Creditors When suppliers have changes in payment terms or any other details, a Masterfile amendment form is completed. A Masterfile amendment form is also completed for new suppliers added to the company's suppliers list. The Masterfile amendment form is completed by the Purchases Manager, and the details contained on the form are recorded on Zero (Accounting Software). Zero allocates an account number to the supplier and the account number is recorded on the supplier Masterfile amendment form. The supplier Masterfile amendment form contains, amongst others, the following information: - Payment terms; - Supplier/company name and key contact person's name and surname; - Business address and delivery address; - Contact information; and - Banking details. Orders are placed by and entered into Zero by the Purchases Manager. When the goods have been delivered by the suppliers, checked for damages, and checked against the supplier's delivery note, the details of the goods received are then entered into Zero, which automatically matches the information with the details of the order in Zero. The suppliers' invoices and monthly statements are scanned into Zero by the Creditors Clerk, by taking a photo of the invoices and monthly statements. An artificial intelligence system reads the invoices and monthly statements and then converts them to machine-readable text. The Creditors Clerk compares the invoices and monthly statements with the captured data before he accepts the transaction to be processed. Creditors' reconciliations are performed on a monthly basis. In order to ensure proper security and control around payments, payments are made by means of cheques. 4 HCGA232-1-Jan-June2023-SA1-MS-V2-21102022 QUESTION 2 (60 marks) You are the Audit Senior in charge of the audit of Pixel Clothing (Pty) Ltd (Pixel). Pixel has a February year-end and you are currently busy with the audit for 28 February 2023. Pixel manufactures clothing and sells directly to retail stores and customers. Pixel also has an online platform, which retailers and customers can make use of when ordering via the internet. The clothes that they manufacture are mainly purchased by teenagers. Pixel has three inventory warehouses which are located in Durban, Cape Town and East London. The Head Office is located in Blackheath, Cape Town. Inventory Pixel's inventory, in accordance with IAS 2 Inventories, is shown at the lower of cost price and net realisable value. The following information, in respect of each clothing item sold by Pixel, is maintained in the Inventory Masterfile: - Bar code - Description of the inventory item - Quantity of items on hand - Unit cost price - Selling price (if applicable) - Total cost of the inventory item - Date of last purchase - Date of the last sale - Number of items sold year to date - Location where items are kept (warehouse and shelf number, as applicable) 5 HCGA232-1-Jan-June2023-SA1-MS-V2-21102022 Creditors When suppliers have changes in payment terms or any other details, a Masterfile technology (IT) system as a result of frequent power cuts. Live data as well as backedup data was lost. During one of these power outages, it was suspected that an employee hacked into the IT system and gained unauthorised access to some company information. He made unauthorised changes to the employee/supplier Masterfile such as changes to salary rates and adding his own banking details to certain supplier profiles. The Chief Information Officer (CIO) immediately investigated the security breach. His proposal to appoint an external IT company to administer Pixel's IT system was accepted and implemented by the Board. 7 HCGA232-1-Jan-June2023-SA1-MS-V2-21102022 REQUIRED: 2.1 Discuss how you as the external auditor of Pixel, would utilise the computer to confirm the accuracy and valuation of the inventory items. (15 marks) 2.2 Describe how you could use computer-assisted audit techniques (CAATS) to identify possible irregular payments made to creditors. (15 marks) 2.3 Identify the risks that Pixel will be exposed to when they convert their current manual payment process to an electronic fund transfers (EFT) module. (10 marks) 2.4 Describe the general and application controls that Pixel should implement over the employee/supplier Masterfile to prevent incidents of unauthorised changes as mentioned in the scenario. (20 marks) Electronic fund transfer Pixel intends to use the electronic fund transfer (EFT) module of the system instead of the manual payment process that is currently in use. The EFT module will place reliance on intelligent technology which will decide when payments are made. The information in the system will be integrated with the bank's electronic fund transfer software in order to allow the bank's system to be updated via an internet connection. If the company decides to proceed with this option, a proper feasibility study will be performed before the implementation can take place. Specialist consultants from the bank will be contracted to write the software program which will integrate the system with the bank's software according to the company's specific needs. The Specialist consultants will also be responsible for the testing of the EFT module. The Specialist consultants are the only persons with the necessary knowledge to perform the conversion. The management of Pixel realises that there will be business risks related to the fact that the company will be connected to the bank and the internet. They are willing to carry the risk but are unsure of whether there are any other risks that they should consider. Load shedding South Africa experienced severe disruptions in power due to the load shedding implemented by Eskom during the 2023 financial year. Management expressed their concern regarding information lost due to damage that occurred to the information technology (IT) system as a result of frequent power cuts. Live data as well as backedup data was lost. During one of these power outages, it was suspected that an employee hacked into the IT system and gained unauthorised access to some company information. He made unauthorised changes to the employee/supplier Masterfile such as changes to salary rates and adding his own banking details to certain supplier profiles. The Chief Information Officer (CIO) immediately investigated the security breach. His proposal to appoint an external IT company to administer Pixel's IT system was accepted and implemented by the Board