You are the Audit Manager assigned to a new audit client, Mos Espa Speeders Ltd. (MES). The Audit Senior assigned to the engagement has recently joined your audit firm after writing their CPA exams. Their father is the Financial Controller at MES. They were added to the engagement team due to their strong knowledge and familiarity with the client, the business and the industry. In preparation for the audit, the Audit Senior has obtained the following information through management inquiries and discussions with other company personnel. Bob Afett, the production scheduler at MES, is responsible for ensuring that parts are available for the following weeks production. The company builds 200 motor-scooters per day and usually has three to five days of orders waiting from various stores. All sales are to stores. Bob is in daily contact with suppliers, to take care of any problems that might arise in delivering parts. If there is a problem, Bob has to discuss the situation with the purchasing manager (PM). Last year, some engines failed to arrive on time and the workers had to be sent home with no work for three days. This also caused MES to be late in delivering motor-scooters to its customers, and Bob was warned by his boss, the vice-president of the company, not to let this happen again if he wanted to keep his job. Last year, a new billing clerk received a warning from the vice-president for falsifying an invoice to show a lower-priced model than the actual one sent to a store owned by a friend. He had to repay MES for the lost funds. The PM authorizes all parts purchases and her assistant prepares the contracts for the suppliers and enters the contract details in a database that Bob can access. Bob checks the database and compares this to the orders expected (sales order database) for the next month, and then he contacts the suppliers one week in advance to see if there are any problems in meeting the agreed delivery schedule. Last week, one of the suppliers had a labour strike and shut down its plant for a week. Bob knows the parts are required for MESs own production schedule next week and so he asked the PM to find an alternative supplier. The PM told Bob that they should wait a few days to see if the original supplier would be able to return to work, but Bob thought this was too risky. Instead, Bob contacted a supplier that MES had used a few years ago and was able to get the parts sent to MES in two days. Bob entered the purchasing contract into the companys database so that the companys accounting records would be correct. The vice-president congratulated Bob on taking quick action to protect MESs business.

Required

Investigate internal control at MES. Provide a critique of four (4) elements of internal control and how each of these lead to strong or weak internal control. [2 marks each] Based on your investigation of internal control, conclude on whether internal control at MES is strong or weak [1 mark]. [9 marks total] Judge whether the Audit Seniors addition to the engagement team is a strength or weakness and support your answer. [2 marks]