Builders Mate Construction Supplies Ltd (BMC) is a retailer of construction materials (bricks, tiles, cut timber, steel pipes etc) to the building industry in Sydney. Its head office and warehouse are in an industrial park in Botany. The company employs 150 staff and has a fleet of 50 trucks for making deliveries to building sites. The company’s inventory consists of 1,500 types of construction materials which it buys from twenty major manufacturers and sells to 1,200 small building companies. The accounts department of BMC is run by Elizabeth Patterson, who has a staff of 10 accounts clerks to perform the various accounting functions.

BMC stores its customer orders, inventory records and goods dispatch notes in the following tables: 

^b Note, this table can allow the input of up to ten different item numbers and quantities to be stored in additional rows below row 39. The additional rows are not shown to save space. An individual delivery never consists of more than ten different items.

^c This is the name of the customer representative (customer company employee) who signs the good dispatch note when the goods were delivered.

^d The Notes field is used to comment on any issues such as errors in the delivery quantities or damaged goods. These notes are entered from the paper goods dispatch note.

Before a customer can place an order, they must set up an account on BMC’s website. Their application is reviewed by the customer account manager, Damien Baird, who performs a credit check with a credit reference agency, assigns the customer a credit limit and sets up an account for them in the Customers Table. Once the customer has been approved and the account has been set up, customers can place orders using the company’s website. When an order is received, the orders clerk, Selina Anderson, checks that the items are in stock by examining the Inventory Table. If they are, she creates an order in the Customer Orders Table, calculates the freight cost and fills in Field 33. She then calculates the total amount of the order and uses this to update the Outstanding Balance (Field 26) in the Customers table.

Each morning, the deliveries manager, Joanne Barnes, uses the data from the Customer Orders Table to create goods dispatch notes in the Goods Dispatch Notes Table. Fields 65, 66 and 67 are left blank at this stage. Paper copies are then printed out and given to the drivers. When they make a delivery, they note the time, name of receiver and any notes on the paper copy and have the receiver sign the goods dispatch note. When the driver returns to the BMC warehouse, s/he gives the paper notes to Joanne, who uses the information to fill in fields 65, 66 and 67 in the Goods Dispatch Notes table.

At the end of each month, Damien Baird creates an account statement for each customer, using the information in the Customers Table, Customer Orders Table and Goods Dispatch Notes Table. Before sending the account statement, Damien checks whether the Outstanding Balance (Field 26) is greater than the Credit Limit (Field 25). If so, he changes the Account Locked (Field 27) to “Y”, to prevent the customer from making new orders until the account has been paid. If the account is not paid within 30 days, Damien contacts the customer and requests payment. If payment is not made within another ten days, Damien informs Elizabeth Patterson, who hands the debt to a debt collection agency. If the debt collection agency informs Elizabeth that the debt cannot be collected, she authorises Damien to write off the debt.

Required (9 marks):

How would you best test the control that all write-downs of inventory must be approved by the senior inventory controller?

Which account and assertion will be most affected by the control that requires all purchase invoices to be matched to goods received notes before the purchase transaction is entered into the purchases journal?

Which account and assertion will be most affected by the control that requires the accountant to check that all prepaid insurance accounts reflect the remaining term of the insurance contract at balance date?

Which of the following statements about materiality are false?

Which of the following items does not need to be included in an engagement letter for a company conducted using Australian Auditing Standards?

When auditing a company under the Corporations Act (2001) compliance with Australian Auditing Standards (ASAs) is true in which of the following circumstances?

Compliance with which of the following sections of an Australian Auditing Standard (ASA) is mandatory

If an auditor finds material errors in a set of financial statements, the auditor should:

Which of the following is not one of the five elements of an assurance engagement as specified in Framework for Assurance Engagements paragraph 26?