Reference no: EM132985832

Purchasing Process, PPE, and IT General Controls.

Grafite International Inc. (Grafite) is a manufacturer of various components used in the electricity distribution industry. It has factories across the country, and its customer base includes a variety of municipal and provincial electricity distributors. You are an audit senior with Grafite's external auditors, Eden & Choi, Licensed Public Accountants. You are currently familiarizing yourself with Grafite's operations to plan the audit of Grafite's financial statement for its September 30, 20X5, year-end.

In the past six months Grafite has made significant changes to some of its manufacturing processes and as a result, has purchased new equipment. Because of the changes, Grafite has a lot of equipment that is no longer being used. Purchase requisitions for all new equipment have been authorized by production managers. Since all of their attention has been focused on starting up the new equipment, little has been done about the old, unused equipment.

You have learned that Grafite has also made some changes in its purchasing department

to cut costs. Two purchasing department employees were laid off. As a result, supplier statement reconciliations are no longer being performed; these used to be performed monthly by one of the laid-off purchasing department employees. Also, updates to supplier details in the purchase ledger master file can now be made by anyone in the purchasing department who has time to do it, not just by the manager.

Required:

a. Identify and explain the impact of three internal control weaknesses in Grafite's purchasing process. Recommend a control procedure that Grafite should implement to address each of these weaknesses.

b. Explain the impact of these deficiencies on your planned audit program for PPE.

c. Describe four substantive audit procedures that you would perform for PPE at your year-end audit to determine whether PPE is materially misstated.