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FAC2601 EXAM PACK
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AUI3702 EXAMPACK
[School]
[Course title]
,[TURN OVER]
UNIVERSITY EXAMINATIONS
October/November 2020
AUI3702
The Internal Audit Process: Test of Controls
100 Marks
2 Hours
This paper consists of 13 pages.
INSTRUCTIONS:
• The Invigilator App
o Please remember to keep your cell phone fully charged for the duration of the
assessment.
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connected to the internet to log in.
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scanning of the QR code, you can also enter the QR access code as indicated at the
bottom of the QR code to start the online invigilation.
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airplane mode. No internet connection is needed during the assessment.
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o You may place your cell phone next to you. Your cell phone does not need to face you
however should be close enough to hear the notifications from The Invigilator App.
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visible.
o Please take note that once the examination time is over, firstly focus on scanning and
uploading your script to your assessment platforms. Uploading your script is time
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o Good Luck!
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Page 2 of 13 AUI3702
OCTOBER/NOVEMBER 2020
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• The examination
o Save a copy of the examination paper before your start answering the questions.
o Keep the Honesty Declaration in consideration throughout answering this paper.
o Answer in a handwritten format or typed format on your computer, converted and
uploaded in a PDF format.
o Write legible and clearly and DO NOT password-protect your PDF file.
o Virus infected files will not be marked.
o NO emailed submissions will be allowed.
o Verify the file detail before final submission.
CONFIDENTIAL
,Question Main topic Marks
1 Inventory & expenditure cycle 45
2 Revenue & receipts cycle 31
3 Accounts receivable 24
100
Please note:
Although the primary purpose of the examination is to test the candidate’s
knowledge of and
ability to apply the subject matter, the examiners will also consider the candidate’s ability to
organise and present such knowledge in acceptable, written English.
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Page 3 of 13 AUI3702
OCTOBER/NOVEMBER 2020
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QUESTION 1 45 MARKS
Part A
You are a junior internal auditor at Caterers Limited. The company’s financial yearend
is 31 July 2020. In late June you are informed by your internal audit manager,
that you will be part of the audit team attending the inventory count and that you will
assist with certain other aspects of the inventory audit.
The internal audit team has gathered the following information:
a) The company’s head office is located on the West Rand, but the inventory outlet is
a single, very large “warehouse-type” space in a shopping centre on the East
Rand.
The space consists of a showroom and an adjoining warehouse. The internal
control process is sound.
b) The company sells a large range of general catering equipment and kitchen
appliances. Large quantities of inventory are held.
c) A well-designed computerised perpetual inventory system is maintained and
physical control over the inventory is efficient, the only weakness being, in the
internal audit team’s opinion, that cycle counts are not conducted. Other than
fridges, stoves, etc on the shop floor, inventory is kept in its original packaging.
The warehouse is well laid out, with different appliances being kept in designated
areas and stacked by make and model. Despite the sound controls, inventory does
get damaged and dented and there are always items which do not sell as well as
expected.
d) The year-end inventory count is planned for the close of business (4.00 pm) on
31 July 2020.
e) The directors are anxious that the financial situation of the company be presented
as favourably as possible.
f) The company holds an extensive line of expensive cooking pots on consignment
for Modernpots CC. It does not sell any other cooking pots.
g) The method for counting inventory will be as follows:
• Sequenced inventory count sheets will be printed from the inventory Masterfile,
but will reveal only the inventory item number, description and location of the
, inventory. The theoretical quantity on hand will not be shown
• The warehouse will be divided into 10 designated areas, with 10 teams of two
people performing the count per area.
• As each item is counted, the first person will attach a bright pink label to it and
the second person will record the quantity of the items counted on the inventory
sheet.
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Page 4 of 13 AUI3702
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• Once the count is completed, the counting teams will return the inventory count
sheets to Freddie Sithole the warehouse manager, who will oversee the count.
• While the counting teams have a break, the quantities recorded on the inventory
count sheets will be compared to the quantities recorded on the inventory
masterfile (using a simple software programme), and a list of differences will be
printed out. The counting teams will then recount/follow up on items for which
there are differences. Where there are actual quantity errors, they will be
corrected on the inventory count sheets so that by the end of the count, Freddie
Sithole will be satisfied that the inventory count sheets accurately represent the
physical inventory on hand.
h) After the inventory count, any quantity differences resulting from errors in the
perpetual inventory records will be investigated and the masterfile will be amended
accordingly. Once this has been done, the final inventory count sheets will be
produced and the value of the inventory will be calculated from the inventory
masterfile.
i) Around mid-July, the counting teams will be provided with the written count
information and instructions from Freddie Sithole.
REQUIRED Marks
1.1 Identify 8 pre-engagement procedures you would recommend the audit
senior carry out prior to the year-end inventory audit.
(12)
1.2 Describe 8 audit engagement procedures the internal audit team will
conduct when attending the 31 July 2020 inventory count.
(12)
Part B
Many of the support services staff such as information technology experts and the
internal auditors travel extensively between the head office and the outlet. The
extensive nature of the travel has prompted the audit committee to request an internal
audit of the travel expenses at Caterers Limited. All staff must adhere to the travel
policies and procedures of Caterers Limited, which include:
a) requesting a cash advance for travel expenses to be incurred during the travel
period
b) submitting proof of all expenses incurred during the travel period, namely travel
expenses such as, kilometres travelled and toll-road expenses
c) settling the advance by comparing the advance amount with the actual expenses
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