Company A is in the manufacturing business and is supplying carton boxes for packaging, storage and transportation purposes to many industries. The goods manufactured for sale are made from recycled and sustainable fibre which are biodegradable.

During the audit, your team made the following observations:

Observation 1 - Pre-signed blank cheques 2 weeks before the end of year, the CEO will pre-sign three blank cheques to pay for urgent bills before he goes off for his annual leave. Every cheque requires two authorised signatories. The Finance Manager keeps these three blank cheques in her locked drawer. She will only complete the date, payee information and dollar amount on the cheque, and signs off as the second authorised signatory when the cheque is utilised.

Qn1: Analyse the scenario in Observation 1 and answer the questions below: (i) Discuss the appropriate type of audit tests that resulted in the auditors observation on the practice of pre-signed blank cheque. (10 marks)

(ii) Relate one (1) material risk, one (1) potential weakness in internal control and one (1) financial statement assertion at the highest risk of misstatement. (10 marks)

(iii) Appraise if bank reconciliation as at 31 December 2020 would have been an effective control to justify the client continuing this practice. (16 marks)

(iv) Discuss one (1) alternative control if bank reconciliation is not effective. (4 marks)