Question 2 (40 marks)
You are the audit senior on the Woodhouse Pty Ltd (Woodhouse) audit. Woodhouse manufactures a wide range of industrial chemical products. You have made the following notes on the Woodhouse sales system.
1. Orders are received at the sales order department by telephone, mail or fax or via a sales representative. The data-entry clerks key in the order via the terminals located in that department.
2. Orders are subject to various edit checks on the terminal. Orders that satisfy all edit criteria result in the production of a picking slip that lists the goods ordered. Orders that satisfy all edit criteria except the credit limit test are recorded on a file for review by the credit control clerk for his disposition. Orders that fail any of the other edit criteria are not accepted by the system. Rejected orders are noted by the data entry clerk and passed to the department’s supervisor for investigation.
3. Picking slips are printed in the dispatch office and then forwarded to the warehouse by the dispatch supervisor. A store person in the warehouse picks and assembles the orders. If goods are not in stock the store person alters the picking slip quantity to reflect actual goods picked. The store person then initials the picking slip prior to forwarding it together with the goods to dispatch.
4. Via a terminal located in dispatch, the dispatch clerk agrees the picking slip to physical goods picked, making adjustments for any stock-outs, before printing the invoice.
5. The dispatch supervisor agrees the details of the goods invoiced to the picking slip. The supervisor then initials a copy of the invoice before forwarding it to the accounts department.
6. Two copies of the invoice are sent with the goods. One copy of the invoice serves as a delivery docket, endorsed by the customer on delivery and returned to dispatch by the delivery driver.
7. At the end of the day, the accounts receivable master file and subsidiary ledgers are updated.
Please use a table format to answer the following:
a) Identity and describe ten key controls for Woodhouse Ltd (note some points could contain more than one control). (5 marks)
b) Explain the purpose of each control identified in (a). (10 marks)
c) Identify and explain any strengths and weaknesses in the internal controls identified in (a). (10 marks)
d) Indicate the accounts balances and assertions each control will effect in the financial report. (10 marks)
e) Provide an example of one procedure that could be used to test for each of the controls (note if the procedure is lacking in detail no mark will be awarded). (5 marks)
Suggested table format (to be completed in landscape)
|Control Strengths & Weaknesses|
|Key Control & details||Control purpose||Strength||Weakness||Account(s) affected: Assertion(s):||Tests of control|