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Chapter 8 In Class Questions_solution.pdf

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Trish Stringer

In Class #8.1 Securimax Limited (Securimax) has been an audit client for KFP Partners (KFP) for the past 15 years. Securimax is based in Waterloo, where it manufactures high-tech armour-plated personnel carriers. Securimax often has to go through a competitive market tender process to win large government contracts. Its main product, the small but powerful Terrain Master, is highly specialized and Securimax only does business with nations that have a recognized, democratically elected government. Securimax maintains a highly secure environment, given the sensitive and confidential nature of its vehicle designs and its clients. In September 2011, Securimax installed an off-the-shelf costing system to support the highly sophisticated and cost-sensitive nature of its product designs. The new system replaced a system that had been developed in-house, as the old system could no longer keep up with the complex and detailed manufacturing costing process that provides tender costings. The old system also had difficulty with the company’s broader reporting requirements. Securimax’s IT department, together with the consultants from the software company, implemented the new manufacturing costing system. There were no customized modifications. Key operational staff and the internal audit team from Securimax were significantly engaged in the selection, testing, training, and implementation stages. The manufacturing costing system uses all of the manufacturing unit inputs to calculate and produce a database of all product costs and recommended sales prices. It also integrates with the general ledger each time there are product inventory movements such as purchases, sales, wastage, and damaged stock losses. Required 1: What are the control risks in this business?  Securimax sells to an inappropriate entity  Securimax’s confidential information is disclosed to competitors  Costing system calculates/produces incorrect costs – over/under  Securimax bids inaccurately on a job – too high/too low  Costing system doesn’t communicate with accounting system correctly  Access to computer system by inappropriate person(s) Required 2: In relation to the new manufacturing costing system, descri
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