You are the audit manager of Mazari & Co. The following additional issues have arisen during the course of the audit of Tchic Tchac Co. Profit before tax is Rs 10m. (i) Tchic Tchac Co. has a computerized system for the calculation of wages and salary. The system operates an automatic daily back up. It has been noted that the backup for the last two months have been corrupted and the IT Analyst is unable to recover the data. The cash book records show that total payment for wages amounts to Rs 1.1m. [9 marks] (ii) Tchic Tchac Co. main rival firm has filed a case for Rs 5m against them alleging a breach of copyright; this charge is not proven yet and the case is ongoing and will not be resolved prior to the audit report being signed. The legal officer is on leave for three months and there is no current replacement for him. The matter has been disclosed as a contingent liability in the financial statements. REQUIRED Discuss each of these issues and describe the impact on the audit report if the above issues remain unresolved.

You are the audit manager of BDC Plc and your firm has recently been appointed as auditor to SuperSave Supermarkets, a private company that runs a chain of small supermarkets selling fresh, frozen, canned and dried foods. The management of inventory is in full control of the branch manager who are expected to make good decisions regarding the purchase, sales and control of inventory, all of which is done locally. SuperSave has minimal controls over inventory, that is inventory is managed at branch level with no communication with the head office. Pricing is generally performed on a cost-plus basis, i.e., mark up basis. Each supermarket has a stand-alone computer system on which monthly accounts are prepared. There is currently no back-up policy at the branches to prevent any loss of data as the management believes that it is an additional cost. These management accounts and relevant details are only mailed to head office every quarter. There is no integrated inventory control, sales or purchasing system and no regular system for inventory counting. Trade at the supermarkets has increased in recent years and the number of new entrants in the industry has increased. However, the quality of staff that has been recruited has fallen thus the service delivery is impaired. With the hike in competitors, Senior management at SuperSave are now prepared to invest in new IT systems. REQUIRED (a) Describe the problems that you might expect to find at SuperSave resulting from poor internal controls. [10 marks] (b) Make four recommendations to the senior management of SuperSave for the improvement of internal controls, and explain the advantages and disadvantages of each recommendation. [12 marks] (c) Explain the impact that the internal control environment at SuperSave is likely to have on your audit approach. [5 marks] (d) Briefly discuss the benefits of a report to management at the interim stage of an audit.