Exam (elaborations)
Aue2602 Assignment 4 Semester 1 2024
- Course
- Aue2602 Audting (AUE2602)
- Institution
- University Of South Africa (Unisa)
Aue2602 Assignment 4 Semester 1 2024
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a) Two risks relating to the production needs of BubblyFizz (Pty) Ltd areoverproduction and underproduction. Overproduction can lead to excess inventory,
resulting in storage costs, potential obsolescence, and tying up valuable working
capital. On the other hand, underproduction can lead to stockouts, lost sales
opportunities, and dissatisfied customers.
To address these risks, manual controls that could be implemented include
implementing a production planning process based on demand forecasts and
historical sales data. This will help ensure that production levels are aligned with
actual customer demand. Additionally, regular review meetings between production
and sales teams can help identify any discrepancies in forecasted versus actual
demand and adjust production accordingly.
b) Weaknesses in the controls over BubblyFizz's inventory and production cycle
include:
1. Lack of real-time inventory updates: The manual process of updating inventory
records at the end of the week increases the risk of inaccuracies in inventory levels.
Potential consequence: Outdated or incorrect inventory records leading to stockouts
or excess inventory.
2. Unauthorized access to Cloves-Accounting system: Staff using Mrs Pepsi's
password to update records poses a security risk as it allows for unauthorized
access to sensitive information. Potential consequence: Data breaches, fraudulent
activities, and compromised financial information.
3. Inconsistent inventory valuation methods: Disagreement between directors on
valuation methods can lead to inconsistencies in reporting financial results. Potential
consequence: Misstated financial statements and inaccurate decision-making based
on unreliable data.
4. Lack of reconciliation procedures for physical counts: Without established
procedures for reconciling physical counts with system records, there is a risk of
misstatements in inventory balances going undetected. Potential consequence:
Errors in financial reporting and inefficiencies in managing inventory levels.
c) [Memo]
[Date]
Mrs Fanta
Financial Director
BubblyFizz (Pty) Ltd
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