CASE 1 (20 MARKS) Little Lye Sdn Bhd, a registered health facility company, provides health care services for minor health-related issues. Azhar Chartered Accountancy firm has been engaged to examine the financial statement of Little Lye Sdn Bhd for the year ended 30 November 2020. For the final audit, Azhar's senior audit manager requested the internal control documentation related to the payment and receipt system from the Head of the Internal Audit Department (IAD) of Little Lye Sdn Bhd. The review of Little Lye Sdn Bhd's internal control documentation by the Senior Audit Manager revealed that the company's purchasing department is responsible for ordering all the medical equipment, drugs, and other health accessories for all the three departments of the health facility. Purchase orders are paid by bank transfer to the vendor's bank account. The Finance Director has the mandate to authorise the payment list's total amount at the payment date. Similarly, each department has an imprest account of RM10,000, which is held in cash and kept safe for the purchase of sundry items. The company's policy requirements for sundry items are that employees request funds from their respective Heads of the Department to purchase sundry items, return excess money release to purchase sundry items, and provide a receipt for all sundry expenses. Expectantly, the sum in the imprest account and the receipt should equal the float amount of RM10,000. Though in some cases, the IAD noted discrepancies in the book balance and the float amount. Concerning revenue (receipt), each of the department has cash till for receiving patients' payments. Patients of Little Lye Sdn Bhd can pay either in cash or using their credit card. Each department has one account clerk that maintains the revenue that comes into the department. The accounting clerk raises sales invoices, process payment, and receives payment upon receiving an advice note from the employee that provides the service. The design of the sales system is such that the system automatically generates the bill for each patient. The head of departments close the tills at the close of work each day and record and perform the reconciliation of cash receipt and credit card voucher with the total daily reading of revenue receipt generated from the till. A significant portion of Little Lye Sdn Bhd patient uses cash as a medium of payment. The head of each department keeps all cash receipt in a password locked safe. The password of the safe is only known to the departmental heads. Cash collected over while is transferred to bank via a security company who will then issue a receipt for all the sum received. The frequency and amount limit to call the security company for cash transfer is at the departmental heads' discretion. Three days after each transaction initiation, the credit card company remits all credit card transactions directly into Little Lye Sdn Bhd's bank account. Each department cashier keeps and updates the cash book with the cash banked and the credit card vouchers' details from the daily sales sheets. Every two months, the departmental cashier reconciles the bank statement to the cash book. The Financial Controller reviews the reconciliation done by the departmental cashier and signs the statement. REQUIRED (a) As a Senior Audit Manager and Reviewer of Azhar Chartered Accountants, you are responsible to explain FOUR (4) internal control deficiencies in the Little Lye Sdn Bhd cash and payment system. (8 Marks) (b) Recommend FOUR (4) possible controls to resolve the identified internal control deficiencies based on your answer in (a). (8 Marks) (c) Explain TWO (2) audit objectives of cash. (4 Marks) CASE 2 (10 MARKS) Bee Kay & Co has been appointed as an auditor of Syarikat Elektrik Fudu for the year ended 31 October 2020. During the year, Syarikat Elektrik Fudu obtained a long-term loan amounted RM35 millions from Glory Bank with the following financing agreement: 1. The loan was secured by a fixed charge over two pieces of land and buildings of the company located in Alor Setar. 2. Monthly installment rate of 5% started from 1 February 2020. The loan secured was used to expand the business. Syarikat Elektrik Fudu has increased the number of staff from 100 to 130 staff for the purpose of business expansion. During the planning process, Bee Kay & Co determined that the inherent risk of overstatement of payroll might be high as compared to prior financial year. REQUIRED: (a) Explain THREE (3) procedures that Bee Kay should employ in examining the long-term loan from Glory Bank. (6 Marks) (b) Describe TWO (2) audit procedures to be performed in the audit of payroll transactions in addressing the risk of overstatement. (4 Marks) CASE 3 (20 MARKS) P2S Automotive Centre is an authorized Perodua service and spare parts centre that specializing in vehicle maintenance, repairs and car parts and accessories supplier for all types of Perodua vehicles (including Alza, Myvi, Viva, Kelisa, Kenari, Kembara, Kancil, Nautica, Rusa and Bezza). It also assists in warranty claims for Perodua vehicles that is covered under the warranty period. P2S Automotive Centre has a dedicated team of service advisors, foreman and mechanics to ensure their customers vehicles are taken care of. It started its operations in 2015 and currently uses stand-alone or unrelated software applications to manage its business processes. The business processes include procurement, inventory management and control, accounts, clients, human resource and monitoring. As to effectively manage its customer base and business grow, automation and digitalization will be the way forward for P2S Automotive Centre. The concepts like internet of things (IoT), automation, artificial intelligent and digitalization will become extremely relevant going forward and are going to define the new way of working. This is essential for achieving business sustainability, to reduce dependence on human labour, increase productivity and preventing the chances of future centre shutdowns. In addition, the coronavirus pandemic has accelerated and become a wake-up call for P2S Automotive Centre in considering whether an enterprise-wide system is a suitable replacement of all the unrelated software applications. As a Specialist Information Technology Internal Auditor for P2S Automotive Centre, you have received the following e-mail from the Chief Internal Auditor. From: Che Johan: Wednesday 02/02/2020 09:15 To: Badrul Hisham Subject: Urgent Automation and Digitalization of Business Processes Assalamualaikum and Good Day Badrul, The top management of P2S Automotive Centre has asked me to deliver a session on auditing (with focus on IT auditing) to a group of new graduate trainees as part of their week-long induction into the company. The scheduled date is on Friday, 14 February 2020 at P2S meeting room at 10.00 am. I am guessing I was not first choice on the list! Still, I am hoping to arrange a 6-month placement for at least two of the trainees with us in IT Audit, so it will be good to meet them and give over a positive view of what our IT Audit unit do here. I hear anecdotally that IT Audit is very challenging, not suitable for accounting students and solely for information system and IT-related graduate only. I would like to think we can go some way to changing this rather unfair view. Unfortunately, I cannot be there on Friday and you as the head of IT Audit unit will be the best person to substitute me. On the other hand, concerning the amendment to the paperwork on the automation and digitalization of business processes in P2S Automotive Centre, the management has approved the additional budget for automation of its operations using an off-the-shelf package. Recently, during the preliminary Software Development Lifecycle (SDLC) meeting on the 1 February 2020, a number of defects and problems were identified with the software. The local agents of the software providers need to be invited immediately for a discussion and solution of the defects and problems. The management of P2S Automotive Centre directed that to save time, the agents should quickly address and prepare a comprehensive plan to fix the problems on their own prior to the next meeting with our team. It is critical for enabling the normal operations to be continued smoothly, efficiently and effectively achieve it desired objectives. You must ensure that only after the agents reported they had completed their job and perform all required tests, then the next SDLC process can be resumed as planned, so that we can avoid any software issues in the future. See you in the next meeting. Regards, Che Johan

REQUIRED: Prepare presentation notes on the following areas: (a) Discuss THREE (3) inherent risks to the operation of IT systems. (6 Marks) (b) Explain TWO (2) advantages of an 'enterprise-wide' system. (2 Marks) (c) Explain THREE (3) difficulties associated with using embedded audit software as part of the audit process. (6 Marks) (d) Give advice to the management of P2S Automotive Centre on the THREE (3) best ways how software defects and problems should be handled in future. (6 Marks)