QUESTION 20

Following a competitive tender, your audit firm Calvin & Co has just gained a new audit client Tyrol Co. You are the manager in charge of planning the audit work. Tyrol Co's year end is 30 June 2021 with a scheduled date to complete the audit of 15 August 2021. The date now is 3 June 2021.

Tyrol Co provides repair services to motor vehicles from 25 different locations. All inventory, sales and purchasing systems are computerised, with each location maintaining its own computer system. The software in each location is the same because the programs were written specifically for Tyrol Co by a reputable software house. Data from each location is amalgamated on a monthly basis at Tyrol Co's head office to produce management and financial accounts.

You are currently planning your audit approach for Tyrol Co. One option being considered is to re-write Calvin & Co's audit software to interrogate the computerised inventory systems in each location of Tyrol Co (except for head office) as part of inventory valuation testing. However, you have also been informed that any computer testing will have to be on a live basis and you are aware that July is a major holiday period for your audit firm.

Required:

a)Explain the benefits of using audit software in the audit of Tyrol Co; [4 marks]

b)Explain the problems that may be encountered in the audit of Tyrol Co and for each problem, explain how that problem could be overcome.[10 marks]

c)Following a discussion with the management at Tyrol Co you now understand that the internal audit department are prepared to assist with the statutory audit. Specifically, the chief internal auditor is prepared to provide you with documentation on the computerised inventory systems at Tyrol Co. The documentation provides details of the software and shows diagrammatically how transactions are processed through the inventory system. This documentation can be used to significantly decrease the time needed to understand the computer systems and enable audit software to be written for this year's audit.

Required:

i)Explain how you will evaluate the computer systems documentation produced by the internal audit department in order to place reliance on it during your audit. [6 marks]

ii)Contrast the role of internal and external auditors.[5 marks]

[Total: 25 Marks]