You have been assigned to assist your audit senior in auditing a new client, Happy Land Limited. During the course of
you reviewing and understanding the company’s internal control system, you discovered the following information:
1. The company has an internal audit department.
2. Bank reconciliation is undertaken by the internal audit department.
3. Purchase invoices are being approved for payment at branches and a list of approved invoices sent to head office
for payment. The invoices, supporting documentation and suppliers statements are retained at the branches.
4. Excess cash is now invested by the finance director in short term securities.
5. A physical inventory has not been carried out for non-current assets and reconciled with the non-current assets
register.
6. While visiting a production plant, it was noted that access to the inventory store room was unrestricted. It was
discovered that the staff responsible for making test counts and agreeing to inventory on hand with the perpetual
records, resigned and a replacement had not yet appointed.
Required:
(a) Explain five control deficiencies in Happy Land Limited.
(b) Recommend a control to address each of these deficiencies.
(c) Describe a test of control the auditor should perform to assess if each of these controls, if implemented, is
operating effectively to reduce the identified deficiency.
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