Course: Assurance and Audit Services

Au Dit & Associates, a medium-sized audit firm, has recently been appointed as the auditor to GoFresh Mart (GoFresh), a private limited company incorporated in Malaysia that runs a chain of mini-markets selling dry and canned foodstuff and fresh and frozen food in the neighbourhood of suburb housing areas in the Klang Valley, taking advantage of the movement control on travel beyond certain distance amid COVID-19 pandemic.

As the senior-in-charge, you are trying to gain an understanding of the clients system of internal controls at this initial stage. Being new in the business, GoFresh has very few controls over inventory because the company trusts their local managers to make good decisions regarding the purchase, sale and control of inventory, all of which is done locally. Pricing is generally performed using a mark-up basis (i.e. cost-plus basis).

Each supermarket has its own stand-alone computer system on which monthly accounts are prepared. These accounts are then emailed to the head office every quarter. There is no integrated inventory control, sales or purchasing system and no regular policy and procedure for inventory counting. Management accounts are produced on a half-yearly basis.

The business at the mini-markets has been good in recent months, and the number of mini-markets has increased. However, the quality of staff that has been recruited has deteriorated. Senior management at GoFresh is now prepared to invest in more advanced IT systems and control environment to mitigate workforce and staff quality issues.

REQUIRED

(a) Identify and describe FOUR(4) problems at GoFresh that are due to poor internal controls.

(b) Premise on the above, propose FOUR(4) recommendations for improvements in the internal controls to the senior management of GoFresh and explain the advantages and disadvantages of each recommendation proposed.

[8 + (8 + 8 + 8) = 32 marks]

Response Template

1(a) Answer ( 2 marks x 4 = 8 marks)		Marks
1.
2.
3.
4.

1(b)	Recommendation (2 marks each x 4 )	Advantages (2 marks each)	Disadvantages (2 marks each)	Marks (8+8+8)
1.
2.
3.
4.