Question 3 Topic 5 & 6 Controls and tests of control (10 marks)

You are a trainee auditor and your team leader, Will, provides you with practical personal development challenges. Will has emailed you the following internal controls that were tested in prior audits.

1. The accounting software automatically reconciles totals in each of the subsidiary master files for accounts receivable, accounts payable, and inventory accounts to the respective general ledger accounts. This control was most recently tested in the prior year. No changes to the software have been made since testing, and there are strong controls over IT security and program changes.
2. The accounts payable clerk matches vendor invoices with related purchase orders and receiving reports, and investigates any discrepancies noted. This control was tested in the prior years audit. No changes in this control or personnel involved have occurred since testing was last performed.
3. The sales system automatically determines whether a customers purchase order and related accounts receivable balance are within the customers credit limit. The risk of shipping goods to customers who exceed their credit limit is deemed to be significant. The control was last tested during the audit two years ago.
4. The perpetual inventory system automatically extends the unit price times quantity for inventory on hand. This control was last tested two years ago. During the current year, the client made changes to the system.
5. The clients purchasing system was acquired from a reputable software supplier several years ago. This system contains numerous automated controls. The auditor tested those controls last year. No changes have been made to any of these controls since last tested and the clients controls over IT security and program changes are excellent.

Required

Evaluate each internal control independently, then send a return email to Will that:

1. states whether the control must be tested or not in the current year's audit. (5 marks)
2. justifies your decision about whether testing is or is not required for each of the controls. (5 marks)

You can use a table format, with the following headers, in the memo to present your answer.

Control number

Testing required/not required

Justification