This document contains workings, explanations and solutions to the AUE2602 Assignment 4B (QUALITY ANSWERS) Semester 1 2024. For assistance call or us on 0.6.8..8.1.2..0.9.3.4... BubblyFizz (Pty) Ltd is a renowned soda drink manufacturing company recognised for its premium fizzy beverages. As an auditor conducting an inventory cycle audit, you have been tasked with evaluating the company’s internal controls. During a discussion with management, the following information came to your attention: i. Mrs Pepsi is responsible for receiving completed goods at the company warehouse. She checks the slip received from the production section, compares it with the number of crates entering the warehouse and signs it. She then updates the inventory records on the company’s accounting system, Cloves-Accounting, by signing in with her unique password. ii. The warehouse has four entry points, therefore entering and exiting the warehouse are quick processes. Staff responsible for filling orders can manage their task quickly by entering through sliding doors and selecting the crates that they need from the shelves. iii. These staff members then manually write down which stock they have taken from the shelves on a list kept in the warehouse. This list is then totaled at the end of the week, and the Cloves-Accounting system is updated accordingly. iv. The Cloves-Accounting system is not updated in real time because staff has not been trained to use the system and prefer not to engage with the system unless it is absolutely necessary. v. When staff do need to access the system, they use Mrs Pepsi’s password to gain access to and update the necessary records. vi. Inventory counts take place once a year, just before the year-end audit. There are no established procedures for reconciling physical inventory counts with the inventory records in the system. vii. Staff in the production department complain about insufficient documentation of raw materials. viii. The company lacks consistency in its inventory valuation methods. This is due to a disagreement between two of its directors, Miss Coca and Mr Sprite. AUE2602/assessment4/semester1/2024 Page 3 of 3 REQUIRED a) Describe two risks relating to the production needs of BubblyFizz (Pty) Ltd (manufacturing too little or too much inventory) and explain the manual controls that could be implemented to address these risks. (5) b) Identify the weaknesses in the controls over BubblyFizz's inventory and production cycle. For each weakness, briefly describe a potential consequence associated with the weakness (i.e. what could go wrong). (25) Communication skills: logical flow of arguments. (1) c) Write an memo to the financial director of BubblyFizz, Mrs Fanta, and propose recommendations to strengthen internal controls in the inventory cycle of BubblyFizz, related only to the weaknesses in the control system. (15) Communication skills: clarity of expression. (1) d) Related only to point (i) in the scenario, identify and describe two control activities that are in place relating to BubblyFizz’s inventory cycle.
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