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Homework answers / question archive / INTERNAL AUDITING 3 M1 INAD311 SEMESTER 1-2022 1 | P a g e FACULTY OF ACCOUNTING AND INFORMATICS DEPARTMENT OF AUDITING AND TAXATION ASSIGNMENT 2022 INSTRUCTIONAL PROGRAMME: DIIAU1 INSTRUCTIONAL OFFERING: INTERNAL AUDITING 3 M1 SUBJECT CODE: INAD311, IAUD314 DUE DATE: 02 MAY 2022 DURATION: TIME: 11:30AM - 12:00PM (HAND DELIVERED) TOTAL MARKS: 75 NUMBER OF PAGES: 5 (INCLUDING COVER PAGE) EXAMINER: MR M C SIYAYA MODERATOR: MR R MBANJWA CA (SA), RA ======================================================= INSTRUCTIONS/REQUIREMENTS:- [1] ANSWER ALL QUESTIONS ON A WORD DOCUMENT USING “TIMES NEW ROMAN FONT 12’’

INTERNAL AUDITING 3 M1 INAD311 SEMESTER 1-2022 1 | P a g e FACULTY OF ACCOUNTING AND INFORMATICS DEPARTMENT OF AUDITING AND TAXATION ASSIGNMENT 2022 INSTRUCTIONAL PROGRAMME: DIIAU1 INSTRUCTIONAL OFFERING: INTERNAL AUDITING 3 M1 SUBJECT CODE: INAD311, IAUD314 DUE DATE: 02 MAY 2022 DURATION: TIME: 11:30AM - 12:00PM (HAND DELIVERED) TOTAL MARKS: 75 NUMBER OF PAGES: 5 (INCLUDING COVER PAGE) EXAMINER: MR M C SIYAYA MODERATOR: MR R MBANJWA CA (SA), RA ======================================================= INSTRUCTIONS/REQUIREMENTS:- [1] ANSWER ALL QUESTIONS ON A WORD DOCUMENT USING “TIMES NEW ROMAN FONT 12’’

Accounting

INTERNAL AUDITING 3 M1 INAD311 SEMESTER 1-2022 1 | P a g e FACULTY OF ACCOUNTING AND INFORMATICS DEPARTMENT OF AUDITING AND TAXATION ASSIGNMENT 2022 INSTRUCTIONAL PROGRAMME: DIIAU1 INSTRUCTIONAL OFFERING: INTERNAL AUDITING 3 M1 SUBJECT CODE: INAD311, IAUD314 DUE DATE: 02 MAY 2022 DURATION: TIME: 11:30AM - 12:00PM (HAND DELIVERED) TOTAL MARKS: 75 NUMBER OF PAGES: 5 (INCLUDING COVER PAGE) EXAMINER: MR M C SIYAYA MODERATOR: MR R MBANJWA CA (SA), RA ======================================================= INSTRUCTIONS/REQUIREMENTS:- [1] ANSWER ALL QUESTIONS ON A WORD DOCUMENT USING “TIMES NEW ROMAN FONT 12’’. [2] ANSWER EACH QUESTION ON A SEPARATE PAGE. [3] PROVIDE APPROPRIATE REASONS TO SUPPORT YOUR RESPONSES [4] THE ASSIGNMENT MUST BE HAND DELIVERED ON SUBMISSION DATE TO THE SUBJECT LECTURER Cover page that consist of student details is compulsory on submission of this assignment INTERNAL AUDITING 3 M1 INAD311 SEMESTER 1-2022 2 | P a g e QUESTION 1 (30 marks) Maxiform (Pty) Ltd is a company that prints and distributes business forms, stationary and documents. Kevin Kwantas, the current managing director and majority shareholder registered the company about fifteen years ago. The company’s only other directors are the operations director and the marketing director. The company’s IT section consists of four employees each of whom has a good general understanding of computers including some knowledge of systems development and programming. The IT section was headed by Vicky January, but about a year ago he left to work for a large company as its IT manager. During his employment at Maxiform (Pty) Ltd, Vicky January developed all the existing accounting systems and wrote the software for the various cycles. He was also responsible for running the company’s local area network and had absolute control over all matters relating to computers. Claiming copyright for all the systems he has developed, he took all the systems documentation with him when he left and agreed to avail himself after hours to attend to any major problems Maxiform (Pty) Ltd might experience with their accounting systems. As a result of this arrangement, Maxiform (Pty) Ltd decided not to replace Vicky January. However, the fourth member of the IT department was appointed on the departure of Vicky January. The task of finding this person was left to the three other IT employees with the instruction from Vincent Oliver, the company accountant, that they should “get one of their friends to join the department.” Without an IT manager, the four employees in the computer section now report to the production manager who has a sound knowledge of the technical side of computing with regard to technical computer matters, (for example new equipment purchase and installation) and to Vincent Oliver who has little computer knowledge about matters relating to the accounting cycles (for example programme changes). Although the four IT employees report to the production manager and Vincent Oliver, they are not closely supervised by either, resulting in the IT staff generally managing their own time and activities. Kevin Kwantas pays little attention to the company’s computer needs as he has “more interesting things to do”. Maxiform (Pty) Ltd runs its accounting cycles on a local area network. Between 35 and 40 staff members are linked to the network to fulfil their functions relating to the accounting cycles, each with their own desktop computer. In addition there are a number of computers on the network located in a large office along with the network’s servers and printers (there are no printers in the various departments). This general office is not access controlled as staff members must be able to collect printed documents as required. All employees have access to the general office computers so that they can send e-mails and search the internet during their lunch breaks. Access to the network is controlled by the use of user identification and passwords. Employees are required to enter a departmental password (each department has its own password) to gain access to the applications used by their department; for example, the password to access the wages application is “payroll”. Once the INTERNAL AUDITING 3 M1 INAD311 SEMESTER 1-2022 3 | P a g e employee has accessed the application a further password may be required for some of the modules within the application, like the employee master file. REQUIRED Identify and discuss the internal control weaknesses in the general controls evident from the information provided. 30 Hint – Structure your answer according to the following headings ? Control environment ? Systems development and implementation controls ? Continuity of operations, and ? Access control SCENARIO PERTAINING TO QUESTIONS 2 AND 3 With the introduction of e-learning and the problems associated with the increase of international providers of online tertiary education, especially with regard to the lack of accreditation and recognition by South African employers, the founders and owners of the Virtual Open University (Pty) Ltd, trading as Virtual Open University (VOU), have realised that there was a gap in the market for the development and delivery of an educational product, customised to the needs of the South African market. In 1998, the VOU was established as a privately owned virtual university, operating from the Western Cape. The founders of the university were all previously employed as professors at other South African universities. Their functional disciplines were in a variety of businessrelated areas, including marketing, information technology, accounting, organisational development, strategic management and operations management, and they have come to be regarded as experts in their respective fields. After receiving the necessary accreditation from the Department of Education (DoE), VOU commenced operating as a university in 2000, delivering its product offerings to interested students. QUESTION 2 (15 marks) Refer to the given scenario and the following information, to answer this question. When the VOU was originally established, the relatively small student numbers and the need to drive the operational plan actively meant that the founding directors were extensively involved in all areas of the business as well as in establishing and embedding the systems, procedures and controls. As the business volumes started to grow, specialist support staff was employed to administer and operate the systems. Therefore, despite still being involved at a high level, much of the directors’ former administrative and management responsibilities have now been delegated to employees. However, the new resourcing plan did not result in changes to procedures INTERNAL AUDITING 3 M1 INAD311 SEMESTER 1-2022 4 | P a g e and controls. The existing systems were merely adapted to accommodate the additional staff. Realising that this is not an ideal situation and that systems, procedures and controls may no longer support optimal performance, the board has requested the internal audit department to conduct an audit on the performance of the strategic administrative systems of VOU. As the Chief Audit Executive (CAE) of VOU, you have decided to perform an operational audit, with the first phase of this audit focusing on the overall functioning of the administrative activities of VOU. REQUIRED 2.1. In your own words, clearly distinguish between the operational auditing concepts of economy, efficiency and effectiveness. (6) 2.2. For each of the concepts described in 2.1, identify three (3) audit objectives that will guide the auditors in performing the operational audit on the overall functioning of the administrative activities within VOU. (9) QUESTION 3 (30 marks) Read the scenario on page 3 as well as the following information to answer question 3. All student registrations are processed on the student system, which is integrated into the student fees system. At the end of each month, an automated program is run which accumulates the relevant subject fees from the integrated student system for all student registrations during that month. Prior to implementation, the integration of the student system and the student fees system and the transfer of data between the two systems were extensively tested, with no errors being noted. The registration fees for all subjects offered by VOU are the same, namely, R5 000 each. In other words, where a student registers for five subjects, the student fee for that student will be R25 000 for the year. As part of the registration process, each student must either present a valid credit card, or provide credit card details to guarantee payment, or complete a credit application form. The credit application form must be signed either by themselves, their parents, sponsors or employers (whoever will be responsible for payment of the account). After approval and finalisation of a student’s registration on the student system, that student’s information is automatically transferred to the integrated financial system. Based on the student registration information, including the cost of the respective subjects, the financial system automatically performs a credit rating on each registration. Where the credit scoring yields a positive result, the financial system automatically credits the student fee income account and debits the individual student fee debtors account. Where the credit application is rejected, the potential student is requested to provide additional information/documentation and/or guarantees. INTERNAL AUDITING 3 M1 INAD311 SEMESTER 1-2022 5 | P a g e After processing the registration application, each student’s file is sent to the student fee accounts department. On a weekly basis, the student fee manager reviews all student fee accounts that have passed the initial credit rating and provisionally approves the student’s registration. In addition, all rejected applications are also reviewed against the additional documentation (where provided), also on a weekly basis. Based on the review of rejected credit applications, the student fee manager may override the previously rejected application by entering his or her unique user identification and password. Monthly statements reflecting student indebtedness are sent to all students with outstanding fees. A letter of demand is sent to all students with accounts outstanding for more than 60 days. A final letter of demand is sent to all students with accounts outstanding for more than 90 days. Accounts outstanding for more than 180 days are handed over to the university’s attorneys for collection. In terms of VOU’s credit policy, all accounts settled in full within 30 days of registration will attract no interest. Thereafter, any accounts that are outstanding will attract interest calculated at prime plus 5%. Accounts outstanding for more than 180 days (that have been handed over to the attorneys) will attract penalty interest of an additional 5% as well as the direct costs of any legal fees. At the end of each month, the student fee manager reviews the aging of the student fee debtors’ accounts and determines whether the relevant sections of the policy have been applied consistently. The student fee manager considers the motivation for any exceptions to the established credit policy accounts before approving or rejecting the deviation. At the end of each month, the director of students reviews and approves all changes to the subject price master file. Despite the revenue growth, one of the most significant operational risks identified by the board of directors has been the recent increase in the value of both the student fee debtor’s accounts and potential bad debts, and student fee bad debts. As a result, you have been requested to conduct an audit on revenue and accounts receivable. REQUIRED 3.1. Identify and explain two (2) audit assertions that will be tested in a financial audit at the end of the accounting period under review for each of the following: ? Revenue account total (3) ? Receipts account total (3) ? Accounts receivable balance (3) 3.2. Clearly describe six (7) analytical review procedures that could be performed to assess the reasonableness of the student fee revenue recorded for the current year. (7) 3.3. Describe fourteen (14) audit procedures where generalised audit software (GAS) can be used to audit VOU’s accounts receivable balance at a given date. (14)

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