audit question

Question 6: Understanding & Testing Internal Controls You are the audit manager of ChefNZ Ltd, a large company, which runs a number of select gourmet restaurants throughout New Zealand. During the planning phase for the current year audit, you note the following information: Darcy Strong, the general manager has discovered a fraud involving the theft of more than $70,000 of cash. The person(s) who stole the cash were waiters/waitresses who simply pocketed any cash they received from restaurant customers and destroyed the manually generated hard copy bills for the orders charged to these customers. No correcting entries have been posted as yet, because the fraud is still being investigated and Darcy is not sure of exactly how much money has been stolen. You plan to ensure that relevant Internal Control Questionnaires (ICQs) are checked to ensure that they properly cover the above scenario. Required: a) Identify and explain which financial statement assertion is currently not true with regard to the restaurant sales amount in the accounting records of ChefNZ Ltd. (2 marks) b) Identify two internal controls you would expect to be in place to prevent and/or detect theft of this nature. Your answer should include identifying at least one relevant control from any two of the following possible categories of controls: i) source document design; ii) independent checks or reconciliations; and iii) personnel or segregation of duties. (2 marks) c) Briefly explain what an Internal Control Questionnaire (ICQ) is and what it is used for. (2 marks) d) State how you would test each of the controls examples which you have identified in (b) above, using a different audit procedure for each. (2 marks) [Q6: Total 8 marks