Governance and internal controls

The daughter of the operations director of All Things Nice, Mr Hooper, is a third$-$year registered candidate auditor at FMS$.$ She has been included as part of the audit team responsible for the audit of All Things Nice and she documented the following internal controls All Things Nice designed and implemented during the current financial year ended $30$ June $2023$:

C$1$: All orders received are recorded on sequentially pre$-$numbered order forms. Orders delivered are matched with these order forms and any order forms not matched with a delivery note are followed up by the salesclerk.

C$2$: All Things Nice order their materials from approved suppliers. Before an order is placed with a supplier, the order clerk prepares an order form that must be authorised by the supervisor.

C$3$: The accountant reconciles monthly bank statements to the bank account in the general ledger and the financial manager reviews the reconciliation to identify any unusual reconciling items.

$2.$ With reference to the information under governance and internal

controls:

$2\mathrm{.}1$ Discuss in terms of the requirements of the Companies Act whether FMS

may have been re$-$appointed as the auditors to audit the financial

statements of All Things Nice for the year ended $30$ June $2023.(3)$

$2\mathrm{.}2$ Indicate whether All Things Nice needs to appoint an audit committee in

terms of the Companies Act. $(3)$

$2\mathrm{.}3$ For the controls C$1$ to C$3$ implemented by All Things Nice:

$2\mathrm{.}3\mathrm{.}1$ Describe the objective of the control implemented. $(4(1)/(2))$

$2\mathrm{.}3\mathrm{.}2$ Indicate whether each of the controls constitutes a preventive, detective, or corrective control. $(4(1)/(2))$

$2\mathrm{.}3\mathrm{.}3$ List the component of the system of internal control these controls

represent. $(1(1)/(2))$

$2\mathrm{.}4$ List four limitations of internal control. $(4)$

$2\mathrm{.}5$ The controls designed and implemented by All Things Nice are all operated effectively throughout the financial year ended $30$ June $2023.$

$2\mathrm{.}5\mathrm{.}1$ Indicate whether you would classify the control risk for the audit to be low or high. $(1(1)/(2))$

$2\mathrm{.}5\mathrm{.}2$ If the auditor FMS classified the inherent risk for the audit of All Things Nice as low, what should the detection risk be considering your answer in $2\mathrm{.}5\mathrm{.}1$

Provide an explanation for your answer. $(3)$

$3.$ With reference to the information under governance and internal

controls:

$3\mathrm{.}1\mathrm{.}1$ Identify one type of threat to the fundamental principles in terms of the SAICA Code of Professional Conduct pertaining to the inclusion of

Mr Hooper$$s daughter in the audit team responsible for the audit of All

Things Nice. $(1(1)/(2))$

$3\mathrm{.}1\mathrm{.}2$ Explain why this is a threat in terms of the SAICA Code of Professional

Conduct. $(1(1)/(2))$

$3\mathrm{.}1\mathrm{.}3$ Identify the fundamental principle affected by the threat in terms of the SAICA Code of Professional Conduct. $(1(1)/(2))$

$3\mathrm{.}1\mathrm{.}4$ List a possible safeguard to eliminate or reduce the threat to an

acceptable level. $(1(1)/(2))$