Reference no: EM132315942
Assignment
Internal controls are designed, amongst other things, in order to prevent misstatement in the accounts caused by either fraud or error.
Maker Ltd is a high quality computer maintenance company. They pride themselves on having staff with expertise in all the main computer manufacturers and have service contracts with a number of high profile companies nationwide.
The company's head office is based in Oxford. The engineers may be based around the country and rarely visit head office.
Engineers' vans must be stocked with as many parts as possible in order to prevent delays when called in on a service contract. They have basic stock lists which they are expected to maintain. In order to keep track of the stock held, head office require the engineers to keep a running list of all stock items used and this list may be requested at any time.
Every Thursday, engineers should perform a stock take on their vans and place an order on the pre-printed order pads for replacement stock. These are then emailed to head office and the goods are despatched the next day to the engineer's home address.
If a part not kept in stock is required then the engineer has to telephone head office to place the order. The goods are then ordered from head office and requested to be sent direct to the engineer. If certain items are regularly being requested as a 'special' order then they often become an addition to the basic stock held on the van.
At the company's year end the engineers are required to complete a stock take on their vans and report back to head office. Random checks are carried out by management at least once a year on engineers' vans. The engineers are normally given 24 hours' notice that their van will be checked.
Required:
(a) Identify the weaknesses in Maker Ltd's purchases system for parts stock and the van stock control. State what could go wrong as a consequence of each weakness and recommend an intemal control to prevent any error.
(b) Explain the role of an internal auditors department in ensuring the effectiveness of a company's control environment and to what extent the work of an internal auditor may be of use to the external auditor when assessing control risk.
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