1 (40 marks) Read the information on "Modern Furniture Manufacturing Ltd.". Modern Furniture Manufacturing Ltd. Modern Furniture Manufacturing Ltd. (Modern), a private company, is a manufacturer of contemporary home furniture. They have been in business for over 35 years and they sell to a wide variety of customers including large and small furniture retailers across the country. The company's year-end is 31 May 2021. The company has a large manufacturing plant in Dongguan, four large warehouses in the Guangdong province as well as a head office in Hong Kong. Once the furniture has been manufactured, they are stored in one of the warehouses until they are dispatched to customers. The company does not have an internal audit department. During the current year, the company has computerized its sales system which is described below. Sales ordering, goods dispatched and invoicing Each customer has a unique customer account number and this is used to enter sales orders when they are received in writing from customers. The orders are entered by an order clerk and the system automatically checks that the goods are available and that the order will not take the customer over their credit limit. For new customers, a sales manager completes a credit application; this is checked through a credit agency and a credit limit entered into the system by the credit controller. The company has a price list, which is updated twice a year. Larger customers are entitled to a discount; this is agreed by the sales director and set up within the customer master file. Once the order is entered an acceptance is automatically sent to the customer by mail/email confirming the goods ordered and a likely dispatch date. The order is then sorted by address of customer. The warehouse closest to the customer receives the order electronically and a dispatch list and sequentially numbered goods dispatch notes (GDNs) are automatically generated. The warehouse team packs the goods from the dispatch list and, before they are sent out, a second member of the team double checks the dispatch list to the GDN, which accompanies the goods. Once dispatched, a copy of the GDN is sent to the accounts team at head office and a sequentially numbered sales invoice is raised and checked to the GDN. Periodically a computer sequence check is performed for any missing sales invoice numbers. ACT B417F (2100) Page 2 of 4 Answer the following questions. (a) As the manager in charge of the audit, elaborate on any additional steps you need to take during the audit planning process relating to the fact that it is now a computerized system. (b) Design five (5) tests of controls that auditors would normally carry out on the sales process of Modern Furniture Manufacturing Ltd. For each test of control, state the management assertion that relates to the internal control. At least three of these tests of controls that you designed must use computer assisted auditing techniques (CAATS). Use the following format: (c) (d) Test of control Management Assertion As the manager in charge of the audit, you are considering sending audit staff to attend the client's inventory counts in the manufacturing plant in Dongguan and the warehouses in Guangzhou. Describe four purposes of attending these inventory counts. The management of Modern has asked you about Audit Committees. Discuss the role, function and composition of Audit Committees and recommend to the management of Modern whether they should set up an Audit Committee. (6 marks) (18 marks) (8 marks) (8 marks) Question 2 (30 marks) Joe Leung, CPA, is auditing Louie's Wholesalers Ltd. (Louie)'s financial statements and is about to perform substantive audit procedures on Louie's Wholesalers Ltd.'s trade accounts payable balances. After obtaining an understanding of Louie's internal controls the maximum Joe for th