Auditing Fundamentals in a South African Context – Graded Questions 3e – Solutions Manual

b) The composition of the count teams should be one person from the inventory
warehouse who knows the inventory and another not working in the inventory
warehouse. (1)
c) An inventory count sheet register should be maintained by the inventory count
controller for all inventory count sheets being used. (1)
d) The inventory count sheets should be on pre-numbered stationery. (1)
e) The inventory count controller does not:
i. perform spot checks on inventory counted (1)
ii. walk through the warehouse making sure all inventory is tagged (1)
iii. compare the counts by the two count teams for variances (1)
iv. reconcile the count sheets issued compared to what is returned (1)
v. inspect whether all inventory items were counted. (1)
f) Final inventory count sheets must be sent to the inventory administration clerk
after a comparison is done between the two teams’ count sheets. (1)
g) Count teams should not be made aware of the system quantity that needs
to be counted. (1)
Available marks [11]; maximum marks [9]

QUESTION 9 Practice question LEVEL 2

Recommendations [21 marks]

1. Ordering
a) The pre-determined order levels should be reviewed regularly by a senior staff member
so that no under- or overordering takes place. (1)
b) Prior to requisitions being made, store or production staff should confirm that the
inventory (gold or diamonds) is really needed. (1)
c) A buying function should be established in order to ensure that inventory of the highest
quality, and at the best prices, is ordered. (1)
d) The company should have an approved suppliers list to which the buyer should refer
when ordering. (1)
e) Even when ordering from an approved supplier, the buyer should contact the supplier in
order to confirm availability and delivery dates. (1)
f) All requisition lists and purchase orders should be authorised by a senior staff
member. (1)
g) Before the order is placed, a supervisor or senior buyer should:
i. compare the order to the requisition list for accuracy and authorisation (1)
ii. review the order for suitability of supplier, reasonableness of price, quantity and the
nature of the goods on order. (1)
h) The ordering department should file the requisition lists sequentially and review
frequently the files for requisitions that have not been cross-referenced to an order. (1)
i) A copy of the order should be filed sequentially, checked and frequently cross-
referenced to goods received notes in order to confirm that either:
i. goods ordered have not yet been received, or

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 Auditing Fundamentals in a South African Context – Graded Questions 3e – Solutions Manual

ii. the pending file of orders in the receiving area have been reviewed for long-
outstanding orders. (1)

2. Receiving
a) One of the stores staff (receiving clerk) should be given the task of:
i. confirming inventory received (1)
ii. preparing a goods received note based on the actual goods received as
indicated on the delivery note. (1)
iii. He/she should not be involved in any recording functions. (1)
b) The receiving of goods should be designated to a goods receiving section that
should be physically secure and have proper access controls. (1)
c) A copy of the purchase order should be sent to the goods receiving section so
that they can confirm that goods received have in fact been ordered before
receiving the goods. (1)
d) When receiving goods, the receiving clerk should inspect their quality and
compare the quantity and the description of the goods to the delivery note. (1)
e) Suppliers delivery notes and GRNs should be forwarded to the creditors clerk as
evidence that inventory being paid for has been received. (1)
f) On the transference of the goods to the store, the stores clerk should compare the
physical goods to the goods received note, acknowledging receipt by signing
the GRN. (1)

3. Storage
a) Perpetual inventory records should be maintained so that physical counts can be
compared to the theoretical records. (1)
b) Receipts and issues of inventory should be entered into these inventory records. (1)
c) Inventory counts should be carried out frequently by the stores staff, together with an
independent person; shortages and surpluses should be reported to, and investigated
by, management. Inventory cards should then be adjusted accordingly. (1)
d) One of the stores staff (or an independent staff member) should be given the task of
maintaining the perpetual inventory and should have no responsibility for either the
receiving or the counting of inventory. (1)

4. Issues
a) No issues should be made without a written issue note authorised by one of the
production foremen. (1)
b) A copy of each issue note should be forwarded to the costing or accounting department
for production records. (1)

5. General
a) Purchase orders and issue notes should be pre-numbered. (1)
b) The sequence of all purchase orders and issue notes should be accounted for. (1)
Available marks [26]; maximum marks [21]

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