1 (40 Marks) You have recently been employed as a junior accountant by Footprint (Pty) Ltd, a wholesaler of sports shoes. Your first responsibility is to review the acquisitions and payments cycle to identify weaknesses in the cycle. Zakes Khumalo, the financial accountant, has told you that the company has been experiencing problems with overstocking, sub-standard inventory, inventory shortages and possibly, incorrect or invalid payments to creditors. You have obtained the following information: Staffing The buying department is staffed solely by Andy Hall, the company buyer, who has been with the company for many years. The warehouse manager, Ram Sarwan, has a staff of six warehouse assistants, who are responsible collectively for receiving deliveries from suppliers, picking and dispatching sales orders, and generally maintaining the warehouse. Ordering Andy Hall is responsible for placing orders with suppliers. In deciding what items and quantities to order, Andy Hall refers to a record he keeps of the orders he placed during the previous year. He also places orders with suppliers when they have promotional sales or specials. Branded sports shoes are purchased from the local importers of the brand, (i.e. they are not imported directly by Footprint (Pty) Ltd itself) whilst Andy Hall decides on where to purchase other footwear. Footprint (Pty) Ltd does not maintain perpetual inventory records. Andy Hall regularly visits footwear manufacturers to look at their products and is often visited by sales representatives from shoe companies. Although he is extremely busy he has consistently declined the offer by the management of Footprint (Pty) Ltd of an order clerk to be appointed in the buying department. Andy Hall makes out a pre-printed two part (original plus copy) order form for all orders. The original order is either sent by post to the supplier, left with a supplier when Andy Hall visits the supplier or given to the suppliers sales representatives when they call on Footprint (Pty) Ltd, and the copy remains in the order book. Prices for branded shoes are set by the importer, but with other suppliers, prices are negotiated by Andy Hall. Receiving When goods from suppliers are delivered to Footprint (Pty) Ltd, any one of the six warehouse assistants will receive the goods. To receive the goods, the warehouse assistant checks the number of boxes being delivered against the supplier delivery note, signs the delivery note and keeps a copy. Where the boxes delivered do not agree with the supplier delivery note, the difference is recorded on the delivery note and signed by both the warehouse assistant and the suppliers delivery personnel. The boxes are left in the receiving area until the warehouse assistants have time to move them into the warehouse where the goods are unpacked and stored. This usually occurs a day or two later. Note Although Footprint (Pty) Ltds accounting records are kept on computer, the company does not wish to computerize the ordering or receiving functions. The company is prepared to incur reasonable expenditure arising from your recommendations including the cost of employing an order clerk if you make such a recommendation. 2 DD YOU ARE REQUIRED TO recommend improvements to the ordering and receiving functions of the acquisitions and payments cycle at Footprint (Pty) Ltd, based on the information given above. For each recommendation you make, you are required to provide your reasons/justification for the recommendation. There may be more than one reason/justification for a single recommendation. USE THE FOLLOWING FORMAT TO STRUCTURE YOUR ANSWER: RECOMMENDATION JUSTIFICATION ORDERING FUNCTION RECOMMENDATION JUSTIFICATION RECEIVING FUNCTION QUESTION 2 (20 Marks) Each year Greenway and Zondeki, a large auditing firm, runs a two week programme for prospective trainee accountants who are interested in joining the firm. As you are studying towards becoming a chartered accountant, you applied to join the programme and were accepted. On one of the days Ashwell Zondi, a partner of the firm, conducted a workshop on professional ethics. His introduction was as follows: Greenway and Zondeki strives to obtain the highest levels of professional ethics. We will be taking you out to audit clients during this programme to assist with basic audit procedures and we expect you to comply with the fundamental principles of professional ethics as laid down by the SAICA Code of Professional Conduct. You have all studied this Code and should be familiar with the principles of objectivity, confidentiality and professional behaviour. At this point one of the students interrupted Whilst I understand that compliance with the Code is really important, can we assume that as we are not actually trainee accountants, we are not bound by the Code of Professional Conduct? Once Ashwell Zondi had responded to this question he continued. We are going to talk about the importance of independence, particularly in respect of assurance engagements such as the audits we will be taking you on. As you know, the auditor (the firm and the members of the audit team) must be, and must be seen to be, independent of the client. There are many situations which can threaten this independence and these are categorised into self-interest threats, self-review threats, advocacy threats, familiarity threats and intimidation threats. The following situations could face an audit firm like Greenway and Zondeki. SITUATION 1 A large audit client has not paid its audit fees for two years. The client company has expanded quickly but is illiquid. The amount owed is substantial and after repeated requests that the fees be paid, the directors of the company have offered to settle the debt by issuing shares in the company to each of the partners of the audit firm with a total value equal to the amount of the fees owed. 3 DD SITUATION 2 As part of its social responsibility programme, one of Greenway and Zondekis audit clients has offered to pay the university fees of all trainee accountants employed by Greenway and Zondeki who are studying by distance learning through Unisa towards an accounting qualification. The only conditions are that students must be unable to pay their own fees and that if the trainee accountant fails a year, the full amount must be repaid to the client company by the trainee, within 24 months