Reference no: EM132773763

Question - Sunny Beaches Pty Ltd is a family owned business selling a range of sunscreen products with a low alcohol content suitable for children. The high quality and low alcohol content of the products are very important to Sunny Beaches customers. Their customers are mostly small pharmacies in regional Australia. Products are purchased from approved suppliers.

The purchase department at Sunny Beaches is staffed by Andy and Sam. Andy prepares manual purchase requisitions from the previous week's daily sales records to ensure ample stock is kept in Sunny Beaches warehouse in Melbourne. Sam processes computerised purchase orders from the requisitions generated by Andy. The owners of the family business trust Andy and Sam completely, and do not authorise any requisitions or orders. Similarly, no reviews and reconciliations are done. The owners of the business have recently read a newsletter from their auditors cautioning against fraud in the COVID-19 era and approached you for advice on their inventory order systems.

1. Explain, how the purchase requisition in this case plays an important role in the ordering of inventory. Reference your Parkes et al. text.

2. Analyse how Andy and Sam prepare/use purchase requisitions and identify what risks are involved with this process.

3. Explain what controls should be in place to reduce the risks identified in (b).

4. Analyse how Sam processes purchase orders and identify what risks are involved with this process.

5. Explain what controls should be in place to reduce the risks identified in (d).