Day-to-day internal controls are important for all businesses to maximize the efficient use of resources and profitability. Your firm has recently been appointed as auditor to Nassy Stores, a private company that runs a chain of small supermarkets selling fresh and frozen food, and canned and dry food. Nassy Stores has very few controls over inventory because the company trusts local managers to make good decisions regarding the purchase, sale 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, sale 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 Nassy Stores are now prepared to invest in more up-to-date systems. a) In respect of the internal control system of Nassy Stores: i. Identify and explain FOUR deficiencies: and ii. Recommend a control to address each of these deficiencies
Day-to-day internal controls are important for all businesses to maximize the efficient use of resources and
profitability.
Your firm has recently been appointed as auditor to Nassy Stores, a private company that runs a chain of small
supermarkets selling fresh and frozen food, and canned and dry food. Nassy Stores has very few controls over
inventory because the company trusts local managers to make good decisions regarding the purchase, sale 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, sale or purchasing system and
no regular system for inventory counting.
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 Nassy Stores are now
prepared to invest in more up-to-date systems.
a) In respect of the internal
i. Identify and explain FOUR deficiencies: and
ii. Recommend a control to address each of these deficiencies.
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