a) Explain the purpose of an internal control questionnaire to an auditor. (4 marks)
b) Explain the factors an auditor should consider when determining the adequacy of a client’s internal control system. (6 marks)
c) Kenya Cans Ltd. manufactures cans which are stamped from sheets of metal molded and supplied to Selmont Ltd for packing fruits. After stamping the sheets of metal, scrap metal is produced as residue. During the year 2004, revenue from scrap metal amounted to Sh.500,000.
The company has established the following system to monitor the sale of scrap metal;
i) Scrap metal is placed by employees in a large bin outside the workshop.
ii) At the of the week a local scrap dealer collects the scrap metal leaving the bin empty.
iii) The scrap dealer takes the scrap metal to the gatekeeper who measures and records the weight in a register before it exits the factory.
iv) The scrap dealer sends cheques the following week with a statement showing the weight collected, price and cheques amount. The company’s cashier on receiving the cheques, compares it with the statement to ensure that they both agree with the gatekeeper’s registers.
i) Explain the weaknesses of the above system. (4 marks)
ii) Suggest recommendations to improve on the above system. (6 marks)
(Total: 20 marks)
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