Question 1

You have been assigned to audit First Choice Supermarket, a small, owner-managed company with two cashiers, two shop assistants and one accounting clerk. They do not have job descriptions and alternate to randomly perform tasks based on customer traffic and whenever anyone is absent for any reason. While performing a test of controls, many control deviations were found and you therefore conclude that the internal controls cannot be relied upon.

A. Explain the following principles of internal control with reference to First Choice Supermarket:

i. Authorization

ii. Physical controls

iii. Segregation of duties

iv. Personnel (8 marks)

B. Outline TWO (2) benefits of using narrative notes and flow charts to document the internal control system at the supermarket. (8 marks)

C. As an auditor, inform of TWO (2) actions you propose to take in response to deviations from internal control procedures.