List four control objectives of sales system:

 All sales orders are executed promptly.

 Invoices for the related orders are raised promptly.
 Managing such to minimise the bad debts to lower level.
 Prices on the invoice are correct and fair.
 Sale returns are adjusted promptly in correct period.
 All transactions are recorded accurately and complete.

Three direct controls and TOCs: (payroll system)

Controls TOC’s
1. Employee has a unique card which they Physically inspect the place to ensure that the
use to enter and exit the factory and process of clock card is working properly and it
the process is supervised by the is supervising by the security staff.
security staff. Which is a good piece of
control and will help in reduction of the
risk that employee’s uses the card to
mark attendance for the employee who
is not present at work place or at leave.
2. The payroll supervisor sue to re- Review a sample of recently generated payslips
perform calculations of the automatic and ensure the inconsistencies are adjusted
generated payslip and authorise it by and identified timely basis and authorised
signature, which will result in the timely through a signature by payroll supervisor.
basis identification and adjustments of
any inconsistences in payslip before it is
proceeded.
3. Revised pay rates after input into the Review a sample of revised pay rates listing of
system are check by the senior clerk for recent April listing to ensure that errors are
input errors before processing the identified and adjusted timely basis and
weekly wages. This piece of control will authorised as evidence by senior clerk.
result in timely basis identification and
adjustments of errors in the input data.

FIVE DEFICIENCIES in Petra Co’s SALES AND PURCHASES systems and provide
a recommendation:

DEFICIENCIES recommendation
1. The access of master file to the The access to the master file should be limited
accounting clerk is really a risky matter. to the senior and responsible employee of the
As it is a standing data of company and company.
very sensitive for company. Meanwhile
clerks are very inexperienced
employees and chance of fraud get
increased.
 2. The credit limits are only reviewed if an There should be a regular check and balance of
increase is requested by the customer. credit limits to ensure that limits are according
There may be a customer’s facing with the standard of customer liquidity position
liquidity or going concern problems, to reduce chances of bad debts.
where chances of bad debts may be
increased leading to loss for the
company.
3. The sales staff have monthly sales The discount rates used by the sales staff
target using up to maximum 8% should be reviewed and authorised by the
discounts and no review is undertaken responsible party of sales department such as
against the discounts. The sale staff sales supervisor.
may use discount rates more than 8%
to maximise the revenue to hit their
targets.
Also a risk of sales made with huge
discount for themselves.
Which would result in a loss for the
company.
4. All member have an access to the The access to the master file should only be
master file and can amend the data at restricted to the senior members of the
the purchasing head office. As the company and any amendment should be
master file bears a very sensitive data authorised before updating to the data.
will result in fraud in the company
5. The total on the payables ledger is not There should be a regular reconciliation of
compared to the control account in the payable ledgers and payable ledger control
general ledger. If there is any error or account to ensure the identification and
inconsistency in the documents will not adjustments of errors on timely basis.
be identified on timely basis and will
lead to loss for the company.

THREE corporate governance deficiencies faced by Petra Co and provide a

recommendation:

CG deficiencies Recommendation
1. The chairman is getting retire at the New independent non-executive person should
end of financial year and nomination considered for this role to dilute the biasness.
committee is considering marketing
director for this role. As per ethics of
corporate governance the chair is
independent non-executive. While the
marketing director is executive of the
company which would result in
biasness and independency.
2. The NEDs of audit committee were all They should hire one more financial
involved in purchasing and sales dept. experienced NED in audit committee.
before joining this company. As they all
 are from purchasing and sales
background will have no experience in
the finance and will not be able to
manage finance sectors and
identification of errors in financial
statements.
3. Two directors are subject to re-election All directors should be subjected for re-election
at each annual general meeting. Only after maximum three years on the role.
two directors are re-elected at each
AGM, while the other will stay on the
role. As long as they are on the role the
risk of fraud will increase and also
chance of finding risk reduce.

Describe the auditor's responsibilities in relation to supervising and

reviewing the work performed:
Auditor responsibility regarding supervision:
 Auditor is responsible to supervise the field work of audit course and assist the members of
audit team in problems where they are stuck.
 Auditor should supervise the audit course on going to confirm it is going accordance with
plan and strategies set by auditor.
 Auditor should supervise the audit to ensure progress with planned deadlines.

Auditor responsibility regarding review:

 Auditor is responsible for detailed documentation review.
 Should review all the evidences gathered by assistant to confirm that evidences are
sufficient and appropriate to each area.

EIGHT audit risks and explain the auditor’s response :

Audit risk auditor Response

1. The company has six factories across
the country. This is unlikely to visit all
the sites hence there is a risk of
detection.
2. Co has responsibility for goods in
transit from the point of dispatch by
the supplier. As they are responsible at
the point of dispatch, there is a risk that
the goods may not be recorded on time
and will lead to inventory
understatement.
3. Co secured a $2.5m interest-bearing
 bank loan in April 20X5, there is a risk
that the classification of loan to current
and non-current may not be correctly
recorded will lead to inconsistency in
financial statement.
4. Co secured a $2.5m interest-bearing
bank loan in April 20X5, there is a risk
that interest expense may not be
correctly recorded and will lead to
expense understatement and profit
overstatement.
5. All $1.6m of costs incurred to date will
be capitalised within intangible assets
by the year end but as the project is still
under development and not meeting
the criteria of capitalisation under IAS-
38. Hence the assets will be overstated
and the expenses will be understated.
6. Significant number of wholesale
customers are experiencing financial
problems where director indicates that
allowance for receivable for the year is
not required there is a risk of bad debts
as customers are facing financial
problems hence receivables may be
overstated and expenses are
understated.
7. The finance director just discloses the
amount of remuneration to directors
while local law need to disclose the
name of director and the remuneration
of each director. As the local laws
prevail and to be followed. Whereas
director is breaching law, will lead to
inadequate financial statement.
The director may bear a fine or penalty
for breaching the compliance. Risks
arises that it may not be recognised will
result in expenses and profits
understatement.
8. A television speaker was changed with
cheaper quality which resulted in
increase in warranty claims, while
director has disclosed that the warranty
provision will remain the same as last
year. As there is clear increase in the
warranty claims so the provisions will
also gear up. There is a risk that
provisions are understated.