Securimax Limited (Securimax) has been an audit client of KFP Partners (KFP) for the past 15 years.
Question:
In September 2011, Securimax installed an off-the-shelf costing system to support the highly sophisticated and cost-sensitive nature of its product designs. The new system replaced a system that had been developed in-house, as the old system could no longer keep up with the complex and detailed manufacturing costing process that provides tender costings. The old system also had difficulty with the company's broader reporting requirements.
Securimax's IT department, together with the consultants from the software company, implemented the new manufacturing costing system. There were no customized modifications. Key operational staff and the internal audit team from Securimax were significantly engaged in the selection, testing, training, and implementation stages.
The manufacturing costing system uses all of the manufacturing unit inputs to calculate and produce a database of all product costs and recommended sales prices. It also integrates with the general ledger each time there are product inventory movements such as purchases, sales, wastage, and damaged stock losses.
Securimax's financial year end is December 31.
Required
Discuss the implications of finding evidence that the controls identified in question 8.7 are (a) effective or (b) not effective.
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