Question

Please help me with number 2.1,2.2 and 2.3
QUESTION 2 30 marks The acquisitions and payments cycle: The ordering of goods function You are newly appointed as the head of the ordering of goods function at Moale Hardware (Pty) Ltd, a medium-sized hardware store. The company buys inventory from various suppliers and sells the goods at a competitive mark-up percentage. The floor manager daily monitors the inventory re-order levels and quantities and, at the end of each day, provides the ordering department with a list of items to be ordered You were appointed because orders were not initiated on time to maintain optimum conditions within the store. Furthermore, the record of accomplishment of suppliers was not adequately managed. Accordingly, the company's sales and profits started dropping and liquidity problems arose. Customers complained that they came from far away, but when they arrived at the store, the item they needed was out of stock. Some customers complained that the prices of the items were becoming too expensive. Customer services informed you that the tendency of goods returned by customers was increasing because the goods malfunctioned or became defective easily Your main function as the head of the ordering function is to rectify matters at Moale Hardware (Pty) Ltd. To achieve your goals, you structure your work as follows: You will first identify the documents that your department uses, thereafter, you will identify all the possible risks that your department faces, and finally, you want to design controls to mitigate these risks. Your mandate is to make Moale Hardware (Pty) Ltd profitable, competitive and efficient again 18

Answer 1

Three documents or records that will be used by the ordering of goods function:

1. Record of accomplishment of suppliers was not adequately managed.

2. Goods are not available at the store and increase in return of goods due to damages by customer.

3.Orders were not initiated on time to maintain optimum condition within the store.

Risk associated with the ordering of goods function:

Outsourcing can have significant benefits but is not without risk.Some risks, such as potentially higher offshoring costs due to the eroding value of the U.S. dollar, can be anticipated and addressed through contracts by employing financial-hedging strategies. Others, however, are harder to anticipate or deal with.

Interrupt:

As a general principle, functions that have the potential to ‘‘interrupt’’ the flow of product or service between a company and its customers are the riskiest to outsource. For example, delegating control of the distribution process to an outside retailer can result in customers not receiving goods promptly.

Loss of Control:

Managers often complain about loss of control over their own process technologies and quality standards when specific processes or services are outsourced.

Loss of Innovation:

When certain support services—such as IT, software development, or materials management—are outsourced, innovation may be impaired. Moreover, when external providers are hired for the purposes of cutting costs, gaining labor pool flexibility, or adjusting to market fluctuations, long-standing cooperative work patterns are interrupted, which may adversely affect the company’s corporate culture.

Loss of Organizational Trust:

A significant non quantifiable risk occurs because outsourcing, especially of services, can be perceived as a breach in the employer-employee relationship.

Higher-Than-Expected Transaction Costs:

Some outsourcing costs and benefits are easily identified and quantified because they are captured by the accounting system. Other costs and benefits are decision-relevant but not part of the accounting system. Such factors cannot be ignored simply because they are difficult to obtain or because they require the use of estimates. One of the most important and least understood considerations in the make-or-buy decision is the cost of outsourcing risk.

If the cost is high then some of the customer may not buy the goods.

Not placing the goods on time:

End of the day customer satisfaction takes the high priority so if the company did not place the order on time, they can't give the services on time. due to which you loose the customer. it cause to loss.

Control activities that should be implemented to mitigate the risk associated with ordering the goods function:

Internal Controls and Tests of Control to mitigate the risk:

Assertions	Internal Control Procedures	Test of control
1. Existence	Proper segregation of duties and physical safeguards of inventory to prevent fictitious inventory.	Observe and evaluate proper segregation of duties and test procedures for transfer and issuing inventory.
	Use pre numbered and/or properly approved receiving reports and materials requisitions for inventory transfers	Review authorized production schedules and test procedures for establishing inventory levels and inventory control.
2. Rights and obligations	Recorded inventory is supported by suppliers’ invoices and goods received notes.	Check recorded inventory against suppliers invoices and goods received notes.
3. Completeness	Purchase requisition, purchase order, receiving report and vouchers are prenumbered and accounted for	Check sequential controls over purchase requisition, purchase order, receiving report and vouchers.
			Procedures to include goods out on consignment and exclude goods led on consignment.	Test the control procedures for the consignment goods.
	4. Cut-off	All receiving reports and delivery notes should be processed daily.	Check dates of receiving reports and delivery notes to dates to record the inventory movements in perpetual inventory records.
5. Accuracy	Review of cost accumulation, standard costs, and variance reports by person of appropriate level.	Examine and test procedures for taking physical inventory, accumulating costs, and developing standard cost.
6. Valuation and allocation	Inventory management personnel review inventory for obsolete, slow-moving, or excess quantities.	Discuss with management and test procedures for identifying obsolete and slow-moving items.
	Periodic or annual comparison of goods on hand with perpetual inventory record.
7. Classification	Material requisitions and production data used to classify inventory into raw materials, WIP, and finished goods.	Check that the classification of inventory is in compliance with accounting standard and company accounting policies.
8. Presentation and disclosure	Inventory is properly classified, disclosed and presented at fair value.	Review inventory items are properly classified, disclosed and presented at fair value in the financial statements.