Question

Fantastic Furniture Pty Ltd (Fantastic Furniture) is a furniture manufacturer located in Sydney and has just installed the company’s first computer system. In preparing for your current audit, you have identified the following information: i. The system is a local area network (LAN). ii. The file server and two PCs are located at Head Office in Sydney, with two other PCs located in Melbourne. iii. Selma Taylor, the CEO, who is located at Head Office and three clerical staff, Scot Davis, who is located at Head Office and Andy Johnson and Yang Chan, who are located in Sydney, are the only ones having logical access privileges to the computer. Their access privileges are as follows: iv. Selma: access to all software and all files v. Scot: access to inventory vi. Andy: access to receipts, sales and debtors. vii. Yang: access to payroll, payments and payables viii. All software was purchased off-the-shelf with the exception of the inventory program. Due to the specialised nature of Fantastic Furniture’s inventory, an independent IT contractor was engaged to design, develop, test and install their program. ix. The IT contractor fully documented the workings of the inventory system, however, neither Scot nor Selma understand the documentation. x. The computer hardware at both locations is kept in locked offices. xi. Selma backs up all data kept on the file server on a daily basis and places a copy in a local secure storage facility. xii. Scot, Andy and Yang print summary reports of inventory; sales, cash receipts and debtors; and cash payments, payables and payroll, respectively, and reconcile these on a weekly basis. Any apparent errors or problems are referred to Selma for resolution. Identify five (5) strengths in Fantastic Furniture’s general controls that will impact on the reliability of the IT information that is generated. For EACH strength identified, outline how this will impact the audit overall.

Answer 1

i. The system is a local area network (LAN).

ii. The file server and two PCs are located at Head Office in Sydney, with two other PCs located in Melbourne.

iii. Selma Taylor, the CEO, who is located at Head Office and three clerical staff, Scot Davis, who is located at Head Office and Andy Johnson and Yang Chan, who is located in Sydney, are the only ones having logical access privileges to the computer. Their access privileges are as follows:

iv. Selma: access to all software and all files

v. Scot: access to inventory

vi. Andy: access to receipts, sales and debtors.

vii. Yang: access to payroll, payments and payables

viii. All software was purchased off-the-shelf with the exception of the inventory program. Due to the specialised nature of Fantastic Furniture’s inventory, an independent IT contractor was engaged to design, develop, test and install their program.

ix. The IT contractor fully documented the workings of the inventory system, however, neither Scot nor Selma understand the documentation.

x. The computer hardware at both locations is kept in locked offices.

xi. Selma backs up all data kept on the file server on a daily basis and places a copy in a local secure storage facility.

xii. Scot, Andy and Yang print summary reports of inventory; sales, cash receipts and debtors; and cash payments, payables and payroll, respectively, and reconcile these on a weekly basis.

The Strengths in the above Information System are:

1. Access of a particular item is vesting with single personnel. This can ease the audit of the financial information as there are no complications in obtaining the information in the audit.
2. The System is in LAN and also have a file server by which the internal controls of the organisations seems better. With more internal controls the internal risk of the audit reduces.
3. Weekly Reconciliation of the accounts like Inventory, Sales, Cash Receipts, Debtors etc. reduces the material misstatements and the financial statements more reliable.
4. Backing up the data in File Server may lead to data redundancy but also act as an emergency back up of the data.
5. As the Software used is Specialised software there are fewer chances for threats and bloatwares.