QUESTION 3 (20 Marks)

ABCD is an accounting practice situated in Durban. You, a newly graduated auditor from Mancosa joined the company in 2023. After a 6-month induction process, your manager, Kenneth, requested you perform an audit engagement on JVC Holdings. JVC Holdings acceptable risk is 4%, and the inherent and control risk is 80% and 100% respectively. Kenneth would like you to present the audit risk model, detail the three (3) elements of audit risk and calculate and interpret the detection risk results of JVC Holdings. QUESTION 4 (20 Marks) Ballies Motor Corporation manufactures various models and types of motor vehicles which are sold to motor dealerships. Various manufacturing plants are in operation throughout the country. At each of these plants, various materials to be used in the manufacturing process are received daily. These goods arrive in large delivery vehicles and are received at a warehouse by a warehouse supervisor. The following specific activities take place at the warehouse:

1. Ms Mokuve the purchasing Manager signs a purchase order form (to confirm the materials to be ordered from the supplier) and sends a copy of the purchase order to the warehouse.

2. At the warehouse, an Inventory Clerk Owen Tallman receives the materials needed for production and issues a printed goods received note (as proof of receipt) to Claude the delivery man. The delivery man, Claude issues a delivery note which is signed by Shazia the warehouse Manager as proof of delivery / receipt of goods. The Warehouse manager, Shazia compares quantity received on the delivery note to the quantity received on the goods received note.

3. Store woman Sharne transfers the materials received to a storeroom and locks the storeroom.

4. Store woman Sharne is only responsible for the receipt of materials whereas Store woman Atasha is responsible for transferring these materials to the factory where production takes place.

5. At the end of every month, a physical stock count is performed at the warehouse to determine the number and value of materials on hand. REQUIRED

4.1 For each of the above activities that take place at the warehouse, identity the specific type of control activity. For each control activity, briefly describe a risk that is mitigated by the type of control activity. Your answer can be tabulated as the below example (10 marks)

Type of Control activity and Risk (tabulate)

4.2 Discuss the Limitations of Internal Controls. (10 marks)