(b) Capital expenditure
(i) Audit evidence
– Testing should have been extended after the control deficiency was identified
– Reason for the controls not operating effectively should be investigated
– Increases the fraud risk in relation to capital expenditure
– Not all assertions have been covered by audit testing in respect of the vehicles purchased
(ii) Further audit procedures
– Obtain the insurance documents to confirm that Thurman Co is paying the relevant insurance for the vehicles
– Physically verify the vehicles and confirm that they are being used by employees on company business
– Obtain the log book and other relevant ownership documents such as those issued by the vehicle licensing body, to confirm the right of Thurman Co to recognise the vehicles
– Trace the vehicles to the company’s fixed asset register
– Recompute the depreciation which should have been charged on the vehicles and agree to the statement of profit or loss for the year.
(iii) Report to those charged with governance
– Explain the deficiencies and the implications, i.e. increased fraud risk
– Recommend improvements to specific controls and to the general control environment
Maximum marks 7