Reference no: EM132603068

Lite-Tech is a lighting distribution company with administrative offices located in Toronto and Calgary. Its main products are commercial light fixtures. The lights are purchased from China and sold to retailers in North America. The company has 6 distribution centres located throughout Canada and the United States.

• A year and a half ago, senior administration decided to implement an information technology (IT) system at all distribution centres to address concerns regarding inventory management. The main advantage of the system was that it would allow sales staff easy access to inventory information such as product availability. The system would consolidate inventory information from the 6 locations and automatically re-order inventory once a certain threshold was reached. This would make cash flow management much more efficient as items would only be re-ordered when necessary.
• The IT system was an off-the-shelf software customized to Lite-Tech's needs. The software vendor gave in-house training to Lite-Tech staff during the implementation stage. The vendor trained 2 Lite-Tech staff members to be the key support contacts at each of the distribution centres. The staff members chosen for this task had only minimal IT experience. Since the implementation, the software vendor has been bought out twice by other companies and the level of support available from the vendor has significantly decreased. In addition, 4 of the trained Lite-Tech staff members have left the company because of the stress of dealing with the demands of the IT system, and they have not been replaced.
• At the time of implementation, all staff members were granted access to the system. This essentially gave purchasing power to all staff at Lite-Tech. Access to the system was supposed to be limited shortly after implementation; however, to date this has not been changed. Recently, complaints from the sales staff regarding the accuracy of inventory data in the system have prompted the president of Lite Tech to request a review of the IT system and its controls. The objective of the review is to determine if any risks or issues exist with the system and, if so, to determine the impact of the risks and to recommend improvements. The chief audit executive (CAE) felt that his staff lacked the necessary skills to complete the mandate and has hired you, a CPA, to conduct the review.

You have met with several of the key staff who interact with the system on a daily basis and gathered the following information:

1. Reports used by sales staff require manual intervention to provide desired information, as system data is not reliable.
2. The accuracy of inventory data is uncertain as there have been instances of items indicated as being in stock that are in fact not available.
3. A review of purchases in the system indicate multiple orders of the same product.
4. Synchronization between the inventory data at the 6 locations has never been verified.

Required

Question a. Prepare a memo for the review requested by the CAE.

Question b. Explain whether the CAE was correct in assuming that a CPA would have the necessary skills and knowledge to complete the mandate. Justify your answer.