Fox Industries Co (Fox) manufactures engineering parts. It has one operating site and a customer base spread across Europe. The companys year-end was 30 April 20X3. Below is a description of the purchasing and payments system.

Purchasing system:

Whenever production materials are required, the relevant department sends a requisition form to the ordering department. An order clerk raises a purchase order and contacts a number of suppliers to see which can dispatch the goods first. This supplier is then chosen. The order clerk sends out the purchase order. This is not sequentially numbered and only orders above $5,000 require authorization.

Purchase invoices are input daily by the purchase ledger clerk, who has been in the role for many years and, as an experienced team member, he does not apply any application controls over the input process. Every week the purchase day book automatically updates the purchase ledger, the purchase ledger is then posted manually to the general ledger by the purchase ledger clerk.

Payments system:

Fox maintains a current account and a number of saving (deposit) accounts. The current account is reconciled weekly but the saving (deposit) accounts are only reconciled every two months.

In order to ma ximize their cash and bank balance, Fox has a policy of delaying payments to all suppliers for as long as possible. Suppliers are paid by a bank transfer. The finance director is given the total amount of the payments list, which he authorizes and then processes the bank payment.

Required:

(a) As the external auditors of Fox Industries Co, write a report to management in respect of the purchasing and payments system described above which:

(i) Identifies and explains FIVE deficiencies in the system,and

(ii) Provides a recommendation to address each deficiency. A covering letter IS required. ( it is not requested)

(b) Identify and explain THREE application controls that should be adopted by Fox Industries Co to ensure the completeness and accuracy of the input of purchase invoices.

(c) Describe substantive procedures the auditor should perform to confirm the bank and cash balance of Fox Industries Co at the year-end.