1) In a memorandum, identify the issues, risks and impact on the financial statements

based on the information provided above. Use the format below:

Issue Identified Risk Impact

List of authorised Goods not acquired at Inferior goods
suppliers not used. the best prices and obtained resulting in
conditions. additional costs to the
company.

TOTAL 25 MARKS (1 MARK for memorandum format)

Memo Format
To: Mr Financial Manager
RE: Purchases
From: UJ Student
Issue
1 Prices not obtained per the
best price list (1)
2 Manual calculations have
resulted in errors(1)
3 Incorrect VAT rate, 10%
used instead of the 15% (1)
1 mark for format of a memo
Risk
Goods not being acquired at
prices and conditions. (1)
Errors in calculations resulting in
transactions not accurately
recorded. (1)
Transactions relating to VAT be
incorrect leading to inaccurate
recording of transactions. (1)
Impact
Additional costs being
incurred as a result of
the goods costing a
higher amount (1)
The errors will result in
additional costs. (1)
Fine and penalties
resulting in additional
costs. (1)

Losses to the company

(1)
4 Purchase order not signed Orders may not be properly Fraud as a result of no
(1) authorised (1) authorisation

Losses to the company

5 Payment made at incorrect
amount, we have overpaid
the supplier. (1)
as a result of fraud. (1)
Payment made at wrong price (1) Fraud (1)
Losses to the company
(1)

6 Payment not authorised Payments not authorised. (1) Fraud (1)

due to purchasing manager
not being available (1)
7 Discounts not being utilised Non adherence to discount policy Additional costs
effectively (1) (1) incurred as a result of

8 Purchase order payment
made before the supplier
invoice being made (1)
9 Vat not been calculated (1)
not utilising the
discounts. (1)
Payments made for goods not Losses to company (1)
received (1)
Transactions relating to VAT be Fine and penalties
incorrect leading to inaccurate resulting in additional
recording of transactions. (1) costs. (1)

Losses to the company

(1)
Available 30
Maximum 24
Presentation mark (memo 1
format)

TOTAL MAX 25 marks

1) “An internal control system is not a full proof system”, do you agree with this
statement?
What are five limitations that would need to be considered?

TOTAL 5 MARKS

In agreement with the statement (1)

Limitations are:

• Only cost-effective controls can be implemented. (1)

• Controls directed at routine transactions (1)
• Potential human error (1)
• Possible circumvention of controls through collusion with parties outside the entity
or between employees within the entity (1)
• Responsible person abusing their responsibility (management override) (1)
• Procedures become obsolete because of changing circumstances (1)
• Compliance with procedures deteriorates (1)

TOTAL MAX 5 marks