CAT T5

Practice questions

Please attempts these questions in writing as a means of ensuring that you are
familiar with the relevant examination topics

Good Service

1 After returning from the monthly management meeting,

your Finance Director calls a meeting of the senior
accounting staff. She is concerned that her colleagues
in the other functional areas are not receiving the most
efficient service from the accounting department. The
most repeated comment in the management meeting
was ‘You accountants do not seem able to
communicate properly’.

It is agreed to hold a workshop session to re-evaluate the

approaches of the various sections. Although the session
will be expected to be wide ranging, it is recognised that
some form of structure for this meeting should be
prepared. To assist her in leading this session the Financial
Director has asked you to prepare the appropriate noted
and to obtain further information form other departments.

Required

a) Outline the likely points which you anticipate may be

raised by the other departments. 8 Marks

b) Explain the key features of good accounting

information, and with these in mind prepare a plan of
the possible remedies which may be explored by your
department in relation to the points made in your
answer to part (a). 12 Marks
Total 20 Marks
 The Smith & Otis Company

2 The Smith and Otis Company manufacture small items

of brass giftware. The recent years there has been a
continuing expansion in sales, both home and overseas,
with the consequent increase in the activities in all
departments. This as led to ever increasing demands
for information such as sales reports, manufacturing
costs, departmental expenses and wages analysis.
Because of the pace of the expansion and the
continuing pressure on staff, all the reports have been
drawn up in haste with no attempt at even
standardising the sixes of forms.

The company had now entered a period of consolidation

and there is a full establishment of staff. The Managing
Director has asked the Chief Accountant to look at all the
various aspects of reporting within the organisation. She
has also suggested to the Chief Accountant that you, as
the first accounting technician appointed by the company,
should be involved in the initial investigations into this
problem.

You have been asked to investigate the Cost Office and

the Work Study Department in the first instance. It has
been established already that the cost office prepares 38
reports, which with the differing levels of circulation are
received by 120 recipients. The corresponding figures for
the Work Study Department are 10 reports and 23
recipients. (Recipients who have more than one report
from a department have been recorded for each report
they receive.)

Required

a) Outline the steps you would take in this initial

investigation. 8 Marks
b) Prepare the draft of an informal report you would
make to the chief accountant commenting on the
problem after you have completed your initial
investigation. You may make up (or draw from
experience) any further information you wish. 12 Marks

Total 20 Marks

Internal Control Systems

3 As the auditor in charge of the audit of the accountants

of DS Co you are about to review the internal control
systems of the company.

The company is long established and operates three

department stores. Each store has its own warehouse but
the administration, buying and accounting operations are
centrally located in the largest store. Your review will
include a detailed examination of the control environment
and of the control procedures employed by the company.

Required

a) Explain in your own words the meaning of the term

‘internal control system’. 3 Marks

b) Explain the meaning of the term ‘control

environment’ and identify THREE major factors that
will be reflected in the control environment of DS Co.
5 Marks
c) Identify SIX different categories of control
procedures
6 Marks
And
 For each category identified give ONE example of a
specific procedure you would expect to find in the daily
activities of DS Co.
6 Marks
Total 20 Marks

Internal Audit

4 You are the audit partner responsible for the audit of

the accountants of Fastbikes Co, a company
manufacturing bicycles for the home and overseas
markets.

The finance director (Mr. Jones) has informed you that the
company is to create an internal audit department by
appointing an internal audit manager and two assistants.
He believes that this should improve controls and
information received by management.

Required

a) Identify the principle differences between internal

and external (registered)auditors, using the following
criteria:

i. Eligibility to act
ii. Security of tenure
iii. Primary objective and the limitations on the
scope of the auditor’s work in order to achieve
this objective. 9 Marks

b) Explain why the appointment of an

internal audit department should improve information
received by the management of Fastbikes Co.
6 Marks
 c) Explain why the internal audit
manager should not report to Mr. Jones, stating with
reasons to whom she should report. 5 Marks
Total 20 Marks

Tom, Dick & Harry

5 Ten years ago, three business acquaintances Tom, Dick

and Harry, jointly formed an ice-cream manufacturing
and distribution company TDH Ltd. Since its inception it
has been very successful and has grown to become one
of the country’s major selling ice-cream companies,
with six manufacturing outlets and over ten retail units
in various shopping centers. Its turnover is now
approaching ₤10 million per annum. Tom recently
attended a business conference entitled ‘Fraud and its
Prevention’. The conference has made him concerned
about the risk of fraud in TDH Ltd, as there is no
internal audit function and neither himself, Dick or
Harry has any expertise in accounting or auditing. As a
result, he has proposed that a review of internal control
procedures be undertaken, and that consideration be
given to the establishment of an internal audit function.

Required

a) Identify and briefly describe FOUR

different types of fraud which may occur within a
business such as TDH Ltd.
8 Marks
 b) ..
i. Briefly explain TWO ways in which an internal audit
function could help prevent or detect fraud. 2 Marks

ii. Briefly explain FOUR features of an internal control

system, which could help prevent or detect fraud.6 Marks

iii. Briefly outline TWO ways in which the personnel

department could help prevent or reduce fraud. 4 Marks

Total 20 Marks

Sales Controls

6 The finance director of your client Thomas Katt Co has

contacted you for advice relating to the forthcoming
replacement of the company’s sales system.

The current system is partly computerised. Details of

manually- completed dispatch notes are fed into the
computer to produce sales invoices. The computer then
posts the invoices to the sales ledger. Cash receipts are
also recorded on the computer. As a result the current
system can produce a debtors listing including ageing of
debtors. However it is felt that the current system is an
unsatisfactory hybrid because dispatch notes are
produced manually and order confirmations are typed on
an ad hoc basis.

The directors feel that the biggest single weakness of the

current system is that goods are dispatched to customers
who have a poor credit rating. The consequence has been
a very high bad debt provision in the last few years’
accounts. Therefore a key feature of the new system will
be that customers’ credit rating will be checked
automatically by the computer, using data on the sales
ledger and extra information as required. The new system
will allow the sales ledger manager to override computer
prohibition of dispatch of goods to a customer who is a
poor credit risk.

The new system will only be able to be accessed from

terminals in the sales ledger department. Each member of
staff will have a unique password. The issue of passwords
will be controlled by the sales ledger manager.

The documentation that the new system will produce is as

follows.

a. The order confirmation.

b. The dispatch note. Under the new system goods will

be dispatched automatically when the customer
requires them.

c. The sales invoice. This will be produced with the

dispatch note. The information on it will be taken
from the dispatch note and standing sales ledger
data of prices. Posting of the invoice to the sales
ledger will be automatic. Cash received will be
posted to the sales ledger and cash book in the
same way as under the old system.

Required

a) Describe the controls that should operate over

changes to the standing data on the sales ledger. Your
answer should include consideration of controls over
changes to:

i. The sales prices of individual products;

ii. Customer standing data (including additions and

amendments to the listing of existing customers
and deletions from this list);

iii. Customer credit limits. 10Marks

 b) Describe the controls that should be operated before
the computer system confirms a customer order and
allows dispatch of goods. 6 Marks

c) .
i. Describe the credit control details that should be
considered by the computer when the decision is
made on whether to allow dispatch of goods to a
customer. 2 Marks
ii. Describe the manual override procedures that
should be operated before dispatches are permitted
to customers who have failed the computer’s credit
control tests. 2 Marks
Total 20 Marks

Dispatches

7 You have been assigned to a special project team

searching for ways to improve business processes in
your organisation, which the aim of improving control
over dispatched goods, so that customers receive what
they ordered and are correctly invoiced. In this role you
have discovered that your company’s record in this
area is not what it should be. The table below gives a
snapshot of three product groups.

Product Group Product Group Product Group

A B C

70%
On Time Delivery 60% 80%

Complete 90% 80% 90%

63%
On Time and Complete 54% 64%
 On time delivery is defined as being within two days of the
agreed delivery date. It has been demonstrated that lack of
stock availability in your customers’ stores is having an
adverse effect on their sales and yours. You have been asked
to develop a detailed document which outlines the following:

a) What can go wrong during the sales cycle. 8 Marks

b) Controls over goods outwards and the preparation of

invoices in your company.
12 Marks
Total 20 Marks

Workload

8 Paul Santorini, a new junior colleague in your section,

appears to be highly stressed by the workload he has
been assigned, although he seems highly competent at
the technical aspects of the work.

At first, when non-routine tasks got added to his routine

workload from time to time, he would do them immediately –
often missing deadlines on routine but important tasks. When
your supervisor, Gina Sawhala, pointed this out to him, he
started performing the occasional non-routine tasks after all
the routine tasks for the day or week were complete – often
missing deadlines on important non-routine tasks. Gina noted
this also, suggesting that Paul needs to settle into the pace of
the workflow in the office.

You now notice that Paul has taken to staying behind to put
in extra hours so that all deadlines are met. However, you
 also notice that he is getting tired, irritable and slightly
withdrawn in his relationships in the office.

What is the problem and what (if anything) should you do

about this? Prepare brief notes for yourself, outlining the
strategy you will follow and what (if anything) you will say to
any of the people involved.
Total 20 Marks

Physical Security

9 .

a) There are three methods of protection from the

consequences of a breach security:

i. Defence
ii. Detection
iii. Deterrence

Required

Explain what you understand these three ‘Ds’ to involve for a

typical organisation.
6 Marks

b) At about a quarter to six one evening you are one of the

few people left to work. You have stayed behind to take
delivery of a package which is being sent over by
 courier form a client’s building. You are waiting in the
reception area.

The courier arrives, rings the buzzer in your entrance lobby

and is admitted. He hands you the package, you sign for it
and he leaves.

Less that a minute later the buzzer rings again. It is the

courier, who tells you that his mountain bike has gone
missing.

Apparently he had brought the bike through the main doors

of your building and left it, unlocked, in the entrance lobby.
There had been another person in the lobby who seemed to
be tending to the plants by the door. The courier had left his
bike unattended for no more than 30 seconds.

Your building is separate to the main building on your site

where the security guards are located. You take the courier
over to the main building and ask to speak to one of the
guards to see whether they can shed any light on the
matter. You also reassure the courier that the theft will have
been captured on video camera since there is a camera
overlooking the car park besides your building.

A new security shift begins at 6 o’clock and you find that

you have to wait until then before you can speak to one of
the guards. He tells you that, so far as he is aware, the theft
had not been noticed and no suspicious characters had
been reported.

Unfortunately the video had been switched off at 5.45 to

rewind the tape, and had not been turned on again until just
after 6 o’clock.

The security guard is reluctant to take any further action

(he confides in your that he sees not reason to, since the
courier is not a member of your organisation), but
eventually you persuade him to let you watch the last few
minutes of the tape that was switched off to see if you can
at least spot the person who had been hovering in your
entrance lobby. However it transpires that the camera
points at the car park and any activity around the main
entrance to your building cannot be seen.

Required

Write a memo to the Office and Premises Administration

Manager pointing out any aspects of security that you feel
need to be tightened up.
14 Marks
Total 20 Marks

Physical Threats

10 SCP Ltd is an engineering company which is about to

implement a new production planning and control
system. Following a strategic level review of the
business, the board have decided that one of the
company’s critical success factors is the production of
up-to-date and accurate information in internal (e.g.
customer orders) and external (e.g. raw materials
availability) factors, so that the company can respond
quickly to changes in demand and other external
circumstances. The new system will enable a rapid
response to such information and will provide output for
a range of production operations including machine
loading, control of raw materials, production set-up,
batch control, planned downtime and machine
utilisation.
The system is seen as a ‘mission critical’ one and the
company is setting up a new computer center, which will take
responsibility for this system and also take over existing
systems currently under the auspices of the finance, sales
and personnel departments.

You have been asked to advise the company on the security

aspects of the new computer centre.

Required

a) What potential physical threats would you make your

client aware of? What precautionary measures would
you suggest, and what techniques would you propose
be implemented to control access to the computer
centre?

b) A contingency plan is to be devised outlining

measures that should enable operations to continue in
adverse conditions. Explain to the client the purpose
of such a plan, how it might be developed, and the
standby options which are available.