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 annualty following a comprehensive reviow 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 systom, ensuring each ordor 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 digitaliy 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:

$21$ 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

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

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

Present your answer using the foliowing structure:

Key

Controls

Identified

List the key Explain what risk the control lowers to an acceptable control level, e$.$g what would go wrong if the control was not identified.

Risk lowered to acceptable leve! present.

Tests of Contro!

List the test of control you will perform to lest 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.