Part A

You are the auditor of Happy Handbags (HH), a handbag manufacturer that uses only non-animal products and supplies leading department stores in Australia and overseas. HH purchases materials using the following process:

• The production manager raises a purchase order, which is then sent to the relevant supplier;
• When goods are received, the warehouse manager inspects the goods and only accepts them (and signs the shipping document) if goods are in good condition;
• When invoices are received from suppliers, they are given a sequential invoice number in the accounts department;
• Before payment of supplier invoices, the accountant ensures that the invoice amounts and quantities match the purchase order;
• At the end of each month, the accountant reviews the list of invoices received to identify any missing items.

1/ Identify two controls in the above system. For each control state the relevant assertion, whether it is preventative or detective, and how you would test the control (3 marks).

2/ Identify two weaknesses in the above system and explain the relevant assertion affected (2 marks).