You have just been engaged as the auditor for Kasempa Company Ltd. During your first audit as the external auditor of the said company, you reviewed the accounting system and procedures operated by your client company and you realized the following in the financial statements and the control structures of the firm of your client.

1. Purchase Order Procedure: Some departments order some goods from suppliers orally without support to purchase requisition or purchase order.

2. Purchase Ledger Reconciliation: It is the practice of the client company to reconcile the purchase ledger with statements received from various suppliers at the end of every month, this was not done in August and September.

3. Credit Control: As at October 30, total debtor figure approximate 3-month sales although the company’s trade terms allow 4 weeks credit to customers.

4. Computer Processing: No control was exercised over computer processing.

5. Payroll: No evidence of approval for payroll

6. Inventories: Lack of physical and financial controls over inventories, cut-off errors relating to goods dispatched to customers prior to the year-end but un-invoiced and improper overhead allocation in valuation of inventory.

7. Property, Plant and Equipment: Lack of physical control, lack of clear capitalization policy and assets with nil net book values were subject to a depreciation charge

Required:

Write a report to the Board of Directors identifying the problem, stating their implications and recommendation for the necessary action to be taken. (25 marks)