AC412 AUDITING IN A

COMPUTERISED
ENVIRONMENT
GROUP PRESENTATION QUESTIONS
QUESTION 1
Describe substantive procedures using CAATs for a large retail company

QUESTION 2
You are the auditor of an entity which uses an automated salary system which is
connected online to a clocking system. During the execution of the interim audit, you
want to test the automated internal controls in the above-mentioned system.

The trainee accountants drafted a system description and identified the following
internal controls:
- Personnel can clock in and out during weekdays between 07:00 and 18:00 only.
- Access to the clock system by personnel is controlled by passwords.
- The number of normal working hours is 45 hours per week and personnel are not paid
for overtime hours worked.
- Corrections to hours clocked can only be entered into the system by the pay master
who has the only password to gain entry thereto.
- Pay tariffs are determined in January each year and can only be changed by the pay
master by entering his authorisation code.

REQUIRED
Formulate audit procedures using test data which should test the effective functioning of
the internal controls mentioned above. Limit your answer to the test data that should be
rejected by the system.

QUESTION 3
You are a trainee accountant on the audit of Happy Retirement Limited, a company that
administers retirement funds.
You gathered the following information relevant to the processing of the company’s
electronic funds transfer (EFT):
1. The accounting clerks in the fund accounting department are the only
personnel who are authorised to process EFTs.
2. Due to the large number of EFTs used in Happy Retirement Limited’s
operations, EFTs are scheduled on a day to day basis and consist mainly
of:
• Exit payments – these are payments made to members who are
exiting the fund.
• Investment of contributions received – these are investments
made using contributions received from the different employers.

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 3. Happy Retirement Limited makes use of Cash Direct, a system supplied
by one of the leading banks in South Africa to schedule EFTs. The system
is not familiar with encryption of data transmitted, but will undergo changes
in the near future to incorporate this function.
4. Once the EFT payments are prepared by the accounting clerks, the
payments are processed as follow:
• Payments are processed as they arrive on the accounting clerks’
desks. According to the financial manager, payments form a very
important part of the business and therefore it is required that staff
leave what they are doing and process payments immediately.
• An accounting clerk can access the Cash Direct system and process
payments from any of the available computers in the department by
entering a username and password.
• After access is granted to the system, the accounting clerk chooses
the “Process payments” option from the menu on the Cash Direct
system and clicks on the EFT to be processed.
• After the accounting clerk compares the transaction detail of the EFT
on the Cash
 Direct system with the supporting documentation, the accounting
clerk chooses the “Final approval of payments” option from the menu
on the Cash Direct system and enters his password to approve the
EFT.
• The bank acknowledges all EFT transactions by requesting
confirmation before the transfer of funds.
5. EFTs are recorded by the use of a suspense account.
6. At the end of each day, the Cash Direct system will provide an audit trail of
each EFT transaction processed on the day. This is reviewed by
management and reconciled with the supporting documentation.
7. Bank reconciliations are prepared every three months.

REQUIRED

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With reference to the information on electronic funds transfer (EFT):
(a) Describe the weaknesses in the internal controls over the processing of EFTs of
Happy Retirement Limited; and
(b) For each weakness, describe one consequence.
Please note:
Your answer must be limited to the occurrence and authorisation
(validity) of EFT payments. Present your answer as follows:

(a) Control weaknesses Consequence of each weakness

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QUESTION 4
Clothing-4-U Limited (Clothing-4-U) is a company that manufactures a wide range of
exclusive clothing for sportsmen and sportswomen. Over the past year the company
has grown constantly and currently has 400 permanent wage workers employed at their
factory.
Your audit firm is appointed as the auditors of Clothing-4-U, with you, as audit senior in
charge of auditing the payroll and personnel cycle. One of the main concerns for you, as
the auditor, is that you will fail to detect material overstatement of the salary and wage
expenses mainly owing to the following:
• Inclusion of fictitious employees on the payroll,
• Inclusion of time not worked (normal and overtime) in the salary and wage
calculations and
• Calculation of wages at an incorrect wage rate.
The following information with regard to the factory wage workers is available to you:
1. Clothing-4-U uses an automated salary and wage system.
2. All staff are permanently employed and a complete personnel file containing all
the necessary information about the employees is maintained in the human
resource department.
3. Employees are paid a fixed hourly rate depending on their job grade. The job
grade is determined upon appointment and reviewed once a year based on
experience and years of service at the company.
4. Overtime can only be worked if authorised by Mr Shoe and may not exceed 30
hours per month.
5. The rates per hour for the three different job grades are as follows:
Job grade Normal rate per hour Overtime rate per hour
Grade A $10 $15

Grade B $12.50 $17.50

Grade C $15 $20
6. Rates are increased annually at the beginning of the financial year by 12%.
7. Wages are based upon actual hours worked (normal and overtime) which are
determined by using an electronic clock card system that records the time of
entry and exit. Controls over the clock card system appear to be sound.

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 8. Wages are paid directly into the employees’ bank account on the last day of each
month and include hours worked from the 25th until the 24th of the next month.
9. The employee masterfile contains the following information:
 Employee name
 Employee number
 Employee identity number
 Employee taxation number
 Employee bank account number
 Gender and race
 Address and contact information
 Date of employment/dismissal/resignation
 Job grade
 Normal hours worked each month
 Overtime hours worked each month
 Rate of normal hours worked
 Rate of overtime hours worked
 PAYE/SITE amount to be paid each month
 Medical aid contribution to be paid each month
 Net wages for each month
 Net wages year to date

You have decided to use computer assisted audit techniques (CAATs) to perform
substantive procedures.

REQUIRED
Describe the substantive procedures that you will perform in the payroll and personnel
cycle of Clothing-4-U Limited to obtain evidence that no fictitious employees are being
paid and that employees are only paid for actual hours worked and at the correct wage
rate. Your answer should specifically deal with the occurrence and accuracy
assertions.

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QUESTION 5
You are the Internal Auditor of Mazvita Insurance Brokers Private Limited which is
receiving bad publicity due to numerous claims and penalties from insurers and the
public.
Your recent audit revealed that;
- The IT system has some of the client’s transactions missing or misallocated.
- The manual files and records have all the correct information.
- Transactions recorded as other expenses and other revenues in the interim
Financial Statements produced from the IT system had no supporting documents
as well as not fully detailed.
- Some debit notes were not fully recorded on the computer system for the whole
year.
- Some of the clients’ files on IT system were already classified as closed whilst
the clients had policies still functional.

Required:
Discuss the application controls that the company could operate to ensure the validity,
completeness and accuracy of transactions.

QUESTION 6
A database is a collection of data used and shared by a number of different users for
different purposes.
Individual users are familiar with only the data used by them-selves and see the data as
a file processed by the application systems.
Database management is the programme used to create and store the data, and to
manage the database. Together with the operating system, DBMS facilitates the
storage of data and the relationships between data, and makes the data available for
use by the application programmes.
Required:
(a) Describe the audit procedure on a DBMS (12 marks)
(b) Describe the control considerations in a database system (13 marks)

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INDIVIDUAL ASSIGNMENT

According to the Comptroller and Auditor-General’s 2013 Report, City of Harare

cashiers allegedly stole $7,2 million on a receipting scam that occurred from 2009
through to 2013. The report reveals that cashiers connived with IT specialists to
generate fake receipts using “anonymous computers”. The IT experts allegedly
connected virtual receipting machines to the billing system.
Required;
Discuss how organisations can effectively control cyber-crime. [Total 25 marks]