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f8 DEC 2010 ANSwers

f8 DEC 2010 ANSwers

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Published by Pakistan Dramas
for more visit http://acuteacca.tk
for more visit http://acuteacca.tk

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Published by: Pakistan Dramas on Nov 28, 2011
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FOR FREE ACCA RESOURCES VISIThttp://acuteacca.tkSEND YOUR REQUESTS ATemail@acuteacca.tkPAST PAPERS ARE UNDER COPYRIGHT©.FOR FREE ACCA RESOURCES VISIThttp://acuteacca.tkSEND YOUR REQUESTS ATemail@acuteacca.tkPAST PAPERS ARE UNDER COPYRIGHT©.
 
Fundamentals Level – Skills Module, Paper F8 (INT)Audit and Assurance (International)December 2010 Answers1(a)
Examples of matters the external auditor should consider in determining whether a deficiency in internal controls is significantinclude:The likelihood of the deficiencies leading to material misstatements in the financial statements in the future.The susceptibility to loss or fraud of the related asset or liability.The subjectivity and complexity of determining estimated amounts.The financial statement amounts exposed to the deficiencies.The volume of activity that has occurred or could occur in the account balance or class of transactions exposed to thedeficiency or deficiencies.The importance of the controls to the financial reporting process.The cause and frequency of the exceptions detected as a result of the deficiencies in the controls.The interaction of the deficiency with other deficiencies in internal control.Tutorial note: ISA 265
Communicating Deficiencies in Internal Control to those Charged with Governance and Management
states that a significant deficiency in internal control is a deficiency or combination of deficiencies in internal control that, inthe auditor’s professional judgement, is of sufficient importance to merit the attention of those charged with governance.
(b)
Board of DirectorsGreystone Co30 Any StreetA TownX Country8 December 2010Dear Sirs,Audit of Greystone Co for year ended 30 September 2010
Please find enclosed the report to management on significant deficiencies in internal controls identified during the audit forthe year ended 30 September 2010. The report considers deficiencies in the purchases system, implications of thosedeficiencies and provides recommendations to address those deficiencies.
11
(i) Deficiency(ii) Implication(iii) Recommendation
The purchasing manager decides onthe inventory levels for each storewithout discussion with store orsales managers. The purchasingmanager may not have theappropriate knowledge of the localmarket for a store.This could result in stores orderinggoods that are not likely to sell andhence require heavy discounting. Inaddition as a fashion chain, if customers perceive that the goodsare not meeting the key fashiontrends then they may cease to shopat Greystone at all.The purchasing manager shouldinitially hold a meeting with areamanagers of stores; if meeting allstore managers is not practical, heshould understand the local marketsbefore agreeing jointly goods to bepurchased.The purchase orders are onlyreviewed and authorised by apurchasing director in a whollyaggregated manner (by specifiedregions of countries).It will be difficult for the purchasingdirector to assess whether overall thecorrect buying decisions are beingmade as the detail of the orders isnot being presented and he is theonly level of authorisation.This could result in significant levelsof goods being purchased that arenot right for particular marketsectors.A purchasing senior manager shouldreview the information prepared foreach country and discuss with localpurchasing managers the specifics of their orders. These should then beauthorised and passed to thepurchasing director for final reviewand sign off.The store managers are responsiblefor re-ordering goods through thepurchasing manager.If the store managers forget or ordertoo late, then as the ordering processcan take up to four weeks, the storecould experience significant stockouts leading to loss of income.Automatic re-order levels should beset up in the inventory managementsystems. As the goods sold reach there-order levels the purchasingmanager should receive anautomatic re-order request.
 
FOR FREE ACCA RESOURCES VISIThttp://acuteacca.tkSEND YOUR REQUESTS ATemail@acuteacca.tkPAST PAPERS ARE UNDER COPYRIGHT©.
 
Please note that this report only addresses any significant deficiencies identified during the audit and if further testing hadbeen performed then more deficiencies may have been reported.This report is solely for the use of management and if you have any further questions then please do not hesitate to contactus.
Yours faithfullyAn audit firm
12
(i) Deficiency(ii) Implication(iii) Recommendation
It is not possible for a store to ordergoods from other local stores forcustomers who request them.Instead they are told to contact thestores themselves, or use thecompany website.Customers are less likely to contactindividual stores themselves and thiscould result in the company losingout on valuable sales.In addition some goods which areslow moving in one store may be outof stock at another, if goods could betransferred between stores thenoverall sales may be maximised.An inter-branch transfer systemshould be established betweenstores. This should help storeswhose goods are below the re-orderlevel but are awaiting their deliveriesfrom the suppliers.Deliveries from suppliers areaccepted without being checked first.In addition they are then checked bysales assistants to the supplier’sdelivery note to agree quantities butnot quality.Sales assistants are producing thegoods received note (GRN) onreceipt of a supplier’s delivery note.The stores are receiving goodswithout checking that these arecorrect. Hence if a delivery issubsequently disputed there may belittle recourse for the company.If the sales assistants are onlychecking quantities then goodswhich are not of a saleable conditionmay be accepted.The assistants may not beadequately experienced to producethe GRN, and this is an importantdocument used in the invoiceauthorisation process. Errors couldlead to under or overpayments.Deliveries from suppliers should onlybe accepted between designatedhours such as the first two hours of the morning when it is quieter. Thegoods should then be checked onarrival for quantity and quality priorto acceptance from the supplier. Aresponsible official at each storeshould produce the GRN from thesupplier’s delivery information.Goods are being received withoutany checks being made againstpurchase orders.This could result in Greystonereceiving and subsequently payingfor goods it did not require.In addition if no check is madeagainst order then the company mayhave significant purchase orderswhich are outstanding, leading tolost sales.A copy of the authorised order formshould be sent to the store. Thisshould then be checked to the GRN.Once checked the order should besent to head office and logged ascompleted. On a regular basis thepurchasing clerk should review theorder file for any outstanding items.Purchase invoices are manuallymatched to a high volume of GRNsfrom the individual stores.A manual checking processincreases the risk of error, resultingin invoices being accepted orrejected erroneously.The checked GRNs should be loggedonto the purchasing system,matched against the relevant ordernumber, then as the invoice isreceived this should be automaticallymatched.The purchasing clerk should thenreview for any unmatched items.The purchase invoice is only loggedonto the system as it is beingauthorised by the purchasingdirector.If the invoice is misplaced thenpayables may not be settled on atimely basis. In addition at theyear-end the purchase ledger may beunderstated as invoices relating tothe current year have been receivedbut are not in the purchase ledger.Upon receipt of an invoice thisshould be logged into a file of unmatched invoices. As it ismatched and authorised it shouldthen be moved into the purchaseledger. At the year-end items in theunmatched invoices file should beaccrued for, to ensure liabilities arenot understated.
 
FOR FREE ACCA RESOURCES VISIThttp://acuteacca.tkSEND YOUR REQUESTS ATemail@acuteacca.tkPAST PAPERS ARE UNDER COPYRIGHT©.

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