You are currently the external audit manager at a client, Britestar Enterprises. The company employs approximately 250 people and has an annual turnover of R90 million. During the audit you have found serious lapses in internal control prevalent throughout the company. You have attempted to discuss these with the managing director before issuing your final audit report. So far, he has been quite dismissive of your concerns and has responded saying "I make sure that all invoices are checked before any payments are made" Your audit partner is quite concerned due to the recent corporate scandals in South Africa where external auditors have been found to be negligent. He has asked you to do the following: REQUIRED: 3.1 Prepare a memo to the managing director discussing the following FIVE (5) main components of an effective system of internal control. (15 marks) 3.1.1 The control environment 3.1.2 Risk assessment 3.1.3 Control activities An important consideration in carrying out a sampling exercise is to determine whether it will be statistically or non-statistically based. Such decisions are usually a professional judgement, but will be based on the level of assurance required by the auditor. Regardless of the decision made by the auditor, the steps to be taken in auditing sampling remain the same. REQUIRED Discuss the mains steps to consider when conducting audit sampling. (10 marks) Moonbeam (Pty) Ltd is a large security company offering electronic surveillance, 24 hour protection for person and property and secure cash transport. The company's accounting system is located on a local area network and, due to the nature of the company's business, contains a fair amount of sensitive information. Logical access controls are sound, as are physical controls to the extent that this is possible in a networked environment. All departments at Moonbeam (Pty) Ltd are linked by the network and all employees who require a terminal, have one located on their desks. REQUIRED: 1.1 Explain the role which access tables play in logical access control. Illustrate your answer using Moonbeam (Pty) Ltd as an example. ( 8 marks) 1.2 Distinguish between access at systems level and access at application level, in the context of Moonbeam (Pty) Ltd's networked systems. (4 marks) 1.3 Briefly describe the controls over passwords which should be in operation at Moonbeam (Pty) Ltd. (8 marks) You are a trainee accountant at a small audit firm. Your firm was recently appointed as auditors of Fashion Fusion (Pty) Ltd, a company which sells upmarket fashionwear to the female teenage market. The previous auditors had resigned after a dispute with the company's directors about the audit fee. The company has been operating for the last five years and has a number of outlets in each of the five major cities in South Africa. A unique feature of the company is that they sell only for cash or on account, no cheques or credit cards are accepted. Accounts must be opened in the name of a person over the age of 21 years e.g. a parent. On average thirty five percent of annual sales are made for cash. Most of the company's inventory is imported. There is a large central warehouse in Johannesburg from which inventory is dispatched to the company's outlets where it is either displayed on the shop floor or kept in a small storeroom. Although sales have generally been good in previous years, sales for the financial year-end 31 March 2018 have shown a decline. The directors of the company attribute this to two things, negative fluctuations in foreign exchange rates which have resulted in increased costs for the company's imports, and increased competition in the market place. In an attempt to increase sales the directors decided during the year to relax the granting of credit by extending the credit limits and terms for all existing and new account holders. The company has a small overdraft on its bank account but which is within the facility granted by the bank. When the company was formed five years ago, it was financed by 10 private investors who provided long-term loans. (The company has a very small share capital). None of these 10 long-term loans is secured, but in terms of the loan agreement the investors are entitled to call up their loans immediately if the company does not achieve a predetermined net profit before tax. The loan agreement requires that an annual audit of the company be carried out. The directors are very anxious that the stipulated (pre-determined) net profit before tax is achieved. Most organisations have different requirements for information in their business. Therefore the usage of information by organisations differs. Also, within organisations, different level of management need information for different purposes. As a result of the different information needs, organisations usually have different information systems operating at the same time. REQUIRED 5.1 Discuss 5.1.1 Transaction processing systems (TPS) (5 marks) 5.1.2 Management information Systems (MIS) (5 marks) 2.1 Discuss the factors that would have to be considered by your firm prior to accepting an appointment as external auditor of Fashion Fusion (Pty) Lid. 2.2 Evaluate the risk of material misstatement relating to sales as at 31 March 2018 based on the information given above. 3.1.4 Information system 3.1.5 Monitoring 3.2 Discuss FIVE (5) advantages of implementing an effective system of internal control (5 marks) QUESTION 4 (20 Marks) You are a student advisor at UNISA. A student has contacted you as he is interested in pursuing a career in the accounting and auditing fields. He informs you that he has been researching the auditing field and would like more information. He has read that there are different types of auditors and is unsure which path to choose. REQUIRED: Write a memo to the student explaining to him the different types of auditors that provide audit services