WanKea Berhad is the biggest retailer of office stationeries in Malaysia.The company buys the stationeries from several major suppliers and sells to walk-in customers as well as over 500 business customers.In line with its business expansion and digitalisation, WanKea Berhad plans to upgrade its Information Systems Department and to integrate new IT equipment and software into its business process.As a result of this modernisation exercise, WanKea Berhad will reduce its employees from 587 to 73 staff. Those will be affected are mainly clerks and junior managers.

The modernisation exercises will include the integration of computer-based cash registers directly with account receivable, sales, perpetual inventory records and sales commission expenses. The total amount of the sales, including sales tax, is automatically computed by the systems and displayed on cash register's screen.The only printed information for cash sales is the cash register receipt, which is given to walk-in customers.For credit sales, a credit slip is prepared, and one copy is retained by the clerk and submitted daily to the accounting department.

A summary of sales is printed out daily in the accounting department. The summary includes daily and monthly total by sales clerks for each store as well as totals for each of 103 categories of merchandise by store. Perpetual inventory and accounts receivable records are updated daily on cloud server, but supporting records are limited primarily to machine-readable records.

REQUIRED:

(a)Discuss THREE (3) factors that may increase the likelihood of material misstatements in the financial statements caused by the integration of IT into WanKea Berhad's accounting systems.

(b)Suggest and explain ONE (1) application control that WanKea Berhad can introduce to minimize the risk of material misstatement.

(c)Discuss how the concept of test data can be used in the audit of Wankea Berhad's financial statements.

(d)Explain TWO (2) possible difficulties the auditor faces in using test data.