Question
You are the audit manager in charge of the audit of Hong Kong Catering Limited (HKCL)for the year ending 30 June 2020. HKCL operates a
You are the audit manager in charge of the audit of Hong Kong Catering Limited (HKCL")for the year ending 30 June 2020. HKCL operates a chain of twenty restaurants selling localneighborhood cuisine in Hong Kong. The restaurants of HKCL are well known for food thatare made on demand for customers from a range of fresh ingredients. Local suppliers deliveringredients on a daily basis to the restaurants.
In planning the audit of HKCL for the year ending 30 June 2020, your audit team hasreviewed the purchasing process of HKCL. The following are the narrative notes of thepurchasing system of HKCL.
1. Each restaurant has its own preferred suppliers and places its own orders to suppliersthroughout each day.
2. When a particular item is identified as being low on quantity in a restaurant, anyemployee at the restaurant can place an order by telephone. No records of orders placedare maintained by the restaurant employees.
3. Suppliers will normally deliver all items ordered over the phone to each restaurant thenext day.
4. When suppliers deliver ingredients to each restaurant, it is a common practice that thedelivery person takes the ingredients directly to the storeroom of each restaurant.Restaurant employees are too busy to check the items delivered.
5. The manager at each restaurant signs the delivery note handed by the delivery person. Thedelivery person retains one copy and a second copy is given to the restaurant manager.The restaurant manager then forwards the delivery notes to the accounting department atthe head office of HKCL on a weekly basis.
6. Suppliers send invoices directly to the accounting department of HKCL where the invoices are checked against the delivery notes forwarded by each restaurant manager.
Required: Identify six weaknesses in the purchase system of HKCL and explain the possible consequences if these weaknesses are not rectified.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started