ACCA F8 - Audit and Assurance Revision Kit 2016

(e)
(ii)
(iii)
Computers and motor vehicles
The reducing balance basis seems reasonable, given that computers and their software are updated
frequently and therefore do wear faster early on in life, however the auditor should consider whether
20% is an appropriate rate given the speed at which technology develops.
The auditor should enquire and observe whether the assets are still in use.
The auditor should review the board minutes to ascertain whether there are any plans to upgrade the
system.
The auditor should estimate the average age of the motor vehicles according to their registration
plates and consider whether the life is reasonable in light of average age and recent purchases. Given
that a number of vehicles are delivery vehicles and likely to heavily used, the auditor should look at
recent profits and losses on disposals to see if large losses on disposal give an indication the 20%
rate might be too low.
The auditor should ask management what the replacement policy of the assets is.
Equipment
The equipment is depreciated at 15% per year, or over 6–7 years.
The auditor should consider whether this is reasonable for all the categories of equipment, or
whether there are some assets for which the technology advances more quickly than others. Such
assets may require a higher rate of depreciation.
Deficiency and explanation
There is a lack of segregation of duties. The site
inventory controller is also the supervisor and
count checker. The controller is therefore
responsible for the physical assets as well as
maintaining the book records. The site inventory
controller is a position to cover up his or her own
errors or theft of inventory.
Transfer of inventory is permitted between centres,
increasing the risk of double counting inventory.
Also inventory may not be counted at it all if it is in
transit during the count.
Counters will be working on their own as there is
only one allocated per area. This means the risk of
error is increased compared to the normal
situation where two counters are assigned.
Counters are provided with printed sheets with
quantities already showing a quantity from the
computer system and are only changed if found to
be different from actual quantities. This may lead
counters into the temptation of choosing to rely on
the system and as a result failing to count all
inventory lines.
Only one test count is carried out in each area by
the inventory controller. This is unlikely to deter
counters from being careless and the probability of
errors being detected by the test count is low.
Possible solution
An alternative senior member of staff should be
made the inventory supervisor. Alternatively,
inventory controllers could be rotated so they
supervise the count of the garden centre they are
not responsible for.
Movement of inventory between garden centres
should not be permitted until all inventory has
been counted.
Counts should be performed by pairs of counters,
one counting and one checking.
Staff should be given sheets with items listed but
no quantities. The staff should need to fill in the
quantities as the count progresses.
A larger sample should be test counted by the
inventory controller. This could be determined
statistically based on the estimated levels of
inventory for each area per the system.
Answers 151