Background information You are the audit senior with Rogers & Brown and you have been approached to undertake the audit of Reliable Printers Ltd (RPL) for the year ended 30 June 2015, taking over from the small audit firm of Jones & Associates. RPL prints books, magazines and advertising material for the publishing, educational and advertising industries on a print-on-demand basis. Printing on demand means that publishers can print the exact quantities ordered by retail outlets, rather than estimating in advance how many books are required and often printing too few or too many. The average print turnaround time for RPL is two business days for small orders and five to ten business days for large orders. In addition, four years ago, RPL further expanded its earnings base by having pub- lisher's titles available as searchable 'e-books' that could be downloaded directly by readers from RPL's web site. Purchases and inventory Question 07 Marks 3.0 As part of your audit of RPL for the year ended 30 June 2018, you are reviewing internal controls over RPL's print- on-demand business. Classify the following control activities as a manual control, an IT application control or an IT general control. 1. The digital library is backed up daily, with the backup tapes kept off site 2. The accounting system automatically stops the order for any publishers who have exceeded their credit terms and limits 3. When an order exceeds the credit limit, an authorisation from both the heads of publishing and accounts is required for the transaction to proceed 4. The accounts receivable clerk checks the prices and arithmetic accuracy of the invoices and signs the invoice as evidence of her check 5. The cashier then reconciles the total of the batch postings to accounts receivable to the amount banked for the day 6. The assistant accountant prepares a bank reconciliation each month 7. segregation of duties between accounts receivable and cash handling functions b Based on the background information, identify and explain two key internal control weaknesses where control activities should be present in order to prevent material misstatements being undetected and/or uncorrected, but are not present. C For each control weakness identified in b, identify one key account balance at risk and explain why it is at risk. For each account balance identified in c, identify one key assertion that may be at risk. 0 Background information You are the audit senior with Rogers & Brown and you have been approached to undertake the audit of Reliable Printers Ltd (RPL) for the year ended 30 June 2015, taking over from the small audit firm of Jones & Associates. RPL prints books, magazines and advertising material for the publishing, educational and advertising industries on a print-on-demand basis. Printing on demand means that publishers can print the exact quantities ordered by retail outlets, rather than estimating in advance how many books are required and often printing too few or too many. The average print turnaround time for RPL is two business days for small orders and five to ten business days for large orders. In addition, four years ago, RPL further expanded its earnings base by having pub- lisher's titles available as searchable 'e-books' that could be downloaded directly by readers from RPL's web site. Purchases and inventory Question 07 Marks 3.0 As part of your audit of RPL for the year ended 30 June 2018, you are reviewing internal controls over RPL's print- on-demand business. Classify the following control activities as a manual control, an IT application control or an IT general control. 1. The digital library is backed up daily, with the backup tapes kept off site 2. The accounting system automatically stops the order for any publishers who have exceeded their credit terms and limits 3. When an order exceeds the credit limit, an authorisation from both the heads of publishing and accounts is required for the transaction to proceed 4. The accounts receivable clerk checks the prices and arithmetic accuracy of the invoices and signs the invoice as evidence of her check 5. The cashier then reconciles the total of the batch postings to accounts receivable to the amount banked for the day 6. The assistant accountant prepares a bank reconciliation each month 7. segregation of duties between accounts receivable and cash handling functions b Based on the background information, identify and explain two key internal control weaknesses where control activities should be present in order to prevent material misstatements being undetected and/or uncorrected, but are not present. C For each control weakness identified in b, identify one key account balance at risk and explain why it is at risk. For each account balance identified in c, identify one key assertion that may be at risk. 0
