ShoeCraft (Pty) Ltd is a reputable shoe manufacturing company known for its high-quality
footwear. As an auditor conducting an inventory cycle audit, you have been tasked with
evaluating ShoeCraft's internal controls. During your review, you note the following:
1. Mrs Nike is responsible for receiving completed goods at the companys warehouse. She
checks the slip received from the production section, compares it with the number of
boxes entering the warehouse and signs it. She then updates the inventory records on
the company’s accounting system, Thyme-Accounting, by signing in with her unique
password.
2. The warehouse has four entry points, therefore entering and exiting the warehouse are
quick processes.
3. Staff responsible for filling orders can manage their task quickly by entering through
sliding doors and selecting the boxes that they need from the shelves.
4. These staff members then manually write down which stock they have taken from the
selves on a list kept in the warehouse.
5. This list is then totaled at the end of the week and the Thyme-Accounting system is
updated accordingly.
6. The Thyme-Accounting system is not updated in real timebecause staff has not been
trained to use the system, and prefer not to engage with the system unless it is absolutely
necessary.
7. When staff do need to access the system, they use Mrs Nike’s password to gain access
to and update the necessary records.
8. Inventory counts take place once a year, just before the year-end audit.
9. There are no established procedures for reconciling physical inventory counts with the
inventory records in the system.
10. The company lacks consistency in its inventory valuation methods. This is due to a
disagreement between two of its diretors, Miss Adidas and Mr Puma.
11. Staff in the production department complain about insufficient documentation of raw
material.
REQUIRED
a) Related only to point 1 in the scenario, identify and describe two control activities that are
in place relating to ShoeCraft’s inventory cycle. (3)
b) Identify the weaknesses in the controls over ShoeCraft's inventory and production cycle.
For each weakness, briefly describe a potential consequence associated with the
weakness (i.e. what could go wrong). (25)
Communication skills: logical flow of arguments. (1)
c) Write an email to the financial director of ShoeCraft, Mrs Reebok, and propose
recommendations to strengthen internal controls in the inventory cycle of ShoeCraft,
related only to the weaknesses in the control system. (15)
Communication skills: clarity of expression. (1)
d) Describe two risks relating to the production needs of Shoecraft (Pty) Ltd (manufacturing
too little or too much inventory) and explain the manual controls that could be implemented
to address these risks. (5)