Question 9 (20 marks)

Freesia Co is a company listed on a stock exchange. It manufactures furniture which it supplies to a wide range of retailers across the region. The company has an internal audit (IA) department and the companys year-end is 30 June 20X9. You are an audit supervisor with Zinnia & Co, preparing the draft audit programmes and reviewing extracts from the internal controls documentation in preparation for the interim audit. Page 5 of 6 Sales Freesia Co generates revenue through visits by its sales staff to customers premises. Sales ledger clerks, who work at head office, carry out credit checks on new customers prior to being accepted and then set their credit limits. Sales staff visit retail customers sites personally and orders are completed using a four-part pre-printed order form. One copy is left with the customer, a second copy is returned to the sales ordering department, the third is sent to the warehouse and the fourth to the finance department at head office. Each sales order number is based on the sales persons own identification number in order to facilitate monitoring of sales staff performance. Retail customers are given payment terms of 30 days and most customers choose to pay their invoices by bank transfer. Each day Lily Shah, a finance clerk, posts the bank transfer receipts from the bank statements to the cash book and updates the sales ledger. On a monthly basis, she performs the bank reconciliation. Purchases and inventory Receipts of raw materials and goods from suppliers are processed by the warehouse team at head office, who agree the delivery to the purchase order, check the quantity and quality of goods and complete a sequentially numbered goods received note (GRN). The GRNs are sent to the finance department daily. On receipt of the purchase invoice from the supplier, Camilla Brown, the purchase ledger clerk, matches it to the GRN and order and the three documents are sent for authorisation by the appropriate individual. Once authorised, the purchase invoices are logged into the purchase ledger by Camilla, who utilises document count controls to ensure the correct number of invoices has been input. The company values its inventory using standard costs, both for internal management reporting and for inclusion in the year-end financial statements. The basis of the standard costs was reviewed approximately 18 months ago.

Required: a) Identify the risk controls of the above companys system ( 10 marks)

b) Recommend control procedure to be implemented. ( 5 marks)

c) Formulate a Test Control to test the performance of the implemented recommendations (5 marks)

Answer in this format for (a & b)

Associated risk	Control recommended/implemented