Referencing Styles : APA Case Study – the information below applies to Questions 1, 2 and 3. You are the senior in charge on the audit of Fine Chem Pty Ltd (FCPL), a private company controlled by three pharmacists; Janine Cole, Peter Davis and Warren Banks, who form the Board of the company. You firm has just been appointed to complete this audit. FCPL operates 10 pharmacies in the Sydney region. Each of these pharmacies employs one or more pharmacists and a number of sales staff. Janine Cole, Peter Davis and Warren Banks work in each pharmacy on a rotational basis and fill in when there are staff absences. FCPL is looking to expand its operations to Melbourne, and is currently negotiating the finance for and purchase of two additional pharmacies. As part of the planning stage you have calculated following financial ratios: Ratio Industry Average Audited 2015 Unaudited 2016 Quick asset ratio 1.13 1.45 1.45 Invenory turnover (days) 21 25 30 Debt to equity ratio 2.1 1.5 1.5 Gross Profit ratio 0.35 0.45 0.45 Times interest earned ratio 5 6.8 7.2 As you continue in your work on this company you discover the following information about the purchases, accounts payable, sales, cash and inventory systems. FCPL has a centralised buying operation, managed by Eva Thomson, and a climate controlled storage area attached to the shop at Parramatta. Each week the chemist/store manager at each of the pharmacies provides details of stock required to Eva Thomson. Eva checks if the goods are in the storage area. If they are not currently available she then logs in to the appropriate supplier web site and orders the required goods. Eva emails a copy of the online order to all pharmacies indicating the amount ordered for each pharmacy. Some goods are delivered directly to the individual pharmacies. On receipt, they are checked against the online order copy sent by Eva and entered into the inventory system by one of the shop sales staff. Other goods such as cosmetics, perfumes, vitamins and other supplements are only directly delivered to the Parramatta pharmacy and later distributed to the individual pharmacies. Eva checks all goods received at the Parramatta pharmacy against the order that she has placed, enters the goods into the perpetual inventory system and files the order alphabetically. Once a week, FCPL uses a contract courier with a climate controlled van to deliver this stock to the other pharmacies. Eva receives all the invoices and enters them into the accounting software, a comprehensive cloud based accounting system. The company accountant, David Wells, is a contractor working 2 or 3 days as required. He approves the invoices for payment and loads the payment batch file up to the bank. This triggers a record of the payments being made in the accounting system. David reconciles the bank account each week. When David is unavailable to approve payments Warren Banks approves the payments. The payment system records who approves the payments based on the login identification used to access the system. Access to the system can be from any computer connected to the internet. Login is through a login identification and password system. There is no automated system to regularly change the passwords. You noted that last year this cloud based system was hacked. Tax file details were stolen from a number of clients of the cloud based system, false tax returns were lodged and tax refunds stolen by the hackers. Fortunately FCPL employees were not targeted by these hackers. All sales are either cash or EFTPOS transactions. The cash registers are linked to the accounting software updating the perpetual inventory system and cash at the end of each day’s trading. As a perpetual inventory system is used no physical stocktakes are undertaken. Cash is banked daily by the pharmacist at each pharmacy. As part of the weekly bank reconciliation process David reconciles the daily banking to the cash register/accounting system records. David downloads a balance sheet and profit and loss statement each month and provides these to the Board for their monthly meetings. The accounting system includes a dashboard which can be customised by David to meet the needs of the Board. David has not customised the dashboard as only Warren has expressed an interest in it. Although all Board members have access to the accounting system Warren is the only Board member who regularly accesses the system. You have noted that one of FCPL's major suppliers is Banks Supplements Ltd. You have further discovered that the CEO of this company is Melinda Banks, the wife of Warren Banks. Banks Supplements Ltd is a large organisation supplying supplements to a growing Asian market. Question 1 (6 Marks) Analyse the ratios in conjunction with the additional information and identify from your analysis, implications for the audit and any particular audit steps that need to be undertaken to reduce audit risk. For example if there was a worsening debtor’s turnover, one of the audit steps would include a review of the provision for doubtful debts. Ensure that you also identify any potential weaknesses in this ratio analysis and any additional information that you will need to make a judgement about the business risk facing the company. Question 2 (8 Marks) Identify the strengths and weaknesses in the internal control system described above. For each control weakness, identify the financial report assertions that may not be met. Suggest a control to correct any of the deficiencies identified. Identify how this weakness will affect your audit, indicating the additional audit steps and audit evidence that you will need to collect to reduce audit risk. Question 3 (6 Marks) The COBIT framework identifies seven categories of threats to the computer information system. Consider each of these categories to evaluate the audit and business risks that arise from the information system. Suggest changes that could be made to minimise these risks and identify how these risks will impact on the audit that you will undertake. Rationale This assessment has been designed to assess your ability to: be able to demonstrate risk management methodologies and the role of internal controls in a audit context; be able to design an audit plan and select and apply appropriate audit procedures for a financial statement audit; be able to exercise critical and reflective judgment. Marking criteria Question 1 Criteria High Distinction (50-60) Distinction (44-49) Credit (38-43) Pass (30-37) Deep analysis of ratios demonstrating business risk assessment skills and critical and reflective judgement. (25 Marks). Correct interpretation provided demonstrating a sophisticated understanding of how the ratios can be used to analyse the risks that a business faces. Correct interpretation provided demonstrating a good understanding of how the ratios can be used to analyse the risks that a business faces. Most interpretations correct. Demonstrating a developing understanding of how the ratios can be used to analyse the risks that a business faces. Demonstrated understanding of some of the ratios and their use in identifying the risks that a business faces. Weakness in analytical review and additional information identified. This demonstrates the ability to use business risk analysis in a novel situation and to use critical and reflective judgment. (10 Marks). All additional information taken into consideration when developing correct interpretation of ratios. Further demonstrating the high level of understanding of business risk analysis. Most of the additional information taken into consideration when developing correct interpretation of ratios demonstrating a good level of understanding of business risk analysis. Much of the additional information taken into consideration when developing correct interpretation of ratios demonstrating a moderate level of understanding of business risk analysis. Some additional information taken into consideration when developing correct interpretation of ratios. This demonstrates a basic level of understanding of business risk analysis. Identification of audit tests that will need to be completed to minimise audit risk identified through the analysis of the ratios and the additional information. This demonstrates the ability to design an audit plan (20 Marks). All appropriate audit tests identified with a clear statement as to how these will minimise audit risk. This demonstrates a sophisticated level of audit planning. Most appropriate audit tests identified. Evidence of some understanding as to how these will minimise audit risk. Many appropriate audit tests identified. Evidence of some understanding as to how these will minimise audit risk. Some appropriate audit tests identified. Basic understanding of how these will minimise audit risk. Professional communication (Note: you are required to space between paragraphs; use Arial 10pt or TNR 12 pt; use 1.5 or double line spacing) (3 Marks). Work contains distinct understandable statements with no errors. Extremely well organised. Content is structured in a manner that facilitates the reader’s understanding. Work contains distinct understandable statements with minimal errors. Answer is well organised. Content is structured in a manner that facilitates the reader's understanding. Minor spelling, grammar and punctuation errors. Work shows evidence of proofreading. Well-structured with one main idea or argument provided per paragraph. Some spelling, grammar and punctuation errors found but the work is readable and structured. Work may include too many ideas in one paragraph. Appropriate resources and correct referencing. (2 Marks). Used a range of resources. All work has been referenced correctly as per APA (6th edn) requirements. Used two or more sources. All work has been referenced correctly as per APA (6th edn) requirements. Used one or more sources. All work has been referenced within the body of the answer and in the reference list, with some omissions or errors in terms. No additional sources used other than the text. Others’ work is not always acknowledged and there are a number of errors or non-compliance with the APA (6th edn). Question 2 Criteria High Distinction (67-80) Distinction (59-66) Credit (51-58) Pass (40-50) Identification of absent or weak and strong controls. This demonstrates the level of understanding of the role of internal controls. (30 Marks). Identification of all absent or weak and strong controls demonstrating a deep understanding of the role of internal controls. Identification of most of the absent or weak and strong controls demonstrating a good level understanding of the role of internal controls. Identification of some of the absent or weak and strong controls demonstrating a moderate level understanding of the role of internal controls. Identification of only a few of the absent or weak and strong controls demonstrating a very basic level understanding of the role of internal controls. Identification of financial report assertions not met. (10 Marks) Identification of all unmet financial report assertions demonstrating a sophisticated understanding of the development of an audit plan. Identification of most unmet financial report assertions demonstrating a good level of understanding of the development of an audit plan. Identification of some of the unmet financial report assertions demonstrating a moderate level of understanding of the development of an audit plan. Identification of a few unmet financial report assertions demonstrating a basic level of understanding of the development of an audit plan. Identification of the control to correct the deficiency (15 Marks). Identification of all of the controls to correct the deficiencies, demonstrating critical and reflective thinking and a deep understating of the role of internal controls. Identification of most of the controls to correct the deficiencies, demonstrating critical and reflective thinking and a good understating of the role of internal controls. Identification of some of the controls to correct the deficiencies, demonstrating a moderate level of critical and reflective thinking and understating of the role of internal controls. Some attempt to identify the controls to correct the deficiencies, demonstrating a basic level of critical and reflective thinking and understating of the role of internal controls. Development of a series of audit steps to overcome the audit risk resulting from the weak controls. (20 Marks). Development of a comprehensive series of audit steps designed to overcome the audit risk. This demonstrates a deep understanding of the audit process. Development of most of the audit steps designed to overcome the audit risk. This demonstrates a good understanding of the audit process. Development of some of the audit steps designed to overcome the audit risk. This demonstrates a moderate level understanding of the audit process. Some attempt to develop the audit steps designed to overcome the audit risk. This demonstrates a moderate level understanding of the audit process. Professional communication (Note: you are required to space between paragraphs; use Arial 10pt or TNR 12 pt; use 1.5 or double line spacing) (3 Marks). Work contains distinct understandable statements with no errors. Extremely well organised. Content is structured in a manner that facilitates the reader’s understanding. Work contains distinct understandable statements with minimal errors. Answer is well organised. Content is structured in a manner that facilitates the reader’s understanding. Minor spelling, grammar and punctuation errors. Work shows evidence of proofreading. Well-structured with one main idea or argument provided per paragraph. Some spelling, grammar and punctuation errors found but the work is readable and structured. Work may include too many ideas in one paragraph. Appropriate resources and correct referencing (2 Marks). Used a range of sources. All work has been referenced correctly as per APA (6th edn) requirements. Used two or more sources. All work has been referenced correctly as per APA (6th edn) requirements. Used one or more sources. All work has been referenced within the body of the answer and in the reference list, with some omissions or errors in terms. No additional sources used other than the text. Others’ work is not always acknowledged and there are a number of errors or non-compliance with the APA (6th edn). Question 3 Criteria High Distinction (50-60) Distinction (44-49) Credit (38-43) Pass (30-37) Each category of threat used as a framework to evaluate business and audit risk (30 Marks). All categories used to comprehensively evaluate business and audit risk demonstrating a deep understanding of business and audit risk. All categories used to evaluate business and audit risk demonstrating a good understanding of business and audit risk. Most categories used to identify some business and audit risks demonstrating a moderate understanding of business and audit risk. Some categories used to identify a few business and audit risks demonstrating a basic understanding of business and audit risk. Identification of changes needed in the computer system to minimise business risk.(10 Marks). Identification of a comprehensive range of changes needed in the computer system to minimise business risk demonstrating a sophisticated understanding of business risk. Identification of most changes needed in the computer system to minimise business risk demonstrating a good understanding of business risk. Identification of some of the changes needed in the computer system to minimise business risk demonstrating a moderate understanding of business risk. Identification of a few changes needed in the computer system to minimise business risk demonstrating a basic understanding of business risk. Comprehensive assessment of the impact of the computer related business risk on the audit plan. (5 Marks). Development of a comprehensive assessment of the impact of the computer related business risk on the audit plan. This demonstrates a deep understanding of the audit process. Development of a good assessment of the impact of the computer related business risk on the audit plan. This demonstrates a good understanding of the audit process. Development of an assessment of the impact of the computer related business risk on the audit plan. This demonstrates a moderate level understanding of the audit process. Some attempt to develop an assessment of the impact of the computer related business risk on the audit plan. This demonstrates a basic level understanding of the audit process. Professional communication (Note: you are required to space between paragraphs; use Arial 10pt or TNR 12 pt; use 1.5 or double line spacing). (3 Marks). Work contains distinct understandable statements with no errors. Extremely well organised. Content is structured in a manner that facilitates the reader’s understanding. Work contains distinct understandable statements with minimal errors. Answer is well organised. Content is structured in a manner that facilitates the reader’s understanding. Minor spelling, grammar and punctuation errors. Work shows evidence of proofreading. Well-structured with one main idea or argument provided per paragraph. Some spelling, grammar and punctuation errors found but the work is readable and structured. Work may include too many ideas in one paragraph. Appropriate resources and correct referencing. (2 Marks). Used a range of sources. All work has been referenced correctly as per APA (6th edn) requirements. Used two or more sources. All work has been referenced correctly as per APA (6th edn) requirements. Used one or more sources. All work has been referenced within the body of the answer and in the reference list, with some omissions or errors in terms. No additional sources used other than the text. Others’ work is not always acknowledged and there are a number of errors or non-compliance with the APA (6th edn).