Whirlpool retails spa pools and has stores across Australia. The audit assistant, Callum Shaw, has carried...

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Whirlpool retails spa pools and has stores across Australia. The audit assistant, Callum Shaw, has carried out tests of controls over payroll. An extract from his audit working papers is as follows: • The tolerable rate of deviation for this test, as per the audit plan, is 5 per cent. • Twenty-four employee pays were selected from the weekly payroll reports (two per month) and tests performed as per the audit plan. Two immaterial errors were found, all originating in South Australia. • These errors were discussed with the client, who corrected them based on information provided by audit staff. • As the errors were immaterial (less than $25 each) and subsequently corrected, payroll controls are working satisfactorily and there is sufficient appropriate audit evidence to rely upon them. REQUIRED (a) Identify three reasons why the audit assistant's conclusion is incorrect. (b) State the correct conclusion the audit assistant should have reached. Source: This question was adapted from the Chartered Accountants Program of The Institute of Chartered Accountants in Australia 2012 (3) Audit & Assurance Module. Revenue, receivables and receipts 8.18 EASY You are the auditor of Revolution Pty Ltd (Revolution), and have made the following notes on Revolution's cash receipts procedures. . Cheques are received by mail and from sales representatives, who may obtain cheques directly from customers. All cheques are forwarded to the credit control clerk in the sales order department, who restrictively crosses the cheques. She then enters the details of the cheque into the system via a terminal and ages the receipt from the remittance advice details provided by the debtor, as attached to the cheque. • After all cheques have been processed, the credit control clerk prints the daily cash receipts report. This report details all cheques input into the system since the production of the previous report. She agrees all cheques to this report, prepares a bank deposit slip and banks the cheques. At the end of the day, the accounts receivable master file is updated with cash receipts data. REQUIRED Identify the key controls and determine an appropriate test of controls you would employ for each control. Movies Galore Ltd (Movies Galore) provides pay-TV services to customers across Australia. To subscribe to Movies Galore, customers call a hotline number, select the package they require and provide a credit card number to allow automatic payment of the monthly fee. Approximately 250 new subscribers sign up each month. There are no contracts, and payment is accepted only via credit card. There is no hard-copy documentation generated in relation to the sales hotline: staff enter the customer's details directly into the computer, which then generates the relevant journal entries and postings to the ledger. Your discussions with management indicate that this system has not changed since you tested it during last year's audit, when you placed a high level of reliance on the controls and found only one minor deviation. Whirlpool retails spa pools and has stores across Australia. The audit assistant, Callum Shaw, has carried out tests of controls over payroll. An extract from his audit working papers is as follows: • The tolerable rate of deviation for this test, as per the audit plan, is 5 per cent. • Twenty-four employee pays were selected from the weekly payroll reports (two per month) and tests performed as per the audit plan. Two immaterial errors were found, all originating in South Australia. • These errors were discussed with the client, who corrected them based on information provided by audit staff. • As the errors were immaterial (less than $25 each) and subsequently corrected, payroll controls are working satisfactorily and there is sufficient appropriate audit evidence to rely upon them. REQUIRED (a) Identify three reasons why the audit assistant's conclusion is incorrect. (b) State the correct conclusion the audit assistant should have reached. Source: This question was adapted from the Chartered Accountants Program of The Institute of Chartered Accountants in Australia 2012 (3) Audit & Assurance Module. Revenue, receivables and receipts 8.18 EASY You are the auditor of Revolution Pty Ltd (Revolution), and have made the following notes on Revolution's cash receipts procedures. . Cheques are received by mail and from sales representatives, who may obtain cheques directly from customers. All cheques are forwarded to the credit control clerk in the sales order department, who restrictively crosses the cheques. She then enters the details of the cheque into the system via a terminal and ages the receipt from the remittance advice details provided by the debtor, as attached to the cheque. • After all cheques have been processed, the credit control clerk prints the daily cash receipts report. This report details all cheques input into the system since the production of the previous report. She agrees all cheques to this report, prepares a bank deposit slip and banks the cheques. At the end of the day, the accounts receivable master file is updated with cash receipts data. REQUIRED Identify the key controls and determine an appropriate test of controls you would employ for each control. Movies Galore Ltd (Movies Galore) provides pay-TV services to customers across Australia. To subscribe to Movies Galore, customers call a hotline number, select the package they require and provide a credit card number to allow automatic payment of the monthly fee. Approximately 250 new subscribers sign up each month. There are no contracts, and payment is accepted only via credit card. There is no hard-copy documentation generated in relation to the sales hotline: staff enter the customer's details directly into the computer, which then generates the relevant journal entries and postings to the ledger. Your discussions with management indicate that this system has not changed since you tested it during last year's audit, when you placed a high level of reliance on the controls and found only one minor deviation.

Answer rating: 100% (QA)

a Reasons why the audit assistants conclusion is incorrect Inadequate Documentation of Testing Procedures Detailed documentation is essential for transparency audit trail and future reference Inadequa... View the full answer