You have recently been promoted to the position of senior manager at Pundit Global Chartered Accountants, a medium sized audit firm in South Africa. You have been assigned to adequately plan and manage the audit engagement of Goodson (Pty) Ltd. Goodson (Pty) Ltd manufactures industrial goods and is 100 percent owned by Tinevimbo Goodson.

The manufacturing process comprises of 3 divisions:

Mechanical assembly

Customized assembly

Quality control

Two divisions support the manufacturing divisions above and these are:

Material procurement and Factory warehouse

Moulding and painting

Material Procurement and Factory Warehouse Division

The main function of the Material Procurement Division is to source raw material and/or parts for the manufacturing and/or customisation of machinery. All raw material and/or parts are received by the factory warehouse personnel. Where after it is stored in the factory warehouse, which is physically secured due to inventory being material to the company.

When raw material and/or parts are needed in the manufacturing process by the other divisions, an internal issue note is issued (by the other divisions) to the factory warehouse where after the requested raw material and/or parts are issued to the division that requested the raw material and/or parts.

The iron used for the moulding of frames (see below) is imported from China and the diesel power engines used by the mechanical assembly division (see below) are imported from Germany. The other raw materials and/or parts are locally sourced within South Africa.

Moulding and Painting Division

The standardised framework for the Tri-Wheeler handling machine is moulded on site, using iron which is imported from China. The framework is painted with a high level gloss yellow finish that is resistant to corrosion. The painted framework is engraved with a vehicle identification number (VIN), where after it is transferred to the factory warehouse.

Mechanical Assembly Division

The manufacturing/assembly process of the Tri-Wheeler handling machine starts when the standardised framework is received by the Mechanical Assembly Division from the Moulding and Painting division. A diesel engine (of which the engine capacity will depend on the customers order), gearbox and transmission system is then fitted into/onto the standardised framework where after it is transferred to the Customised Assembly Division.

Customised Assembly Division

The Customised Assembly Division is responsible for the completion of the final product in accordance with the specification on the customers order. This division fits the Tri-Wheeler handling machine with the necessary equipment to customise it into a logger, tyre handler, rockscaler or forklift.

Quality Control Division

The Quality Control Division performs a full range of quality verification processes and procedures to ensure that the Tri-Wheeler handling machines delivered to customers consistently meet Goodsons high quality standards. There after an inspection certificate, which represents a legal record of each Tri-Wheeler handling machine, is issued in number sequence. The division also ensures that the unique requirements as per customer orders have been met.

The following is a working paper from the audit software for the 2020 audit: Goodson (Pty) Ltd	Prepared by: PN (5/10/2020)
Year End: 30 September 2020	Reviewed by: DK (6/10/2020)
Working paper: 10.80A	Subject : Labour system description
System description There is only one entry/exit point to the manufacturing plant and each employee is issued with a magnetic personnel card. Upon entering and leaving the manufacturing plant, employees have to swipe their personnel cards through electronic card readers located at the entry/exit point. The payroll system automatically calculates the total normal and overtime hours for each employee. The payroll data is prepared using the hours recorded by the payroll system and the rate as per the standing payroll master file data. The payroll system is integrated with the job costing system. The supervisors of the assembly divisions access the payroll system by entering their unique username and password. At the end of each day, the supervisor of each division allocates the time units (hours) worked by each employee to the different Electronic Job Cards (EJC) based on the Tri-Wheeler handling machine he/she was working on for the day. The divisions supervisors only have limited write access to the hours field on the EJC to allocate the hours to the relevant EJC. Only hours calculated by the payroll system can be allocated to an EJC, but actual hours cannot be changed. Once the hours are allocated, the payroll system automatically updates the EJCs with the labour costs. The system generates exception reports for any time units (hours) not allocated to any EJC, as well as labour costs allocated in excess of the predetermined labour cost for the specific type of Tri-Wheeler handling machine. These exception reports are reviewed and signed by the Manufacturing manager.

Raw materials work in Progress

System description 10.80B

EJC Example ZAR Schedule of work in progress at year end 30 Sept 2020 EJC nr Z 13988 (see EJC example below) 318 600 EJC nr Z 13989 290 700 EJC nr Z 13990 300 700 EJC nr Z 13991 220 100 EJC nr Z 13993 250 600 EJC nr Z 13994 250 600 Overheads for Z13988, Z13989, Z13990, Z13991, Z13993 and Z13994 not yet allocated to the specific EJC. 120 000 1 751 300 The overheads allocated to the work in progress at 30 September 2020 were determined by the accountant based on actual hours up to date and expected hours to complete the job.

Goodson (Pty) Ltd

Electronic job card (EJC)

Job card number: Z13988

Customer: Takuejay

Date initiated: 25/09/2020 Material issued	Doc Nr	Date	Cost
Standardised framework
100161	25/09/2020	126 700
Diesel engine 3,8 litre
817130	25/09/2020	93 100
Drive pump
118541	25/09/2020	4 200
Hydraulic tank
154778	25/09/2020	3 100
Electrical system 12V
218448	25/09/2020	7 600
Labour Mechanical Assembly
Technicians
29 300
Supervisor
8 200
Labour Customised Assembly
Technicians
34 100
Supervisor
12 300
Total for Job EJC Z13988
318 600

The ERP system automatically updates the electronic job card with the overhead costs when the inspection certificate number is captured by the Quality Control Division based on the cost of its direct labour hours as recorded and allocated to the EJC.

Additional Information

You have emailed the first-year trainee to attend the interim inventory count. The first year has never attended an inventory count and reached out to you for guidance specific to that. The planning has already been completed and all the necessary count sheets have been printed. The trainee is unsure of what to do on the day of the count.

The trade and other payables and purchases have been allocated to a second-year clerk. Due to the risk and significance of the balance, the partner requested that you design procedures to test this item, seeing as they have both foreign and local purchases.

Required:

1.1 Using a tabular format identify controls in working paper 10.80A and suggest tests of controls for the controls you identified. Use the following format. (20 marks)

Controls identified

Test of controls

1.2 Formulate the substantive audit procedures (including computer assisted audit techniques (CAATs)) that you will perform to obtain sufficient and appropriate audit evidence regarding the accuracy, valuation and allocation assertions for work-in-progress, which forms part of the inventory balance in Goodson (Pty) Ltds Statement of Financial Position as at 30 September 2020.

1.3 List the procedures to be followed when performing an inventory count.

1.4List the procedures to test all the assertions relating to purchases in the financial statements.

1.5 Design the procedures to test trade payables addressing all assertions