QUESTION ONE [20] Before your firm accepts any additional ongoing engagement, for example new audits, the partners meet to decide on whether the engagement should be accepted. The firm is mindful of the requirements to conduct preliminary engagement activities including compliance with ISA 220- Quality management for an audit of financial information. The following prospective audit clients are being evaluated. Your firm has seven partners and a diverse portfolio of clients ranging form small business entities to medium-sized companies. None of its existing audit clients is a listed company. 1. Apex (Pty)Ltd a company which sells equipment to the mining industries, has approached your firm with an offer that you take over the audit of the company. A significant amount of additional non-audit work has also executive directors were recently alleged to have been involved ii tender fraud, but nothing has been proved. They have both denied any involvement. The current auditors have indicated their intentions not to make themselves available for reappointment. 2. Calypso distributors Ltd, a large fishing company in Durban, which was recently convicted for exceeding its fishing quotas, and threatened with closure by the authorities should it occurs again as this was not a first offence. Should your firm accept engagement, it will be the third auditing firm to have been appointed in the last four years. The previous auditors have resigned. The company is a public company but is not listed. 3. Impetus (Pty) Ltd, a medium -sized company which is about to expend considerably through a BB BEE dearly that involves a large, listed company. The listed company requires that Impetus (Pty) Ltd be externally audited annually. Our firm has no experience in the industry in which Impetus (Pty) Ltd be and the listed company operate. 4. Appollo (Pty) Ltd, a small company which is owned by Frank Ngabo, the father of one of your firm's partners. Frank Ngabo believes that having the company audited externally adds to its credibility when negotiating with prospective business patterns. 5. Akili (Pty) Ltd, is medium-sized company in the light engineering sector. The directors informed your firm that they were changing their auditors because their previous auditors had "different views" to them (the directors) on which accounting policies were appropriated for their company. They have declined to provide specific details. The previous auditors would not comment on this stating only that the directors of Akili (Pty) Ltd had not given them permission to discuss the company's affairs. 6. Impi (Pty) Ltd, a company which provides companies and governments operating in Africa with security personnel, including bodyguards and equipment such as armoured vehicles and firearms. The audit fees paid to the previous auditors were substantial. 7. Axiom financial services client, Union Bank, is looking for new auditor. During the lats year the company had been in the news for several reasons, including landing a multimillion dollar deal, a cybercrime incident where some of its clients' information may have been compromised(the scale of the event has not been determined); making a large donation to welfare organization; and lastly the firing of its head of trading due to "suspicious trading". The cybercrime incident and the firing of the head of trading have caused much social media traffic. YOU ARE REQUIRED TO: Discuss the matters to which your firm should give consideration, when deciding on whether to accept the above prospective audit appointments. QUESTION TWO [40] Mbali (Pty)Ltd is a horticultural entity based in the Garden route Garden Route District Municipality. Its accounting systems are computerized and are resident on a local area network. The following information pertains to the company's computerised salary system:: 1. All employees at Mbali (Pty)Ltd are salary earners. There is no hourly paid employees. 2. The company has staff of approximately 75 employees. 3. All personnel matters are the responsibility of the company's human resource section headed by Lily Blom and staffed Jasmine Lavender and Daisy Rosenberg. 4. Jarred Roosevelt is the financial managers, and he has overall responsibility for all accounting and financial matters. 5. All salaries are paid by electronic funds transfer on the last Friday of every month. 6. The employee master file is maintained by the huma resource department along with all relevant supporting employee documentation. 7. EFT payment are made via the Internet. The company's bank has loaded its software onto its system to facilitate the payment of salaries by EFT and the downloading of bank statements and other documentation as required. There is also an enquiry facility on the company's bank accounts YOU ARE REQUIRED TO: Describe the automated application controls you would expect to find in place at Mbali (Pty)Ltd to ensure that salary payments are valid, accurate and complete QUESTION THREE [40] You have been recently employed as junior accountant by Olymplad (Pty) limited, a wholesaler of sports shoes. Your first responsibility is to review the acquisition and the payment cycle to identify weaknesses in the cycle. Frank Ndlovu, the financial accountant, has told you that the company has been experiencing problems with overstocking, substandard inventory shortages and possibly, incorrect or invalid payments to creditors. You have obtained the following information: Staffing The buying department is staffed solely by Jack Lang, the company, buyer, who has been with the company for many years. The warehouse manager, Felix Ntwali, has a staff of six warehouse assistants who are responsible collectively for receiving deliveries from suppliers, picking and dispatching sales orders, and generally maintain the warehouse. Ordering Jack Lang is responsible for placing orders with suppliers. In deciding what items and quantities to order, Jack Lang refers to record he keeps of the orders he placed during the previous year. He also places orders with suppliers when they have promotional sales or "specials". Branded sports shoes are purchased from the local importers of the brand (i.e. they are not imported directly by Olympiad (Pty) Ltd itself) whilst Jack Lang decides on where to purchase other footwear. Olympiad (Pty) Ltd does not maintain perpetual inventory records. Jack Lang regularly visits footwear manufacturers to look at their products and is often visited by sales representatives form show companies. Although he is extremely busy, he has consistently declined the offer by management of Olympiad (Pty) Ltd to appoint an order clerk in the buying department. Jack Lang makes out a preprinted two-part (original plus copy) order form for all orders. The original order is either sent by post to the supplier, left with a supplier when Jack Lang visits the supplier's sales representatives when they call on Olympiad (Pty) Ltd. The copy remains in the order book. Prices for branded shoes are set by importer, for products from other suppliers, prices are negotiated by Jack Lang. When goods from suppliers are delivered to Olympiad (Pty) Ltd, any one of the six warehouse assistants will receive the goods, the warehouse assistant checks the numbers of boxes being delivered against the supplier delivery note, signs the delivery note and retains a copy. Where the boxes delivered do not agree with the suppliers' delivery note, the difference is recorded on the delivery note and signed by both the warehouse assistant and the supplier's delivery personnel. The boxes are left in the receiving area until the warehouse assistants have time to move them into the warehouse where the goods are unpacked and stored. This usually occurs a day or two later. Although Olympiad (Pty) Ltd's accounting records are kept on computer, the company does not wish to "computerise" the ordering or receiving functions. The company is prepared to incur reasonable expenditure arising from your recommendations including the cost of employing an order clerk is you make such a recommendation. YOU ARE REQUIRED TO: Recommend improvements to the ordering and receiving functions of the acquisition and payment cycle at Olympiad (Pty) Ltd, based on the information given above. For each recommendation, you are required to provide reasons/justifications for the recommendation. There may be more than one reason/justification for a single recommendation. Note: Structure your answer under the following heading: 1. Ordering function (25)