The management at ABC ltd., recognizes that a well-designed internal control system provides many benefits. Among the benefits are reliable financial records that facilitate decision making and a greater probability of preventing or detecting errors and fraud. ABC ltd`s internal auditing department periodically reviews the companys accounting records to determine the effectiveness of internal controls. In its latest review, the internal audit staff found the following four conditions:

I. Bad debt write-offs are prepared and approved by the same employee.

II. There are occasional discrepancies between physical inventory counts and perpetual inventory records

III. There are many customer refunds and credits

IV. An unexplained decrease in the gross profit percentage has occurred.

REQUIRED

For each of the Four conditions detected by the ABC Lt`s internal audit staff:

a. Describe a possible cause of the condition.

b. Analyze the possible actions to be taken and/or controls to be implemented that would correct the conditions