d) The purchase application software will not produce a purchase order unless the order is made out to a supplier on the approved supplier Masterfile. REQUIRED Marks Compile the risk that is mitigated by each of the above control activities (a-d). (6) QUESTION 2 20 MARKS You are an internal auditor at Freezers Ltd, a refrigerator manufacturing company. You are currently busy with the evaluation of the inventory, production and warehousing cycle. During the preliminary planning of the audit, you were provided with the below scenarios: a) When the components of the refrigerators are ordered, the ordering clerk does not review the order history nor is the stock in the warehouse verified by the warehouse personnel to inform the current order. b) When the components of the refrigerators are delivered from the supplier, the receiving clerk does not perform physical verification of the quality and quantity of the components. The components are directly sent to be packed in the warehouse. c) Within the warehouse, there is no procedure to store the refrigerator components. Once the components are received, the packer in the warehouse stores all components together irrespective of the nature or type. d) When the refrigerator components are required in the production process, the picker in the warehouse freely takes components from the shelves without properly completing supporting documentation. e) Since the refrigerator components are freely taken from the warehouse to production without proper supporting documentation, when production takes place, the production manager allocates costs to each refrigerator produced based on his judgement. REQUIRED Marks For each of the scenarios above (a-e) indicate the following: 2.1 The possible risk that would materialise as a result of the scenario. (7.5) 2.2 A recommended control to reduce the risk. (5) 2.3 An audit engagement procedure to test the recommended control Your answer must be in the following table: Scenario 2.1 Risk 2.2 Control 2.3 Audit engagement procedures QUESTION 3 21 MARKS The directors of a bank decided to focus more on increasing revenue. The biggest source of revenue for the bank is the interest it earns through the various loans it grants to customers. The branch managers could get annual bonuses that are limited to their annual salaries if the revenue generated at their branches exceeds the budget by more than 15%. Bonuses are calculated quarterly, based on the management accounts for each quarter. The branch managers can approve loan applications, although loan applications should be handled by the personal bank assistants allocated to the different clients. The personal bank assistants get a one-off bonus equal to the interest earned in the first month of a loan for every loan they approve. Most of the loans are small, cash personal loans without any security. However, the bank will also finance the acquisition of any asset, in which case the asset will act as security for the loan. REQUIRED MARKS 3.1 Identify six (6) risks that relate to the bonus scheme that is in place at the bank. (9) 3.2 Design four (4) analytical review procedures that you would perform to monitor the banks bonus scheme. (6) 3.3 Design four (4) audit engagement procedures that you would perform to ensure that the vehicles that act as security for loans granted to finance their purchase do, in fact, exist