Mashanbani Commercial Bank (MCB) Ltd. is a large and we'll established bank with eight branches in the country of domicile.

Your audit firm was re-appointed the auditors of the bank for the year ended 31 October 2019. Charles Bwiri is the audit manager in charge of the audit of MCB Ltd. The interim audit for the year ended 31 October 2019 commenced on 1 April 2019. During the interim audit the auditors noted that MCB Ltd. had gradually changed its accounting system from a manual system to a computerized system as follows: 

• Four branches were fully computerized. 

• Two branches were in the process of being fully computerized. 

•Two branches operated a manual system. Charles Bwiri assessed the bank risks as follows: 

1. The four branches which were fully computerized were less risky because the internal control system in place was working as intended. In addition ,the employees of these branches were computer literate. 

2. The two branches which were in the process of being computerized in the current year were riskier. This was because the internal control system of these branches had changed substantially and therefore needed greater focus. In addition, the computerized environment was new to the employees and they needed training in the operations of the computerized system. 

3. The two branches which were operating a manual system were less risky. This was due to the fact that there were no changes in the internal control system and the working environment. Further, George Bwire had knowledge of the operations of these branches. Charles Bwiri completed the interim audit on 30 April 2019 and now planning for the final audit of the financial year ended 31 October 2019.

On the basis of previous years’ experience ,he has decided that the level of materiality will remain at Sh. 1,000,000; the same as that of the previous year. Charles Bwiri has however, noticed the following: • The bank has introduced internet banking and tele- banking. 

• The bank has opened a new branch. 

• The two branches which were operating manually at the time of the interim audit had been fully computerized. 

• New legislation related to anti-money laundering has been enacted in the country which requires all the banks to have an anti-money laundering program in place and auditors to report on such transactions. 

• Loans and deposits of the bank have increased by 20% which is a substantial change compared to the last year. 

Required: 

Assess the audit risks posted by the changes in Mashambani Commercial Bank (MCB) Ltd. and their possible impact on the level of materiality.

Answer rating: 100% (QA)

Ass ess the audit risks posted by the changes in Mash amb ani Commercial Bank MC B Ltd ANS WER The m... View the full answer