Squeeze Ltd (SL) is a manufacturer of quality bedding. The SL group's IT system has a master file which contains taxation schedules, payroll information and employee details. Only senior members of the accounts and human resources departments have access to the master file in order to make any necessary alterations. All alterations are alerted by email to the chief information officer, Robin Beard, along with the code identification of the staff member making the changes. SL's information system allows the accounts function of all group companies to interact with each other.
Robin's duties include making all software application changes to the IT system and preparing a report for the chief executive officer detailing the changes after they have been implemented. Robin also operates the IT system when the computer operator is on leave. SL has a policy of promoting and transferring staff between divisions and companies within the group. While new members of staff are given new IT access, members who have been transferred within the group still retain their existing access. The IT department receives requests for new access levels for a given employee (which have been approved by that employee's manager), and these accesses are then added to the employee's account. To enable a smooth transition, the transferring ernployee's original access entitlements are retained, as the employees are often still completing tasks from their previous role.
SL offers customers a range of payment options, including an interest-free finance option. These arrangements involve customers signing a consumer credit contract with an interest free term of up to 2 years. The growing demand for these interest free sales has begun to stretch SL's cash position and it has had to take on additional debt to fund the cash flow timing differential between its receivables and payables. SL must comply with various financial covenants for its debt facilities with its bank, Aussie Bank Ltd, including meeting the specified debt-to-equity ratio at 30 June 20X4 and meeting profit targets for the 20X4 financial year. SL is close to breaching these covenants. Aussie Bank Ltd has requested a copy of the 30 June 20X4 audited financial report as soon as it is completed.
The significant growth in interest-free business is due in part to effective incentive schemes that operate across all sections of the business. Sales staff are paid monthly bonuses based on the value of new finance contracts signed up. At the end of each month, each staff member emails the payroll department a log of contracts listing contract number and value. The payroll department processes the bonuses based on this information.
Identify fraud risk factors, and explain why each is a risk factor.
Oldbury Ltd has installed a new fixed assets system. The system maintains the details for each of Oldbury's fixed assets. It records acquisitions and disposals. It also calculates depreciation and gain/loss on disposals, and accumulates the provision for depreciation. It is fully integrated with the general ledger.
Evaluate the suitability of the following computer-assisted audit techniques (CAATs) for testing this system: generalised audit software, test data, simulation and an integrated test facility. In each case, define the nature of the CAAT and explain how it could be applied to this audit. Be specific about which assertions are being tested.