You are the audit manager on the audit of Cross Ltd for the year ended 30 June 2013. Cross Ltd is a furniture manufacturer and wholesaler and purchases large quantities of inventory near 30 June, as July is one of its largest sales months. As a result, a material amount of inventory arrives in its Adelaide warehouse around balance date.

When goods from suppliers are delivered to its Adelaide warehouse, a goods received note (GRN) is prepared and signed by the warehouse foreman. The GRN is dated the day the goods are received and includes details of the type and number of goods received. The warehouse foreman then sends a signed copy of the GRN together with the supplier's invoice to its accounts payable department. The accounts payable clerk, Judy Essex, matches each GRN to the original purchase order. Judy then immediately enters the GRN details into CrossLtd'spurchasing system, which updates the inventory records and the accounts payable records. The date the GRN is entered into the system by the accounts department is the posting date for the transaction.

Sam Penman, your audit senior, has performed a test of controls procedure over GRN transactions processed in CrossLtd'spurchasing system. A tolerable deviation rate of 5 per cent was set and from the total population of 250 GRN transactions for the year, a sample of 50 GRN transactions were randomly selected including the periods either side of balance date. The test revealed five errors in posting to the correct date. Sam noted on the audit working papers that two of the errors were not valid deviations, because CrossLtd'spurchasing officer had advised him that these GRNs had been cancelled and replaced. Sam also noted that the five GRNs in question were not material, either individually or on an aggregate basis, and concluded that the controls around the GRN transactions were reliable.

Required:

(a) Identify one manual control and one IT application control associated with the receipt of goods from suppliers and explain the objective of each control.

(b) Provide three reasons why Sam's conclusion regarding the controls around the GRN transactions is not correct.