QUESTION 1 (30 Marks) You are a member of the team engaged on the audit of Emilda Part (Pty) which sells second hand motor spares and accessories. The company purchases its inventory from two sources, namely scrap yards and manufacturers of car spares and accessories, who sell their production overruns and slightly damaged inventory items to Emilda Part (Pty) Ltd. You have been assigned to the year-end audit of the acquisitions and payments cycle and have ascertained, inter alia, the following information. 1. One of the major business risks faced by Emilda Part (Pty) Ltd is that the company may purchase parts and accessories which have been stolen from manufacturers, or which come from stolen or hijacked vehicles. To counter this, the company carries out a comprehensive investigation into their suppliers before conducting business with them. The company's accounting systems are fully computerised (they are run on a local area network (LAN) which links all departments/sections) and once a supplier has been approved, it is entered on the "approved supplier Masterfile". The financial controller, Bernard Bunz, has emphasised the importance of dealing only with approved suppliers, and maintaining detailed supporting documentation for all purchases, due to the widespread dishonesty and criminal activity in the trade. 2. No Inventory is purchased without an official printed order. Order forms are computer generated and cannot be created for a supplier not on the approved supplier Masterfile. Orders are initiated on the strength of a signed requisition sent to buying department by the warehouse manager. Note: Suppliers, both scrap yards and manufacturers, regularly contact the warehouse manager to notify him of availability of second-hand parts, overruns or damaged items. If the warehouse manager considers the item should be ordered, he negotiates the price which he then enters, with other details, on the requisition. Controls over the ordering function, both manual and computerised, are sound. 3. All deliveries from suppliers are routed to a physically secure Deliveries Bay for the unloading and receiving of goods. The three receiving clerks make use of a single terminal in the aby which is linked to LAN. As goods delivered are mostly second hand or slightly damaged, receiving clerks do not perform quality checks on deliveries, All deliveries are sent with a computer generated copy of the goods received note, to the "Quality Check and Reconditioning" section where all items purchased are put into saleable condition, e.g. cleaned, rubber seals etc replaced, tested and repackaged. From this section they are moved into the warehouse, where they are stored by part number, description etc. (Any items which are "damaged beyond repair" are returned to the supplier). 4. Hard copy of all documentation is sent to, or printed out in, the accounting department where it is matched and filed temporarily to await the supplier's invoice. The necessary checks are carried out before the purchase journal is written up. The supporting documentation is then filed alphabetically by supplier. At an interim audit conducted earlier in the year, you had extracted a sample of purchase transactions for detailed testing. Although these tests had proved satisfactory, you decided to extract a small sample of purchase transactions from the purchase journal for the month of April (financial year-end 30 April) on which to perform detailed procedures. One of the purchase transactions selected, and for you obtained the supporting documentation was: Creditor: Ximex (Pty) Ltd :Amount: R97620.20 REQUIRED: - Explain why there is increased risk of unauthorised access to data and programmes in a networked environment (e.g. Emilda (Pty) Ltd's local area network). (5 marks) - State the controls which should be in place at Emilda (Pty) Ltd to ensure that additions to the "approved supplier masterfile" are valid, accurate and complete. (Do not concern yourself with controls or procedures to approve suppliers) (15 marks) - Discuss the manual and programmed (automated) application controls which you would expect to be in place for the receiving of deliveries from suppliers (10 marks)