This scenario relates to three requirements.

a ISA Communication with Those Charged with Governance provides guidance to

auditors in relation to communicating with those charged with governance on matters arising

from the audit of an entitys financial statements.

Required:

i Explain why it is important for auditors to communicate throughout the audit

with those charged with governance; and

ii Identify FOUR examples of matters which the auditor may communicate to

those charged with governance.

Note: The marks will be split equally between each part. marks

Camomile Co operates six restaurant and bar venues which are open seven days a week. The

companys yearend is July X It is July X You are the audit supervisor reviewing

the internal controls documentation in relation to the cash receipts and payments system in

preparation for the interim audit, which will involve visiting a number of the venues as well as

the head office. The company has a small internal audit IA department based at head office.

The purchasing department based at the companys head office is responsible for ordering

food and beverages for all six venues. In addition, each venue has a petty cash float of R

held in the safe, which is used for the purchase of sundry items. When making purchases of

sundries, employees are required to obtain the funds from the restaurant manager, purchase

the sundries and return any excess money and the receipt to the manager. At any time the

petty cash sum held and receipts should equal the float of R but it has been noted by the

companys IA department that on some occasions this has not been the case.

Each venue has five cash tills cash registers to take payments from customers. Three are

located in the bar area and two are in the restaurant area. Customers can pay using either cash

or a credit card and for any transaction, either the credit card vouchers or cash are placed in

the till by the employee operating the till. To speed up the payment process, each venue has

a specific log on code which can be used to access all five tills and is changed every two

weeks.

At each venue at the end of the day, the tills are closed down by the restaurant manager who

counts the total cash in all five tills and the sum of the credit card vouchers and these totals

are reconciled with the aggregated daily readings of sales taken from each till. Any

discrepancies are noted on the daily sales sheet. The daily sales sheet records the sales per

the tills, the cash counted and the total credit card vouchers as well as any discrepancies.

These sheets are scanned and emailed to the cashier at head office at the end of each week.

Approximately of Camomile Cos customers pay in cash for their restaurant or bar bills.

Cash is stored in the safe at each venue on a daily basis after the sales reconciliation has been

undertaken. Each safe is accessed via a key which the restaurant manager has responsibility

for. Each key is stored in a drawer of the managers desk when not being used. Cash is

transferred to the bank via daily collection by a security company.

The security company provides a receipt for the sums collected, and these receipts are

immediately forwarded to head office. The credit card company remits the amounts due directly

into Camomile Cos bank account within two days of the transaction.

At head office, on receipt of the daily sales sheets and security company receipts, the cashier

agrees the cash transferred by the security company has been banked for all venues. She

agrees the cash per the daily sales sheets to bank deposit slips and to the bank statements.

The cashier updates the bank ledger account with the cash banked and details of the credit

card vouchers from the daily sales sheets. On a monthly basis, the credit card company sends

a statement of all credit card receipts from the six venues which is filed by the cashier.

Every two months, the cashier reconciles the bank statements to the bank ledger account.

The reconciliations are reviewed by the financial controller who evidences her review by

signature and these are filed in the accounts department. All purchases of food and

beverages for the venues are paid by bank transfer. At the relevant payment dates, the

finance director is given the total amount of the payments list which he authorises.

Required:

b Identify and explain EIGHT DEFICIENCIES in Camomile Cos cash receipts and

payments system and provide a control recommendation to address each of these

deficiencies.

Note: The marks will be split equally between each part. x marks Control deficiency

Control recommendation

Control deficiency Control recommendation