1. Your new client, Aurelia PLC, has a comprised accounting system for all financial statement cycles. During planning, you visited with the Information Systems vice president and learned that personnel in Information Systems are assigned to one of four departments: system programming, applications programming, operations, or data control. Job tasks are specific to the individual and no responsibilities overlap with other departments. Hardwood Lumber relies on the operating system software to restrict online access to individuals. The operating system allows an employee with READ capabilities to only view the contents of the program or file. CHANGE allows the employee to update the contents of the program or file. RUN allows the employee to use a program to process data. Programmers, both systems and applications, are restricted to a READ- only access to all live application software program files but have READ and CHANGE capabilities for test copies of those software program files. Operators have READ and RUN capabilities for live application programs. Data control clerks have CHANGE access to data files only and no access to software program files. The person in charge of operations maintains access to the operating software security features is responsible for assigning access rights to individuals. The computer room is locked and requires a card-key to access the room. Only operations staff has a card-key to access the room. Security cameras monitor access to the room. A TV screen is in the Information Systems vice-presidents office to allow periodic monitoring access. The TV presents the live picture and no tape record is maintained. The librarian, who is in the operations department, is responsible for maintaining the library of program tapes and files. The files, when not being used, are stored in shelves located in a room adjacent to the computer room. They are filed numerically based on the tape label physically attached on the outside of tape cartridge to allow for easy identification by operators as they access tapes from the shelves for processing.

Required What recommendations for change can you suggest to improve Aurelias Information Systems function? (15 marks)

2. a. What is internal control? Why is an auditor interested in a clients internal control? (5 marks).

b. If an auditor does not intend to rely on internal controls in the audit, does the auditor need to obtain an understanding of the clients internal control? Explain. (5 marks).

c. Understanding client controls

Abbott & Partners audit firm has audited Pretty Valley Shire council for two years, performing both a statutory audit of the financial reports and a compliance audit for the government department in charge of local councils landfill waste disposal sites. In all previous control testing, no exceptions were detected. The junior auditor on the engagement has suggested that no work on internal controls is required because last years evidence will be sufficient.

Required: Explain why the junior auditors suggestion is not appropriate. (5 marks)