IdealProtect Limited (IdealProtect) has been an audit client of Celestia & Associates (C&A) for the past 15 years. IdealProtect is based in Toowoomba, where it manufactures high-tech armour-plated personnel carriers. IdealProtect often has to go through a competitive market tender process to win large government contracts. Its main product, the small but powerful Territory Grappler, is highly specialised and IdealProtect does business only with nations that have a recognised, democratically elected government. IdealProtect maintains a highly secure environment because of the sensitive and confidential nature of its vehicle designs and its clients.

In September 2019, IdealProtect installed an off-the-shelf costing system to support the highly sophisticated and cost sensitive nature of its product designs. The new system replaced a system that had been developed in-house as the old system could no longer keep up with the complex and detailed manufacturing costing process that provides tender costings. The old system also had difficulty with the company’s broader reporting requirements.

IdealProtect’s IT department, together with the consultants from the software company, implemented the new manufacturing costing system. There were no customised modifications. Key operational staff and the internal audit team from IdealProtect were significantly engaged in the selection, testing, training and implementation stages.

The manufacturing costing system uses all of the manufacturing unit inputs to calculate and produce a database of all product costs and recommended sales prices. It also integrates with the general ledger each time there are product inventories movements such as purchases, sales, wastage and damaged stock losses. It is now February 2020 and you are commencing the audit planning for the 30 June 2020 annual financial report audit. You are assigned to assess IdealProtect’s IT controls with particular emphasis on the recent implementation of the new manufacturing costing system.

Required

Select two (2) components of internal control. Explain how the role of internal and external audit would differ in assessing these components in relation to the new manufacturing costing system.