transaction logs.  Password files should be subject to strict access controls to protect them from unauthorised read and write access. Encryption of password files is essential.  Personnel should be prohibited from disclosing their passwords to others and subjected to disciplinary measures should they do so.  Passwords should be changed if confidentiality has been violated, or violation is expected.  Passwords should not be obvious, e.g. birthdays, names, name backwards, common words, and should not be the same as the user. 2.1) Definition Document A Sales invoice B Internal sales order C Picking slip D Credit note E Suppliers delivery note F Goods received note G Creditors statement H Masterfile (payroll) amendment form I Batch control sheets and batch register J Wage reconciliation 2.2)  Physical safeguards should be in place to protect cash registers and employees and to prevent theft  An independent record of every sale must be kept  The independent record should not be alterable  The independent record should be sequenced so that missing records can be identified  Cash should not be allowed to accumulate for too long in the cash till (or equivalent) whenever cash is transferred from the custody of one person to another, it should be counted,  Reconciled, documented and signed for by both parties in a safe location  Cash should be banked regularly (at least daily) and intact i.e. cash should not be removed to pay wages or other expenses  The cash receipts journal should be written up promptly. Any four . 2.3 2.3.1) Inventory should consist o9f m  Raw materials  Work in progress and  Finished goods 2.3.2) Net realizable value is the estimated selling price in the ordinary course of the business less the estimated costs of completion and the estimated costs necessary to make the sale. 2.3.3) Three cost formula are :  Specific identification  Weighted average cost  First in first out 2.4.1  Loss of confidential information  Appointing employees who are not ethical  Retaining an unsatisfactory employee  Payment of penalties due to non-compliance with the labor act  Unfair dismissal which may eventually take the company to court 2.4.2  Background checks  Interviews  Training and teaching employees the code of ethics  Constantly monitoring the actions of employees by doing performance evaluations  Appoint employees who operate under professional bodies on higher posts 2.5.1 Jacks 14/2  Understating completeness of the long term liabilities  Overstating existence of industrial 240-loan oven  Overstating valuation of the investments which have been made industrial 240-loan oven  Due to the legal and regulatory requirements there is also a risk that invalid transactions have occurred, e.g. long-term loans raised in contravention of the Memorandum of Incorporation 2.5.2  Planning - Transactions in this cycle, e.g. investment in plant and equipment, should be carefully planned by senior experienced management.  Authorization - Authorization of material finance and investment transactions should be at the highest level,  Implementation - Where the implementation of the transaction is other than straightforward, it should be carried out by competent staff and properly controlled.  Review and approval - Transactions in this cycle should be subjected to progress reporting and comparison to plans and budgets MAY/JUNE 2018 1.1) Aspects of compliance S - The Marketplace to Buy and Sell your Study Material  It is required to have a governing body since it is a public company and it has its governing body.  The governing body of Ming Limited has more than two (MINIMUM LIMIT IS TWO) executive members and the CEO Ms Platinum is a member.  The chair of the body is an independent non-executive director  The CEO is not the chair  There is diversity in terms of balance of power e.gMr Iron specializes in finance, MsEmarald specializes in Marketing ,Ms Ruby specializes in Human Resources. 1.2)  failing to disclose a personal financial interest  using the position of director to gain advantage for himself or harm the company  failing to act in good faith and for a proper purpose  failing to act in the best interests of the company  agreeing to carry on business knowing that to do so was “reckless”  being party to an act or omission despite knowing that it was calculated to defraud acreditor, employee or shareholder, or that the act or omission had another fraudulentpurpose  having signed, or consented to the publication of a document e.g. financialstatements, prospectus, which was false, misleading or untrue, despite knowing thepublication to be so  Being present at a meeting, or participating in the taking of a decision and failing tovote against. 1..3) a) v-audit committee b) i- Governing body S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material c) vii- Risk Committee (study guide page 15) d) viii Executive management (Jacks 4/46) e) i- Governing body f) x- Nominantioncommittee (study guide page 15)(principle 8.60 g) iii)Social and ethical committee (study guide page 15) 1.4)  Addition of fictitious or ghost employees  Recruitment of unnecessary employees  Unauthorized changes to the payroll master file  Appointment of incompetent employees  Unfair dismissal of employees 1.5) Internal control a) General or Application control Explanation 1 General control A security control is a general control 2 Application control It is an input control which avoids unauthorized addition or changes to masterfile. Internal control b) Component of the internal control Explanation 3 Control activity After performance review , the transaction is adjusted 4 Control environment Human resources policies S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material 5 Information systems and related controls Sequenced store requisitions is part of document design 2.1) Check the limitations in other previous question papers. 2.2) Jacks (10/35)  Regardless of how it is done (online, personal visit), a credit application must besubmitted.  The application must contain customer banking details, tradereferences, financial information  All details should be followed up with bureau  Online access to a bureaux site will be password protected (supplied onregistration with the bureau), and should be known only to the creditcontroller and his assistant, and must be kept confidential.  Credit rating should be obtained directly from the applicant’s bank.  The company should have guidelines for the credit terms given, e.g. only 30 or 60 days  The company should have guidelines for initial credit limits (to be reviewed after a relationship has been developedwith the customer  The company should have guidelines for handing over a debtor who has not paid, 2.3) Weakness Internal control 2 There must be a review to the work of the creditor’s clerk before the clerk sends the prepayment to the section head. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material 3 Approval must be done by the clerk’s superior after ensuring that no error exists 4 The software must be loaded on the minimum number of terminals necessary to facilitate EFT payments efficiently and securely 5 Access to the terminals must also be restricted and only legitimate employees must get access through swipe cards to the room where terminal are kept. The system must shut down after three attempts. 6 The user name or password must not be shared 7 The finance manager must not authorize payments as soon as he receives the request but must review if the payments are not fraudulent or are in line with the budget. 8 The company must have small accounts which are specifically kept to effect payments made through EFT S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material May/June 2017 (a) Governing body compositionand appointments  The governing body should comprise a majority of nonexecutive members, most of whom should be independent. Vouch Inc has seven directors and four out of seven directors (majority) are independent non-executive directors which is compliance to king iv report.  CEO of the company should not also fulfill the role of chair of the board. Charles Ment who is the CEO of the company is the chairperson of the body which is non-compliance to King iv report.  The governing body should attain the appropriate balance of diversity. There is gender equality since there are four women and three men in the body.  Minimum of two executive members: one should be the CEO and the other may be the chief finance officer or other executive as is appropriate. There are three executive members namely the CEO, Operations Director and Management Director.  The role of the chair should be formalized. The role of the chairperson is not clearly formalized.  All public companies and state owned companies are required to appoint governing body. Therefore since the firm is a public limited company, it must appoint a governing body in compliance to king iv report. (b) Audit committee composition and appointments  The chair of the committee should be an independent non-executive director. There is noncompliance to King iv report since the CEO is not a non-executive director.  The chair of the board should not be the chair or member of the audit committee. There is noncompliance to King iv report since the CEO (Charles Ment) who is the chair of the4 body is the chair of the audit committee.  All members should be independent non-executive directors. Two members who are the CEO and managing director are not independent noon-executive directors.  The audit committee must have a minimum of three members. There is compliance to king iv report since the entity has three members.  All public companies and state owned companies are required to appoint an audit committee. Therefore since the firm is a public limited company, it must appoint an audit committee in compliance to king iv report. (c) Audit committee meetings  The committee should meet with internal and external auditors at least once a year without management being present. There is non-compliance to king iv report since the meeting was done once during a period of 14 months. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material  The meeting must be done without management being present. Since the CEO and the managing director are party of management and the audit committee, they were present at the meeting which is non-compliance to king iv report (d) General remarks  Screwloose Ltd can be considered to be non-complying with king iv report. It must remove the CEO of the company Charles Ment from the position of the chairperson. Independent non-executive directors must be appointed for the positions of chairperson. 1.2) Duties of the audit committee include the following (i) Prepare a report to be included in the annual financial statements for that financial year  describing how the audit committee carried out its functions  stating whether the audit committee is satisfied that the auditor was independent of the company; and  commenting in any way the committee considers appropriate on the financial statements, the accounting practices and the internal financial control of the company. (ii) Make submissions to the board on any matter concerning the company’s accounting policies, financial control, records and reporting (iii) Perform such other oversight functions as determined by the board. (iv) Receive and deal appropriately with any concerns or complaints, whether from within or outside the company, or on its own initiative, relating to  the accounting practices and internal audit of the company.  the content or auditing of the company’s financial statements.  the internal financial controls of the company; or any related matter. Other duties but not required on this question (1) Nominate for appointment as auditor of the company, a registered auditor who, in the opinion of the audit committee, is independent of the company. (2) Determine the fees to be paid to the auditor and the auditor’s terms of engagement. (3) Ensure that the appointment of the auditor complies with the provisions of this Act, and any other legislation relating to the appointment of auditors. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material (4) Determine the nature and extent of any non-audit services that the auditor may provide to the company, or that the auditor must not provide to the company, or a related company. (5) Pre-approve any proposed agreement with the auditor for the provision of non-audit services to the company. 1.3)Controls that MC Ment should implement include the following,  A written document which lists the procedures which should be carried out by each employee in the event of a disaster,  The plan should be widely available so that there is no frantic searching if a disaster occurs. Time is usually precious,  The plan should address priorities i.e. The order in which files or programmes should be reconstructed, with the most important being allocated the highest priority, as well as where backup data, programmes, hardware may be obtained  The plan should be tested  The plan should detail alternative processing arrangements which have been agreed upon in the event of a disaster, e.g. using a bureau 1.4) Description Application Control Example A Limit Test B Run-to run Total C Mandatory field D Check digits E Sequence test F Matching check G Alphanumeric test H Range test 1.5) Minimum requirements of source document design as stipulated in the Consumer Protection Act 68 of 2008 Reference: Module Online MO001 (2016: 76-78) S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material QUESTION TWO 2.1)Ordering of Goods Function of the Acquisition and Payments cycle – risks and explanation – thereof Risk Explanation 1) Ordering of incorrect or unnecessary goods This could result in cash flow problems and wastage of resources such as space 2) Ordering unauthorized goods This could results in losses to the company through fraud 3) Requisitions not acted upon or orders not placed timeously or at all This may cause delays in deliveries ending up in shortages of material or products to the entity 4) Obtaining inferior quality goods The products may be rejected by customers and this may lead into loss of customer goodwill 5) Paying unnecessarily high prices for goods This may lead to cash flow problems 6) Orders placed with suppliers not filled / not timeously filled This may results in resulting in shortages and failure to meet customer orders. 2.2) Controlling the movement of goods, components and finished goods  No movement of inventory should take place without an authorising document, e.g. picking slip, material requisition.  No movement of inventory should take place without the movement being recorded e.g. a delivery note and material issue note.  Whenever there is a transfer of inventory between sections, e.g. receiving section to warehouse, production to finished goods, both the deliverer and the receiver shouldacknowledge the transfer by, for example, signing the transfer document after having checked the description, quality and quantity of the items being transferred againstthe source documents. For example warehouse personnel and production clerks to sign the material issue note after checking the quality, quantity and description of goodsbeing transferred (isolation of responsibilities).  Documents should be sequenced and filed numerically. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material  Documents must be sequenced checked and missing documents investigated, e.g. a missing GRN in the warehouse will probably indicate that the goods have not beentransferred to the warehouse. 2.3.1) According to IAS 2, Inventory should be presented at the lower of cost and net realizable value. Inventory should not be carried atan amount greater than is expected to be realized from the sale of the asset. Such a situationcould arise where:  inventory has been damaged  inventory has become obsolete  the selling price has declined to below the cost of the asset due to a drop in demand. 2.3.2) Cost element Included or excluded a Delivery costs Included b Commission paid on goods sold Excluded c Cost of production material lost during a fire in the factory Excluded d Administrative costs Excluded e The salaries of production staff Included f Variable production overheads Included 2.4) Procedures to address risk of recruiting unsatisfactory or unnecessary employees are ,  All requests for the appointment or dismissal of employees should originate from the section making the request, for example factory, stores, administration, etc, and should be in writing and a motivation provided.  Requests should be signed by the section head and countersigned by the section manager after reference to the budget.  Specifications of the position and the skills required will be agreed by the section and the personnel department. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material  Changes to pay rates, promotions to higher employment grades and any other changes in service conditions should be decided upon by the personnel department/wage committee.  All changes must be made after due consultation with interested parties, for example the union representatives and consideration of relevant laws and regulations, e.g. overtime, pay rates, minimum wage regulations.  All changes should be documented and authorized by the authorizing body such as wage committee.  All amendments to employees details listed above, should be promptly committed to sequenced payroll amendment forms which should be cross-referenced to the supporting documentation and authorized by a senior member of the personnel section.  Sound personnel practices should be followed to obtain honest, competent personnel interviews, background checks  A file should be kept for each employee and should include - Copies of relevant PAFs - The employment contract - Performance appraisals and disciplinary warnings - Personal details including qualifications, background information. 2.5) Additional internal controls for adding new employees to the employee masterfile to enhance accuracy, completeness and authorization include the following ,  All amendments to be recorded on hardcopy masterfile amendment forms MAFs and no verbal instructions to be made.  MAFs to be pre-printed, sequenced and designed in terms of sound document design principles to ensure completeness  As a proof of authorization , the MAFs should be signed by two senior employees (e.g. human resource manager and the head of the section in which the employee works) after they have agreed the details of the amendment to the supporting documentation, such as the letter of appointment for a new employee  The MAFs should be cross referenced to the supporting documentation to ensure accurateness and completeness  Restrict write access to the employee masterfile to a specific member of the personnel section by the use of user ID and passwords. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material  All masterfile amendments should be automatically logged by the computer on sequenced logs and there should be no write access to the logs  To enhance the accuracy and completeness of the keying in of masterfile amendments and to detect invalid conditions, screen aids and programme checks can be implemented  All mandatory fields, e.g. employee identity number (passport number) and income tax number, and full banking details must be filled. New employees who have not registered with SARS are required to do so and will be assisted by the personnel department  The logs should be reviewed regularly by a senior staff member e.g. financial director.  The sequence of the logs themselves should be checked (for any missing logs).  Each logged amendment should be checked to confirm that it is supported by a properly authorised MAF  That the details, e.g. identity numbers, banking details must be verified their correctness.  The MAFs themselves should be sequence checked against the log to confirmthat all MAFs were entered. Additional points, You can make use of the following tests ,  range and/or limit checks on the wage rate field  field size check, e.g. identity number has 13 digits  alphanumeric check on wage rate field OCTOBER/NOVEMBER 2017 1.1) Five (5) committees that the Board of directors should consider are ;  Remuneration Committee  Audit Committee.  Risk Committee  Nominations Committee  Social and ethics committee. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material Supplementary notes and not party of the answer (a) Remuneration Committee Chairman – must be an Independent non- executive director (ie a director not involved in the day to running affairs of the business). Membership - All should be non-executive of which majority should be independent. Members - Minimum of three members. Functions - Should assist the governing body in setting and administering remuneration policies. (b) Nomination committee Chairman – Not specified in King IV. Membership - All should be non-executive of which majority should be independent. Members - Minimum of three members. Functions  The process for nominating, electing and appointing members of the governing body.  Succession planning of governing body members.  Evaluation of the performance of the governing body. (c) Risk committee Chairman - Not specified in King IV. Membership - Executive and nonexecutive of which majority should be nonexecutive. Members - Minimum of three members. Functions –Shouldconsider theriskmanagementpolicy andplan andmonitor the riskmanagementprocess. (d) Social and Ethics committee Chairman - Not specified in King IV. Membership - Executive and non-executive of which majority should be nonexecutive. Members - Minimum of three members. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material Functions Oversight of, and reporting on organizational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships. Governing body Audit Committee Remuneratio n committee Nomination committee Risk committee Social and ethics committee Chairman Independent non-executive director. CEO cannot be Independent nonexecutive director The chair of the board cannot be the chair or memberofthe audit committee Independent non-executive director Not specified in King IV Not specified in King IV Not specified in King IV Membershi p a majority of nonexecutive members, most of whom should be independent All members should be independent nonexecutive directors All should be non-executive of which majority should be independent. All should be nonexecutive of which majority should be independent. Executive and nonexecutive of which majority should be nonexecutive. Executive and nonexecutive of which majority should be nonexecutive. Members Minimum of two executive members: one should be the CEO Minimum of three members Minimum of three members. Minimum of three members. Minimum of three members. Minimum of three members. Functions The board should have a charter setting out its role, responsibilities Provide independent oversight of the (1)effectiveness of the organisation’s assurance functions and Should assist the governing body in setting and administering remuneration policies. The process for nominating, electing and appointing members of the governing Should consider the risk management policy and plan and monitor the risk Oversight of, and reporting on organizational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material services(2) integrity of the annual financial statements etc body. Succession planning of governing body members. Evaluation of the performance of the governing body. management process. 1.2) 1.2.1) Nomination committee 1.2.2)  The process for nominating, electing and appointing members of the governing body.  Evaluation of the performance of the governing body. 1.3.) Ms P Kgasago is complying with requirements of the companies Act since he  Acted in good faith and for a proper purpose  Acted in the best interests of the company  Avoided using his position as director to his own advantage or knowingly cause harm to the company or its subsidiary  Conveyed the company information that may be of importance to the company  Exercised reasonable care, skill and diligence in the performance of his duties 1.4) # Name Eligible Yes/No Reason 1 Mr C Coleman No The chair of the board should not be a S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material memberofthe audit committee 3 Ms P Kgasago No The finance director is an executive director and cannot be a member of the audit committee 4 Mr S Smith Yes He is a non-executive director who can be considered to be independent because he was a chairman of the board in the preceding four financial years and not three financial years. 5 Mr S Sepelane Yes He is a non-executive director who has financial and accounting knowledge at the same time he is considered to be independent because he has no connection to Camping 6 Ms T Mogale Yes The company secretary is a non-executive member and has got a responsibility to ensure that minutes of all meetings of the audit committee are properly recorded. 1.5) Weakness Explanation There are some inherent limitations with the revenue and receipts cycle A computerised system has some challenges because of its nature which may affect the efficiency of the cycle, for example network weakness and vulnerability to hacking and spams There is inadequate control over the confirmation of customers details such as name ,account number and delivery address Since customers details are only accessible in the master file through the terminal , if the network of the company is down , there are no hard copies present to confirm customers details There are inadequate controls to ensure that all orders sent by the sales order clerk via email to the warehouse administration office are received and acted upon timeously. Some orders sent via email may bounce back and some may be delivered but may not be noticed and acted upon timeously by the warehouse administration office workers There is inadequate controls over the confirmation By reading back the order to the customer to S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material of the correctness of orders received telephonically confirm its correctness , there may be communication breakdown (oral communication is less reliable ) and the customer may agree on the correctness of the order when it is wrong There are inadequate controls over obtaining the customers details to avoid the risk of selling to fictitious customers. Some customers may give wrong details by mistake or intentionally and some of the new customers may not be legitimate customers but former employees or an person who intent(s) to fool the company for any possible reason There are inadequate controls over updating the debtors masterfile If the sales order clerk captures information into the system incorrectly, errors made him or hermay not be detected because there is no review made by an independent party. There are inadequate controls over recording new customers as debtors in the debtors masterfile Recording new customers in the debtors file before the first sale transaction is made is not a good accounting principle because customers may not buy after being recorded as debtors. - Question two 2.1) Five functions of the acquisition and payment cycle are ,  Ordering of goods  Receiving of goods  Recording of purchases (acquisitions).  Payment preparation  Actual payment and recording of the payment Not asked but important to know, Functions of therevenue and receipts cycleare: - Order department (1) - Warehouse/dispatch(2) - Invoicing (3) - Recording sales and raising a debtor(4) S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material - Receiving and recording payment from debtors(5) - Credit management (6) 1 Order department  Receiving customer orders : these may be received in a variety of ways, e.g. by phone, receipt of a customer’s written order, over the Internet or over the counter  Authorizing the sale : this will involve granting or confirming credit before the order is processed. 2 Warehouse/dispatch Its activities are : - Processing the order: this involves the manual process of gathering together (picking) the goods from the stores to fill the order. - Dispatch: this is the manual process of releasing the goods ordered to the customer. 3 Invoicing It is about notifying the customer of the amounts owed for goods purchased. The invoice may be sent with the goods, or at a later stage. There is no fixed rule, but generally the sooner the invoice is sent, the sooner the customer pays. 4 Recording sales and raising the debtor Involves creating the records of the sales that have been made, as well as who owes the company money, i.e. debtors. 5 Receiving and recording payment from debtors This involves collecting payment from debtors, ensuring payment is banked and recording the receipts in the cash receipts journals and debtor’s ledger. 6 Credit management Activities done are:  Evaluating creditworthiness: Collecting amounts owed: Functions of a payroll cycle are : - Personnel (Human Resources) - Timekeeping - Payroll preparation S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material - Payment preparation and payout - Deductions: Payment and Recording 1 Personnel (Human Resources) There must be an individual or department which looks after the human resource aspects of the labor force, e.g. maintaining personnel records, assisting with appointments/dismissals. It would be also responsible for keeping detailed records of all employees, executing the hiring and dismissing of staff and ensuring that pay rates and changes thereto, are correctly and promptly implemented. 2 Timekeeping There must be a method of accurately recording all time worked by hourly paid employees. 3 Payroll preparation Amounts payable to employees must be calculated and supporting documentation must be created. Payroll preparation The gross amount is calculated by multiplying the hours the wage earner has worked, split between normal time and overtime, by the wage rate applicable to the grade or level at which the employee is engaged. 4 Payment preparation and payout Amounts owed to employees must be paid to them either in cash or by transfer into their bank accounts. If wages are paid in cash, what is termed a wage payout is conducted, at which the wage envelopes (packets) are distributed to employees. 5 Deductions: Payment and Recording Amounts which have been deducted from employees’ earnings must be paid over to the respective parties, e.g. PAYE paid to SARS. 2.2)  The responsibility for receiving goods should be designated to goods receiving section which should be physically secured and access controlled to avoid the risk of goods taken for personal use.  Goods must be counted before they are transferred to the warehouse to see if there are no stolen items to avoid the risk of receiving and accepting shortages.  Check the quantity and description of goods delivered against the purchase order and the customer delivery note to avoid the risk of accepting wrong type of products  Check the quantity and description of goods delivered against the purchase order and the customer delivery note items to avoid the risk of receiving and accepting poor quality products. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material  Inspect the goods delivered first before accepting them to identify if there are no broken items or poor quality goods not matching the standard of ordered items to avoid the risk of receiving and accepting poor quality products.  Reject all incorrect deliveries (poor quality and or defective goods) and clearly identify rejections on both copies of the delivery note and purchase order to avoid the risk of receiving and accepting poor quality products.  Physically count the goods before accepting them and compare the physical quantity to the delivery note and purchase order quantities to avoid the risk of receiving incorrect quantity.  Use of security such as cameras or security personnel to monitor actions of workers to avoid the risk of theft. 2.3)  Goods received from suppliers are not transferred into the warehouse timeously or at all (stolen)  Inventory (in whatever form) may be stolen or lost  Inventory may deteriorates in value due toinadequate physical controls, e.g. gets wet due to its nature, e.g. foodstuffs, chemicals  No record is created of goods or componentsphysically moved  The goods or components issued are incorrectresulting in lost sales or production delays  Inventory shortages (including theft) are concealed 2.4.1)  Raw materials used  Labor hours expended  Quantity produced  The total cost of production 2.4.2) 1. A production requisition or order must be raised by either the warehousing department or sales department. 2. Quantity and description of items to be manufactured must confirm to the company’s budget. 3. Must Prince must review before authorizing the job card if the aspects listed above are satisfied. 4. If the aspects listed above do not exist, Mr. Prince must therefore not authorize the job card and if they exist, he must authorize the job card. S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material 2.5)  Non-routine transaction means those transactions not subject to the routine or every day controls relating to transactions.  It is a transaction relating to purchase of valuable non-current asset.  Transaction is material.  The amounts that spent are large. 2.6) Advantages of using biometric data over an identification card or a clock card are,.  It avoids an employee from swiping the identification card of another employee who has not actually come to work like in a computerized clocking system.  Time of exit or entry recorded 2.7) Application controls that could be implemented to approve the hours captured during electronic timekeeping before payroll preparation can commence are,  Before payroll preparation commences, a schedule of normal and overtime hours for the week should be printed out and sent to the foreman (or other supervisory staff) for approval.  The foreman should check the schedule for any incorrect or unusual hours recorded  The foreman should confirm that the overtime hours recorded were authorized prior to being worked  The foreman should confirm that the overtime hours recorded were actually worked  The foreman should confirm that there are hours worked for all employees and that any missing normal hours agree with the attendance reports generated by the access/scanning device.  Any alterations to the schedule should be recorded on the schedule with reasons and signed by the foreman.  Any change for example, any increases or decreases in overtime hours which the foreman requires, should be counter-signed by another supervisory level employee.  Any alterations made by the payroll clerk would be logged for subsequent review. October/Nov 2015 1.4) General physical access controls are, S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material  only individuals who need access to the data centre should be able to gain entry  access points should be limited to one  access should be through a door which is locked other than when people are entering or exiting,  the locking device should be de-activated only by swipe card, entry of a PIN number,scanning of biometric data, e.g. thumbprint  entry/exit point may be under closed circuit TV 1.5) Password controls  Passwords should be unique to each individual (group passwords should not be used).  Passwords should consist of at least six characters, be random not obvious, and a mix of letters, numbers, upper/lower case and symbols.  Passwords/user-IDs for terminated or transferred personnel should be removed/disabled at the time of termination or transfer.  Passwords should be changed regularly and users should be forced by the system, to change their password (system sends the user a screen message to change his password and allows a limited number of attempts to enter his existing password. After this, access will not be granted until a new password has been registered).  The first time a new employee accesses the system, he should be prompted to change his initial password.  Passwords should not be displayed on PCs at any time, be printed on any reports or logged in transaction logs.  Password files should be subject to strict access controls to protect them from unauthorised read and write access. Encryption of password files is essential.  Personnel should be prohibited from disclosing their passwords to others and subjected to disciplinary measures should they do so.  Passwords should be changed if confidentiality has been violated, or violation is expected.  Passwords should not be obvious, e.g. birthdays, names, name backwards, common words, and should not be the same as the user. 2.1) Risk Internal control 1 The order should be cross referenced to the requisition 2 Supervisor/senior should check the order to the requisition for accuracy S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material 3 Pending file of purchase order forms in the receiving bay can be reviewed for orders which are long standing 4 The company should have an approved supplier list to which the buyer should refer when ordering 5 Before a supplier is approved, senior personnel should carefully evaluate the company in the respect of price of their goods. 6 Follow-ups must be made to suppliers who delay to fill orders in time 7 Blanket order forms should be subject to sound stationery controls 2.2)  Management’s usual requirement that the cost of internal control does not exceed the expected benefit to be derived (cost/benefit)  The tendency for internal controls to be directed at routine transactions rather than non-routine transactions  The potential for human error due to carelessness, distraction, mistakes of judgement and the misunderstanding of instructions  The possibility of circumvention of internal controls through the collusion of a member of management, or an employee, with parties outside or inside the company  The possibility that a person responsible for exercising an internal control could abuse that responsibility, for example, a member of management overriding an internal control  The possibility that control procedures may become inadequate due to changes in conditions and, therefore, compliance with procedures may deteriorate 2.3) 1. The timing of each count should be planned before the month ends 2. The counting staff should be divided into teams of two ,with one member of team being completely independent of all aspects of inventory. 3. The items to be counted must be identified .There are a number of ways in which this selection can be done and this include the following ,  random samples can be selected from the perpetual inventory records  items which are susceptible to theft or have some other identifying characteristic can be chosen  high value items can be selected or S - The Marketplace to Buy and Sell your Study Material Downloaded by: LIBRARY | Distribution of this document is illegal Want to earn $103 per month? S - The Marketplace to Buy and Sell your Study Material  the entire inventory population can be divided into sections so that all items are counted at regular intervals during the year 4. Once these matters have been settled, the physical inventory will be counted using an acceptable method of counting and sound count controls. 5. Damaged inventory must be marked on the inventory sheet and placed aside. 6. Slow moving inventory items must be marked on the inventory sheet. 7. The physical count quantity (actual) for each item counted will be compared to the theoretical quantity on the perpetual inventory records 8. All count discrepancies will be entered onto a sequenced inventory adjustment form. 9. All discrepancies must be thoroughly investigated preferably by internal audit and the inventory controller. 10. The adjustment to the records should be made by a clerk who is independent of inventory custody, receiving and issue. 11. The perpetual inventory records should be reviewed by senior warehousing personnel and adjustments to the records traced back to the authorized inventory adjustment form. 2.4) 1. All requests for the appointment or dismissal of employees should originate from the section making the request, for example factory, stores, administration, etc, and should be in writing and a motivation provided. 2. Requests should be signed by the section head and countersigned by the section manager after reference to the budget. 3. Specifications of the position and the skills required will be agreed by the section and the personnel department. 4. Changes to pay rates, promotions to higher employment grades and any other changes in service conditions should be decided upon by the personnel department/wage committee. 5. All changes must be made after due consultation with interested parties, for example the union representatives and consideration of relevant laws and regulations, e.g. overtime, pay rates, minimum wage regulations. 6. All changes should be documented and authorized by the authorizing body such as wage committee. 2.5) Function Weakness 1 ISO’s are not authorized by signature of the credit controller before being sent to the warehouse