| Question 1. P5.3 | |
| Incident | Weakness & Procedures to improve |
| 1. Kylie, the cashier, pocketed cash received over the counter from customers paying their accounts. She then wrote off the receivables as uncollectable. | Weaknesses • No segregation of duties. The same person was given cash, sales/ receivables, and adjusted/ write-off records. • None of the independent verification or daily reconciliation. No one counts cash or reconciles collections to receipts on his or her own. • There is weak write-off authorization. Kylie was allowed to write off receivables not higher than. • Poor physical controls. There is no safe handling or deposit of cash. • Lack of audit trail. No record shows the person who approved the write-offs and the reason. Procedures to improve 1. Separate responsibilities: Write-offs, bookkeeping (posting to AR), and cash receipts have to be handled by different individuals. An example: Cashier collects; some other person (cash counter/collector or supervisor) checks; receipts are posted by finance. 2. Independent counting and reconciliation: Two-person end-of-shift cash counting (cashier + witness). Prepare a cash count sheet with signatures of both and hand it in to finance. Balance daily cash received against the receipt issues and the AR ledger. 3. Limit write-off powers: The write-offs can only be approved by a manager (not a cashier) and only in cases where there is evidence in writing that there was a failure to collect. Demand write-off form indicating attempts at collection, signature of the manager, and date. 4. Banking and deposit controls daily: Cash/money above a small float shall be banked daily or by having a night deposit; the individual who deposits the money must be different from the individual who registered the receipts. 5. Receipts and supporting documents: Issue pre-numbered receipts on all sales of cash. Reconcile match receipts to cash counts and bank deposits. 6. Surprise audit and periodical review: Periodic internal audit of receivables and write-offs, and regular surprise cash counts. 7. Whistleblower/safe reporting channel: This is where anonymous reporting is provided to allow employees to report theft without being afraid. |
| 2. Joe used the company BPAY system to pay for construction done at his home. | Weaknesses • Abuse of the company payment system. Lack of segregation between payment authorization and payment initiation in the company. • Weak vendor controls: No confirmation that the payee/vendor is a valid company for expenditure. • Poor permission and registration of payments. No external audit to ensure that the payment is for the company's purpose Procedures to improve 1. Strict vendor establishment and validation: New vendors have to be established by purchasing/finance, and evidence of services has to exist (contract, invoice with the name of the company/ works). Use vendor master controls: Only authorized personnel can add/modify vendor details, and changes have to be approved by a manager. 2. BPAY 306: The workflow of any payment, including electronic payment (BPAY, EFT), requires a minimum of 2 approvals (manager requestor and finance approver). A person who made a payment should not be involved in the review of payment runs. 3. Match invoice and purchase order and receiving report: Before payment, require a three-way match of the purchase order (or contract), supplier invoice, and proof of work/delivery. 4. Separation of responsibility in payment processing: The individual requesting/creating the payment should not be the same person who approves or makes the payment. 5. Listing and review of payment: Review of the payment journal monthly by senior staff to identify unusual payees, personal names, or round numbers. 6. Access controls and logs: restrict access to the BPAY/ passwords and maintain the records of the people who ran payments and at what time. 7. Employee policy and implications: well-established company policy prohibiting the use of company money to do personal tasks, and penalties. |
| 3. Bill collects the cash from vending machines and keeps about 20 per cent for himself. | Weaknesses • Reconciliation of vending machine takings to recorded revenue has not been done. • Individual control over collection and counting (no supervision). • Physical security and monitoring of vending machines are not in place. Procedures to improve 1. Collection and counts: Collection and counts should be done by at least two persons who count takings jointly; that is, both persons counting should sign the count sheets. 2. Pre-numbered collection logs/deposits: A collection log should be used per machine, which should be signed after each collection with meter values and coins/notes collected—balance to cash and deposit. 3. Scheduled surprise collections/rotation: As a rotation, collectors are assigned different machines so that the same individual does not collect the same machine all the time. Conduct unexpected collections regularly. 4. Reconcile sales information: When the machines are metered or electronically reported in terms of sales, reconcile meter readings (or electronic printouts) with cash collected. 5. Daily banking/deposits: Collected cash (except a small float). Proceeds of the collection should be deposited into the bank daily with deposit slips paired with collection logs. 6. CCTV or tamper-evident seals: Place security seals on boxes of collections and CCTV wherever possible to prevent theft. 7. Audit of records: Records should be periodically audited by a supervisor or internal auditor and compared with deposits. |
| 4. Liz inflates the hours she works on her time sheets. | Weaknesses • None of the time worked was verified. Time is not verified with objective evidence that is self-reported. • Inadequate approving/reviewing of timesheets. The supervisor is not necessarily required to check in detail. • There were no timekeeping systems or controls to avoid falsification. Procedures to improve 1. Reliable time keeping system: Have electronic time keypads, swipe cards, or biometric so the staff have to clock in / out. These systems have more resistant timestamps. 2. Supervisor review and sign-off: Each week, supervisors will have to review and sign timesheets based on the possible schedule and output comparison. 3. Cross-check with productivity evidence: Compare the reported hours to work products (For example., the number of jobs made, machine logs, support desk tickets addressed) where feasible. 4. Random audits: Check randomly using employees, CCTV, or other records. 5. Crystal-clear overtime in policies: Supervisor must pre-approve overtime, and overtime cannot be back-dated. 6. Falsification disciplinary policy: Be consistent with consequences. |
| Question 2. P5.5 | |
| Main problems are: • No point in collection verification. Head usher counts, but this is not checked separately. • Counting, banking, and recording are under the control of a single person (treasurer)—a strong concentration of responsibilities. • Banking delay (cash is in a safe). This amplifies the risk of theft and misappropriation of records. • Failure to follow up/keep during the absence of the treasurer. No auxiliary, no deposit procedure, which leads to accumulation. • No existing audit trail or procedures for the cash handling process. Recommended Improvements in Control Procedures. 1. Count of two persons immediately after service. Two ushers need to count the collections collectively at the end of every service rather than it being the task of the head usher. Both ushers should sign the cash count sheet, and they should include all the denominations, totals, and their names. This makes it accountable, accurate, and will not allow manipulation of the figures by one individual. 2. Secure storage and Banking: Timely banking and secure storage. The cash must be counted in a tamper-evident bag and locked up in a safe. Banking of the funds should be done daily or within twenty-four hours so that there is no unnecessary accumulation. In case of no possibility of immediate banking, then the church must utilize an evening deposit or leave the money with an authorized banker to keep safe. 3. Segregation of duties The separation of duties between the collection, depositing, and recording of cash should be clear. The money must be collected and counted by the ushers, then the deposit must be made by the deputy treasurer or some other approved volunteer, and the treasurer must use the signed deposit slip to record the money. Such isolation minimizes any form of fraud or unauthorized transactions. 4. Select an assistant or auxiliary treasurer. Since the treasurer is going to be traveling a lot, they can appoint a qualified deputy who will be trained to receive collections, deposits, and records during their absence. Their roles and authority must be well defined and restricted in order to control them. 5. Demand deposit slips and separate reconciliation. A signed deposit slip to the cash count sheet should accompany every bank deposit. A person not involved in the counting and depositing operation, like a member of the finance committee, should do weekly or monthly reconciliation. This gives it an additional accountability test. 6. Approval and petty money in circulation. There should be a small fixed petty cash float that is used for incidental expenses. The finance committee must approve the amount, and all the replenishments must have original receipts and an authorization. 7. Written policies and procedures. The church ought to come up with a written policy to detail all the cash-handling procedures, i.e., counting, storage, banking, and duties. 8. Safe access control and security. Only authorized persons should have access to the safe: the opening should be logged every time. 9. Regular reporting The treasurer must make weekly or monthly reports to the finance committee to be monitored. 10. Independent review The finance committee or internal auditor should do periodic reviews and surprise checks. |
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| Question 3. P5.10 | |
| Choose the most appropriate threat of independence by clicking on the dropdown box next to each scenario | |
| Scenario | Threat |
| 1. You have been partner on CKT Ltd for over 20 years. The client has a reputation for producing very high-quality accounts. | Familiarity |
| 2. You completed the audit below budget this year as you had the benefit of a new streamlined information system developed by your firm. | Self review |
| 3. You are excited because tomorrow you will go on a month’s holiday. You find an unusual transaction but when you mention it to your supervisor, he reminds you to consider the need to follow up, and that if you do so you will need to complete this before you go on holidays. | Self interest |
| 4. You inherit $20 000 of shares in a client that you audit. | Self interest |
| 5. An audit client informs you that the CFO is retiring next year, and asks you to take the job after completion of this year’s audit. | Self interest |
| Question 4. Audit Opinion | |
| Choose the most appropriate audit opinion by clicking on the dropdown box next to each scenario | |
| Scenario | Audit Opinion |
| Scenario 1: You discover an error concerning sales revenue. Some sales recorded for the year pertain to goods and services to be provided in the next financial year, leading to an overstatement of revenue and profit. The amount is deemed immaterial. After escalation, management agrees to correct the relevant accounts. | Unmodified opinion |
| Scenario 2: You find that JB Hi-Fi has understated its depreciation expense related to equipment. Management depreciates all equipment over 10 years, but given current market conditions, the lifespan should be only 6 years. Management refuses to adjust the financial statements, and the misstatement is considered material. | Qualified opinion |
| Scenario 3: A severe thunderstorm causes a fire in JB Hi-Fi’s accounts department, leading to the loss of most accounting records. The company manages to reconstruct its financial statements but lacks documentation to support transactions for the year. | Disclaimer of Opinion |
| Scenario 4: JB Hi-Fi decides that cash accounting better represents its financial performance and position than accrual accounting due to the predominantly cash-based nature of its business. You determine that the difference between cash and accrual accounting, if adjusted, would significantly alter reported profit and net assets. | Adverse Opinion |
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