ACC00718 - Assessment Task Two – Session One 2019
A major Australian Public Company ran promotions advertising for a number of its products through a promotions company. The promotions company falsely inflated the number of responses it received from purchasers of the company’s product. The false number of respondents was invoiced by the promotions company to the public company resulting in the overpayment of thousands of dollars. The records kept by the promotions company were those on its computer database as well as manual batch numbers of responses to the promotions.
Identify five (5) procedures and checks that would have reduced the risk to the victim company?
You were engaged to conduct an examination on an Australian subsidiary of an American company following a discovery by the financial controller that freight and travel expenses were too high during a certain period. You have found the following:
The entries posted to the general ledger were examined and it was found that whereas normal expenses would be $10,000 to $12,000 for a particular month, they were in fact $33,442.19. Entries posted to the freight account were checked and in some cases there were no corresponding invoices.
Staff were frustrated in their efforts because the trade payables clerk, who was responsible for the payment of accounts and cashing of wages cheques, was either off sick or evasive when questioned.
The system for the payment of accounts was that the trade payables clerk would prepare a cheque to pay an invoice and would then present the cheque with the invoice and relevant documents for signing by two authorised signatories.
All company accounts were paid by cheque; the only cheques used to obtain cash were wages cheques. This would be done by stamping the reverse of the cheque with the words, ‘Please pay cash’; the trade payables clerk would then present the cheque to the bank and obtain the cash. Specimen signatures were, of course, held at the bank but they were rarely checked as the trade payables clerk was so well known to bank staff.
Duplicate cheques had been issued for payment of accounts already paid by the company and cashed at the bank by the trade payables clerk. The signatures on the cheques were, in some cases, forgeries and, in other cases, genuine (obviously people were signing things without due care). A payment of $6,217.60 was used to pay a travel company for a trip for two to Tahiti — the clerk had cancelled this entry with the words, ‘OK paid by me’.
When questioned, the trade payables clerk said that she had used her own cheque to pay for the travel. You checked with the travel company and found that, in fact, a company cheque had been used for the trip. You and officials of the company called in local detectives and all parties adjourned to the local police station. By this time, it was outside office hours and police were unable to contact the travel agent themselves and had no documentation to rely on to negate the clerk’s story. The clerk was released for further investigation by them, but the clerk left the country and is now living happily in Greece, $164,000 richer.
1) Identify and discuss which internal control could have prevented this fraud and give five (5) examples
2) Identify and discuss five (5) procedures could have alerted the auditor to the fraud?
Assessment Task Two - Marking Criteria
Marks will be awarded for:
1. Understanding and discussion of the topic (30 marks).
You are expected to answer each of the questions contained in the assignment. You’re answer should fully address the requirements of each question and be in your own words.
Simply restating the contents of the text book, study guide or PowerPoint slides does not show individual understanding of the topic.
Your answers should contain enough discussion on the question so as to clearly demonstrate your understanding of the topic area and provide sufficient detail which answers the questions to a satisfactory level.
There are no minimum word limits placed on assignment questions, however it is expected that most questions will require approximately 50 to 100 words of readable, logical and verifiable information.
2. The extent and depth of research undertaken (-2 marks)
Your answers should show wide reading related to the question being answered. This would extend beyond the textbook to other texts, newspaper and magazines. Specific resources from the Internet could also be used. The Harvard Referencing style is the required referencing style for this assessment. (refer http://scu.edu.au/library/index.php/14). Your assignment should also include a Reference List / Bibliography identifying the extent of the research undertaken. Failure to demonstrate extended research or provide a Reference list can result in the loss of up to 2 marks.
3. Presentation: overall look, format (including page breaks between questions), written content and the inclusion of title page stating your name, student ID, Assessment identification, and due date. (-3 marks)
Your assignment should have a professional presentation with appropriate use of headings and sections and appropriate use of spelling, grammar and referencing. Marks may be deducted for excessive incorrect grammar, spelling and failing to have a page break between questions. Failing to include a Cover Sheet will result in lost marks.
|Learning outcomes||Grading indicator||Min Score||Weight||Length/|
|Short written response||Individual||4, 5||Graded||N/A||30%||Individually determined|
Audit and assurance
This report reveals the key understanding on the audit procedure and key steps which could be used by company to lower down its procedural discrepancies in the process. In the starting of this report, procedures and checks that would have reduced the risk to Australian company has been discussed. In this proper checks have been given which reveals the key assertions to control the risk associated with the business promotion transactions. After that, in the second scenario, several internal control system which could be used by the company to reduce the fraud and errors in the process have been discussed.
Answer to the Scenario-1
There are five (5) procedures and checks that would have reduced the risk to the victim company given as below.
For instance return on marketing investment is 15%
Invested capital = $10, 00,000
Return would be 1, 50,000
Rate of return is 15%
Invested capital = $5, 00,000
Return would be 40,000
Invoices and other books
Answer to the Scenario- 2
There are several internal control system which could be used by the company to reduce the fraud and errors in the process.
After evaluating the case, it have been observed that there is five procedures which could have could have alerted the auditor to the fraud.
First is related to obtain the schedule of bank accounts and the reconciliation of the schedule to the general ledger (Cordoş, & Fülöp, 2015).
Therefore, it could be inferred that above given were the five procedure that could have altered auditor to fraud. In order to reduce these chances, company needs to align its business reporting framework effectively. An assurance trust services report or another auditors' report on such a process may assist us in assessing the design and operating effectiveness of the electronic and manual controls. Such a report would usually address risks related to the reliability of the information obtained through the confirmation process that we will use as audit evidence, including the risks that the information obtained may not be from an authentic source or a respondent may not be knowledgeable about the information to be confirmed or the integrity of the information may have been compromised or if the above risks are not adequately addressed in the report, perform additional procedures to address such risks. National Office has approved the use of Capital Confirmation Inc. (CCI), for electronic confirmations from banks that have designated CCI to process confirmation requests from auditors. (Sikka, Filling & Liew, 2009) (Porter, 2009).
After assessing the details given in both the scenarios, it is inferred that company should use effective internal control system if it wants to sustain its business in long run. The first scenario reveals that company could easily mitigate the risk of losing money if it would have kept one of the given procedure. On the other hand, the one best internal control system which could be used by company would be to hire the internal auditors who would evaluate the changes and issues in the frameworks. The crux of this report is that company should focus on using the appropriate audit method and procedure to set assertion to lower down the business risk. The audit risk model could also be used by company in these two above given scenario.