Your firm has recently been appointed as auditor to Mazha, a private company that runs a chain of small supermarkets selling Cool drinks. Mazha has very few controls over inventory because the company trusts local managers to make good decisions regarding the purchase, sales and control of inventory, all of which is done locally. Pricing is generally performed on a cost-plus basis. Each supermarket has a stand-alone computer system on which monthly accounts are prepared. These accounts are mailed to head office every quarter. There is no integrated inventory control, sales or purchasing system and no regular system for inventory counting. Management accounts are produced twice a year. Trade at the supermarkets has increased in recent years and the number of supermarkets has increased. However, the quality of staff that has been recruited has fallen. Senior management at Mazha is now prepared to invest in more up- to-date systems. Required: a) Make four recommendations to the senior management of Mazha for the improvement of internal controls, and explain the advantages and disadvantages of each recommendation. b) Explain the term 'audit risk' and discuss the three elements of risk that contribute to total audit risk. c) Auditors have a responsibility under ISA 265 Communicating Deficiencies in Internal Control to those Charged with Governance and Management, to communicate deficiencies in internal controls. In particular significant deficiencies in internal controls must be communicated in writing to those charged with governance. Required: Explain any five examples of matters the auditor should consider in determining whether a deficiency in internal controls is significant