QUESTION $2(25$ Marks$)$

Fairway Imports $($Pty$)$ Ltd$,$ located in Cape Town, specializes in the importation of high$-$quality golf

equipment from international suppliers. The company's purchase and payment cycle is designed to

ensure the integrity and efficiency of its transactions, supported by robust internal controls.

The process begins with a strict supplier selection protocol. Fairway Imports maintains a pre$-$approved list

of suppliers that meet its standards for quality, reliability, and cost$-$effectiveness. This list is updated

annually following a comprehensive review and audit conducted by the Quality Assurance team.

Suppliers must meet established performance criteria consistently to remain on the list.

Purchase requisitions for golf equipment must be approved by the Purchasing Manager. These

requisitions detail the type of equipment, quantity, and the selected supplier. Once approved, purchase

orders are generated through an automated system, ensuring each order has a unique sequential

number for tracking purposes.

Upon arrival of the golf equipment, the warehouse team conducts a detailed inspection to verify the

quality and quantity of goods received against the purchase order and the supplier's invoice.

The accounting department performs a three$-$way matching process between the purchase order, the

supplier's invoice, and the goods received note. Invoices that pass this verification are then digitally

recorded in the company$$s accounting system. The purchase order capture screen on the accounting

system contains built in edit checks to ensure that all required information is entered accurately.

You are required to:

$2\mathrm{.}1$ Based on the above information with regards to the purchase and payment cycle for Fairway Imports

$($Pty$)$ Ltd:

$2\mathrm{.}1\mathrm{.}1$ Identify the key controls present in the purchase and payment cycle $(7$ Marks$)$

$2\mathrm{.}1\mathrm{.}2$ Explain, for each key control identified, what risk this control lowers to an acceptable level. $(7$ Marks$)$

$2\mathrm{.}1\mathrm{.}3$ Formulate the tests of control you will perform when testing the identified key controls. $(7$ Marks$)$

Present your answer using the following structure:

Key

Controls

Identified

Risk lowered to acceptable level Tests of Control

List the key

control

identified.

Explain what risk the control lowers to an acceptable

level, e$.$g what would go wrong if the control was not

present.

List the test of control you will

perform to test the identified

control.

$2\mathrm{.}2$ At the financial year$-$end you selected a small number of foreign creditors as part of your valuation

testing. Describe the procedures you would carry out to verify that the foreign creditors balances have

been included at appropriate amounts.