Marwin

Marwin is a retailer of books and has ten stores and a central warehouse, which holds the majority of
the company's inventory.

Extract of purchases and payables system

Store managers are responsible for ordering books for their shop. It is not currently possible for store
managers to request books from any of the other nine stores. Customers who wish to order books,
which are not in stock at the branch visited, are told to contact the other stores directly or visit the
company website. As the inventory levels fall in a store, the store manager raises a purchase requisition
form, which is sent to the central warehouse. If there is insufficient inventory held, a supplier requisition
form is completed and sent to the purchase order clerk for processing. He sends any orders above
$1,000 for authorisation from the purchasing director.

Receipts of goods from suppliers are processed by the warehouse team, who agree the delivery to the
purchase order, checking quantity and quality of goods and complete a sequentially numbered goods
received note (GRN). The GRNs are sent to the accounts department every two weeks for processing.

On receipt of the purchase invoice from the supplier, an accounts clerk matches it to the GRN. The
invoice is then sent to the purchase ordering clerk, who processes it for payment. The finance director is
given the total amount of the payments list, which she authorises and then processes the bank
payments. Due to staff shortages in the accounts department, supplier statement reconciliations are no
longer performed.

For the selected Company a team of 3-4 students need:

1) Describe a control environment in the Company and evaluate whether the control environment
is strong or not and how it affects on Company’s internal controls.
(10%)

2) Understand a business process of the Company (illustrate a flowchart, showing every step of this
business process and demonstrate whether a step is manual or automated, does it involve hard
copy or electronic documents). The following template can be used in drawing a flowchart.

Also you can watch this video to understand each element of flowchart
(https://www.youtube.com/watch?v=2De4hO3lu14)
(20%)

3) Perform a risk assessment, through identification a risk on each business process step, that
might affect financial reporting process of the company and document what consequence
might occur on financial statements if the company will not adopt any control on this procedure.
(20%)

4) Evaluate a system of internal control and document how you have done it (ICQ and ICEQ)
(20%)
 5) For each identified risk, that affect the financial reporting of the Company, recommend a
relevant control procedure that is needed to be adopted in the business process.
(20%)

6) For each recommended control procedure, explain what control test should audit team perform
to confirm that the control is effective.
(20%)

Assessment Criteria
To succeed in this assessment, you need to:
 Demonstrate a deep knowledge of the work of auditors regarding the test of internal controls,
through identification relevant key controls that the entity put in place to help prevent and
detect errors in the recording of transactions (comprehension)
 Logically perform risk assessment of the entity’s current business process identifying possible
risk of material misstatement in financial reporting (critical evaluation).
 Present evidence and reasonable arguments for justifying why the specific control is relevant to
avoid a risk of material misstatement (analysis).
 Present a clear (e.g., understandable, logically coherent and consistent), structured (i.e., clearly
corresponding to the 6 points in the question), and convincing (e.g., using relevant terminology)
presentation (professional writing).