Simpson Ltd manufactures home appliances for the Australian market. Assume that you are the management accountant for the company and the managing director has asked you to assess the internal control environment in the warehouse and production areas. She provides you with her detailed observations of the current control environment below and asks for your input: "Currently there are no restrictions on entry to the warehouse. It would seem that any employee (or non-employee) can enter the area without authorisation. There are controls over the purchasing and receiving functions of raw materials. Specifically, purchase orders are authorised by finance staff, and raw materials are received, inspected and recorded on the computerised inventory system by warehouse staff. During peak times of activity (e.g., when multiple orders are delivered at the same time), finance staff usually assist warehouse staff in receiving the orders and record them in the inventory systems to speed up the process. The production plants regularly experience issues such as insufficient raw materials available for scheduled production runs, unplanned production downtime due to machinery breakdowns and staffing issues, and reworking of defective phones and accessories. Some controls have been introduced to address these issues, but it does not appear that they are being sufficiently monitored or enforced." Required: Identify four (4) lapses in the control environment and explain the risk that each presents. Suggest a specific control that you might introduce to address each of the lapses identified and classify it as preventive or detective. ( 8 marks) Simpson Ltd manufactures home appliances for the Australian market. Assume that you are the management accountant for the company and the managing director has asked you to assess the internal control environment in the warehouse and production areas. She provides you with her detailed observations of the current control environment below and asks for your input: "Currently there are no restrictions on entry to the warehouse. It would seem that any employee (or non-employee) can enter the area without authorisation. There are controls over the purchasing and receiving functions of raw materials. Specifically, purchase orders are authorised by finance staff, and raw materials are received, inspected and recorded on the computerised inventory system by warehouse staff. During peak times of activity (e.g., when multiple orders are delivered at the same time), finance staff usually assist warehouse staff in receiving the orders and record them in the inventory systems to speed up the process. The production plants regularly experience issues such as insufficient raw materials available for scheduled production runs, unplanned production downtime due to machinery breakdowns and staffing issues, and reworking of defective phones and accessories. Some controls have been introduced to address these issues, but it does not appear that they are being sufficiently monitored or enforced." Required: Identify four (4) lapses in the control environment and explain the risk that each presents. Suggest a specific control that you might introduce to address each of the lapses identified and classify it as preventive or detective. ( 8 marks)
