Shelly, Kelly & Mark (SKM) are the auditors of Bass. SKM’s IT consulting division has undertaken a
number of accounts receivable management system implementation projects and is actively looking
for opportunities to perform more of this type of work. As a result, SKM’s IT consulting division is
planning to submit a proposal to implement an accounts receivables management system at Mass.
(a) Identify and explain the two primary threats to independence for SKM. (5 marks)
(b) Outline an appropriate safeguard to address each of the threats identified above. (5 marks)
3
Week 3 Question (10 marks)
You are the audit senior responsible for the audit of Sampson Limited. You are currently planning the
audit for the year ended 31 December 20X7. During your initial planning meeting held with the
financial controller, he told you of the following changes in the company’s operations.
(i) Due to the financial controller’s workload, the company has employed a treasurer. The financial
controller is excited about the appointment because in the two months that the treasurer has
been with the company he has realised a small profit for the company through foreign-exchange
transactions in yen.
(ii) Sampson has planned to close an inefficient factory in country New South Wales before the end
of 20X7. It is expected that the redeployment and disposal of the factory’s assets will not be
completed until the end of the following year. However, the financial controller is confident
that he will be able to determine reasonably accurate closure provisions.
(iii) To help achieve the budgeted sales for the year, Sampson is about to introduce bonuses for its
sales staff. The bonuses will be an increasing percentage of the gross sales made, by each
salesperson, above certain monthly targets.
(iv) The company is using a new general ledger software package. The financial controller is
impressed with the new system, because management accounts are easily produced and allow
detailed comparisons with budgets and prior-period figures across product lines and
geographical areas. The conversion to the new system occurred with a minimum of fuss. As it is
a popular computer package, it required only minor modifications.
(v) As part of the conversion, the position of systems administrator was created. This position is
responsible for all systems maintenance, including data backups and modifications. These tasks
were the responsibility of the accountant