AA 2021 Solved

Key controls TOCs
V
All staff members are required to clock-in and Perform by entering the unique card number in the
out using a sequentially numbered key card system and match the data with the employee
which contains their unique employee number detail to ensure the accuracy of details.
and name, is actually a good control. It ensure
that no ghost employee exist at work place.
The clocking-in process is monitored by a Physically inspect the existence of CCTV and ensure
camera on entry to the distribution centre and it is working properly. Also review the footage
weekly checks are carried out by the HR record file to ensure it is rechecked and authorised
department, is a good control. Which prevents by the person whom name is used to save file.
the entry of any other person on employee
behalf.
The payroll clerk confirms that the transfer of Review the sample of payroll records to ensure it is
hours and calculations has been done correctly recalculated and analysed, by signing the report.
by recalculating a sample of employees’ gross
to net pay. Any misstatements or automation
mistakes will be identified on timely basis.
Each month the payroll supervisor calculates Review sample of tax authority payment to ensure
the total liability due to the tax authority and it is recalculated and authorised by the financial
this is then passed to the financial controller controller.
who checks the calculations prior to the
payment being made. So that any indifference
will be identified on time.
Past paper 2021

4- Key controls and TOCs:
6- Deficiencies and recommendations:
Deficiencies Recommendations
On receipt of the joiner/leaver form a The report of leavers and joiner should be
payroll clerk updates the payroll system. An reviewed and authorised through a
edit report is generated which records the signature by any responsible party.
changes made but this report is not
reviewed. As there is no check and balance
on the reports hence errors may not be
identified on timely basis.
The operations manager has processed six The recruitment should be done
newly recruited temporary delivery drivers individually by the H&R department so that
and instructed the payroll department to competent and skilled employees will be
set up the new employees. As operational hired.
manager has no experience in recruitment
hence non competent employees could be
selected which leads to loss for the
company.
The operations manager has to authorise The operational manager should authorise
overtime in excess of five hours per week. If all type of overtimes whether lower than 5
there is more overtimes done by employee hours or higher than limit.
which are individually lesser than the 5
hour limit but on total it exceed. Hence
unnecessary overtime will be done which
would lead to loss for the company.
The member of staff in the finance Pay packet in cash should be given on the
department will ask for the delivery driver’s showing the unique card which holds the
name to check that there is a pay packet data of employee so that correct payment
prepared and, if there is, they provide the will be done to correct person.
delivery driver with their pay packet,
considered as a deficiency as anyone can
call the can of a delivery man and can
receive a pay packet of others will lead to a
loss for the company.
The operations manager decides on the The bonuses should be set by a responsible
bonus to be paid. He can set a high level of party like directors.
bonuses to closer employees to him hence
would lead to loss for the company.
The company has no way of monitoring the A tracer should be introduced to trace the
length of these breaks as the delivery delivery man for there working and break
drivers are out on deliveries. Hence there time.
could be a lengthy break as compare to law
specified time of break would lead to loss
of customer goodwill.
Pre conditions for audit:

The audit will be accepted if the pre conditions of audit did meet, which is actually the
responsibility of management towards the audit.
Following are the preconditions of audit:
 Management is responsible for the FS that it is prepared in accordance with the
applicable framework and IAS’s.
 Management is responsible for the internal controls implementations and
prevention of errors and frauds.
 Management should provide a full excess of information and explanation to auditor.
Seven audit risks:
Audit risks Auditor response

The company operates Auditor should test more sample
nationwide with 20 branches from the warehouses where
located across the country. Not there is a past history of errors
100% sample could be verified. and fraud.
Auditor should test high sample
from the warehouses where
major inventory is kept.
Goods are shipped to the Review inventory count sheet
company’s central warehouse by and post year end GRN to
sea and are usually in transit for ensure that it has been recorded
up to one month. There is a risk in correct accounting period.
that goods may incorrectly
recorded regarding cutting off
period, hence it could lead to
misstatement in good.
The company's receivables Review the aged receivables
collection period is now an analysis to access receivable
average of 55 days, whereas the valuation.
company’s target is 42 days.
There is a risk of recovery of
receivables which leads to
overstatement of current assets.
A payables ledger supervisor had The auditor should remain alert
diverted funds from the throughout the risky areas such
company’s bank account using a as payable ledger accounts.
fictitious supplier on the More senior staff should be
payables ledger. There is a risk allocated to the risky areas.
of more frauds that could be
placed.
Since the dismissal of the Review the uncleaned invoices
supervisor, purchase invoices file to identify any invoice which
have not been recorded in the relates to pre year goods and
payables ledger and it is unlikely ensure that they have been
that this backlog of invoices will properly accrued and recognised
be cleared by the year end. as a liability.
Since there is no supervisor
there is a risk of work boredom
on remaining staff and as
uncleaned at year end and no
proper allocation of accrued
amounts hence a risk of
manipulation or misstatement in
the payable ledger.
These capitalised costs Review the NCA and agree to
include the purchase price of the GRN to ensure that
$0.6m, installation costs of classification of expenditures are
$0.2m and staff training costs of according to IAS-16.
$0.1m. A risk of improper
classification of expenditure may
exist which cause asset
overstatement.
Decision will be made in Audit should undertake detailed
November 20X5 as to whether testing and procedures on going
the bank will continue to concern.
provide this overdraft facility,
which the company is
dependent on. As company is
overdraft dependent and
already company is burden with
debt hence there is a risk of
going concern.
Professional scepticism:
The attitude of an auditor being alert to
situations of things in suspicious conditions and having a questioning
mind.
Example:
 Decision will be made in November 20X5 as to whether the
bank will continue to provide this overdraft facility, which the
company is dependent on.
 A payables ledger supervisor had diverted funds from the
company’s bank account using a fictitious supplier on the
payables ledger.
Subsequent event
On 25 February 20X5, it was discovered that a batch of canned cat food

had been contaminated with insecticide, which could be harmful to cats.
Under IAS-10 it is an adjusting event as it confirms the evidence of
existence on year end. Hence it should be adjusted in F/S and need to be
disclosed.
 Discuss with management in whether there was proper quality
check if it is present then why it become contaminated.
 Inspect a supporting document like inventory records or quality
control records.
 Take a legal advice to confirm the chance of winning a case.
The matter is actually material as it 8.22% of PBT so it should be adjusted
and disclosed in FS.
If the matter is disclosed adequately than unmodified opinion should be
given that the financial statement give true and fair view. While the matter
should be mentioned in EOMP for highlighting the issue to the shareholders.
But if the matter is disclosed inadequately and as the matter is material but
not pervasive then modified opinion should be given. And also the basis of
opinion para will be changed into basis of opinion except for.

AA 2021 Solved

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Key controls TOCs

Past paper 2021

6- Deficiencies and recommendations:

Pre conditions for audit:

Audit risks Auditor response

On 25 February 20X5, it was discovered that a batch of canned cat food

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