ACCA F8 - Audit and Assurance Revision Kit 2016

(ii)
(iii)
Implication
The reliance is on Store managers to be proactive and order four weeks before a potential stock
out. Without prompting they may order too late and inventory may run out for a period of up to
four weeks, resulting in lost revenue.
Recommendation
Realistic re-order levels should be established in the inventory system. When inventory is down to
the pre-determined level, the purchasing manager should be prompted to raise a purchase order
(for example the system may generate an automatic re-order request which is emailed to the
purchasing manager).
Internal ordering
(i)
(ii)
(iii)
Deficiency
Stores can not transfer goods between each other to meet demand. Customers are directed to try
other stores/the website when an item of clothing is sold out.
Implication
Revenue is lost because the system is inconvenient for the customer, who may not follow up at
other stores, but may have purchased if the goods were transferred to their local store. Additionally
the perceived lack of customer service may damage the store's reputation.
Recommendation
An internal ordering system should be set up which allows for the transfer of goods between
stores. In particular, stores with very low inventory levels should be able to obtain excess
inventories from those with high levels to meet demand while goods are re-ordered.
Checking of goods received
(i)
(ii)
(iii)
Deficiency
Goods received are not checked against purchase orders.
Implication
Goods which were not ordered in the first place could be received. Once received, it may be difficult
to return these goods and they may need to be paid for. In any case there is a potential
unnecessary administrative cost. Additionally, some goods ordered may not be received leading to
insufficient inventory levels and potential lost revenue.
Recommendation
A copy of authorised orders should be kept at the relevant store and checked against GRNs. If all
details are correct, the order should be marked completed and sent to head office. The purchasing
clerk should review the purchase orders at regular intervals for incomplete items and investigate
why these are not completed.
This letter has been produced for the sole use of your company. It must not be disclosed to a third party, or
quoted or referred to, without our written consent. No responsibility is assumed by us to any other person.
We should like to take this opportunity of thanking your staff for their co-operation and assistance during
the course of our audit.
Yours faithfully
ABC & Co
Top tips. The answer to (b) includes four well explained deficiencies, implications and recommendations as four
were needed to gain 12 marks. Together with the 2 marks available for presentation, this would be enough for the
full 14 marks.
Please note however, there were a number of alternative deficiencies/implications/recommendations you may have
identified, including those shown in the table below:
Answers 115