a) Briefly explain FIVE (5) weaknesses in the acquisition and payment cycle at Kinokuyi Publishing Sdn Bhd which could lead to misstatement in the financial statements b) Give recommendations to Kinokuyi Publishing Sdn Bhd on how to improve the weaknesses identified in (a)
BER 2021 CONFIDENTIAL
EAB31103_Audit 2 Page 9 of 10
Question 5
Nurin, Aliah & Co has audited Kinokuyi Publishing Sdn Bhd (KPSB) for several years. Audit
documentation, including internal control flowcharts as well as sales and cash receipts system,
purchasing and payables system and payroll system notes, are accessible from the previous
year's file. You are the audit supervisor of Nurin, Aliah & Co, and you are evaluating the
paperwork documenting KPSB’s purchasing and payables system in preparation for the
interim and final audits for the fiscal year ending 31 December 2021. The company is a book
retailer with twelve locations across the Klang Valley and a central warehouse located in Shah
Alam which holds the majority of the company's inventory. Below is an excerpt from the
existing systems notes:
Store managers are in charge of placing book orders for their store. Store managers are
currently unable to request books from any of the other eleven locations. Customers who want
to order books that aren't in stock at the branch they visited could contact the other bookstores
or go to the company's website. When a bookstore's inventory levels drop, the store manager
submits a purchase requisition form to the central warehouse.
If the inventory on hand is insufficient, a supplier requisition form is filled up and forwarded to
Abu, the purchase order clerk, for processing. Any orders worth more than RM500 are sent to
the purchasing director for approval. The warehouse staff processes good received from
suppliers, agreeing on delivery items to the purchase order, inspecting quantity and quality of
products, and completing a sequentially numbered receiving report. Once a week, the
receiving reports are delivered to the accounts department for processing.
An accounts clerk compares the purchase invoice received from the supplier to the receiving
report. Abu receives the purchase invoice and processes it for payment. The total amount of
the payments list is submitted to the finance director, who authorises and processes the bank
payments. The company has a policy to pay the supplier before due date to enjoy the discount
offered.
A senior
reconciliation on monthly basis, including examining cancelled cheques and supporting
documentations. An account officer received account payable listing from Abu and compares
the total to the general ledger, initial the listing and files the documents. He also responsible
to reconcile purchase ledger to purchase ledger control account on monthly basis. Supplier statement reconciliations are no longer perform due to staffing limitations in the accounts
department.
Required
a) Briefly explain FIVE (5) weaknesses in the acquisition and payment cycle at Kinokuyi
Publishing Sdn Bhd which could lead to misstatement in the financial statements
b) Give recommendations to Kinokuyi Publishing Sdn Bhd on how to improve the
weaknesses identified in (a)
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