Tutorial Solutions Week 3

School: University of New South Wales - Course: ACCT 3708 - Subject: Accounting

ACCT3708 Auditing & Assurance Services Tutorial Three Solution The answers to questions 1 and 2 cannot be released due to copyright restrictions 3.ABC Limited has an internal audit section that employs ten staff. The chief internal auditor has been in the role for fourteen years and had previously worked in the audit section of a Big-4 accounting firm for eight years. Three of the other staff are also chartered accountants with several years of Big-4 audit experience. The internal audit section reports to the chief accountant, who is responsible for setting their annual audit program and reviewing their reports. The internal auditors mainly evaluate the internal control system of ABC, as well as searching for fraud. The internal audit section has developed an audit manual and has good supervision and training policies to manage junior staff. Required How much reliance would you be willing to place on the internal audit section of ABC? Justify your answer. Solution We need to evaluate the quality of the internal audit function along four dimensions Scope - they do a lot of internal control audits and fraud - This is very good Organisational Status - the chief internal auditor reports to the chief accountant, who also sets their audit program - this will severely compromise their ability to report on senior management Technical competence - the chief internal auditor is very experienced, as are the other three senior members - This is very good Professional behaviour - they have an audit manual and good supervision and training - This is also very good. The internal audit function is likely to be good at examining and maintaining controls over low level functions and staff but is unlikely to deal with problems at a higher level in the organisation, due to lack of organisational status.

4.Hipster Organic Coffee Roasters Ltd (HOCR) imports, roasts, packages and sells coffee beans to cafes from a factory in Alexandria. The company CEO is Sam Jenkins and there are fifteen other employees. Eight people are employed to roast and pack the beans and four drivers to deliver them. There are three accounts clerks. Their names and responsibilities are: Craig Fleming - responsible for inventory management and for organising deliveries, Kirsten Tarrant - responsible for taking customer orders, recording sales, accounts receivable and cash receipts, Richard Shearer - responsible for purchases, accounts payable and cash payments. When Kirsten receives an order from a retail store, she checks with Craig to see if the item is in the warehouse. If it is in the warehouse, Craig generates a dispatch note and updates the inventory records. He gives the dispatch note to a driver, who takes the inventory from the warehouse and makes the delivery. Once the delivery has been made, the driver confirms the quantity of inventory that was actually delivered to the customer. When he returns, he gives the dispatch note to Kirsten who then records the transaction in the sales journal. At the end of each week, she posts transactions from the sales journal to the accounts receivable sub-ledger. At the end of each month, Kirsten sends statements to all customers with outstanding account balances. Payments are required within 30 days. When a customer pays, Kirsten banks the money, posts the entry to the cash receipts journal and updates the accounts receivable ledger. If payments are not made within this time, Kirsten contacts the customer by phone and email to try and get them to pay. If payment still hasn't been made after 60 days, Kirsten writes off the debt. When the monthly bank statement is received, Kirsten reconciles it to the accounts receivable sub-ledger and corrects any errors by posting adjusting entries. Richard Shearer orders new raw coffee beans weekly based on discussion with Craig Fleming about which types of raw bean are experiencing low stock levels. When he receives invoices from suppliers, he checks the company's cash balance through an online banking app and, if there are sufficient funds, he makes the electronic payment to the suppliers through the app, writes up the payment in the cash payments journal and posts it to the accounts payable sub-ledger. When supplier statements are received, he reconciles them to the creditors account in the accounts payable sub-ledger and corrects any errors with adjusting entries.