Trade Kings is a manufacturer of goods. It has factories across Zambia and its customer base includes retailers as well as individuals, to whom direct sales are made through their website - a new e-commerce system. The companys year-end is 30 September 20X5. You are an audit supervisor of Mukena & Co and are currently reviewing documentation of Trade Kings internal control in preparation for the interim audit. Trade Kings website allows individuals to order goods directly, and full payment is taken in advance. Currently the website is not integrated into the inventory system and inventory levels are not checked at the time when orders are placed.

Inventory is valued at the lower of cost and net realisable value. Goods are despatched via local couriers dotcom Zambia; however, they do not always record customer signatures as proof that the customer has received the goods. Over the past 12 months there have been customer complaints about the delay between sales orders and receipt of goods. Trade kings has investigated these and found that, in each case, the sales order had been entered into the sales system correctly but was not forwarded to the despatch department for fulfilling. Trade Kings retail customers undergo credit checks prior to being accepted and credit limits are set accordingly by sales ledger clerks. These customers place their orders through one of the members of the sales team, who decides on sales discount levels.

Raw materials used in the manufacturing process are purchased from a wide range of suppliers. As a result of staff changes in the purchase ledger department, supplier statement reconciliations are no longer performed. Additionally, changes to supplier details in the purchase ledger master file can be undertaken by purchase ledger clerks as well as supervisors. In the past six months, Trade Kings has changed part of its manufacturing process and as a result some new equipment has been purchased, however, there are considerable levels of plant and equipment which are now surplus to requirement. Purchase requisitions for all new equipment have been authorised by production supervisors and little has been done to reduce the surplus of old equipment.

Required:

(a) In respect of the internal control of Trade Kings:

(i) Identify and explain SIX deficiencies;

(ii) Recommend a control to address each of these deficiencies; and

(iii) Describe a test of control Mukena & Co would perform to assess whether each of these controls, if implemented, is operating effectively.

Note: Prepare your answer using three columns headed Control deficiency, Control recommendations and Test of control respectively. The total marks will be split equally between each part. (18 marks)

(b) Describe substantive procedures the auditor should perform at the year end to confirm plant and equipment (2 marks).