Reference no: EM133165335

Question - Part A - You are the auditor of Happy Handbags (HH), a handbag manufacturer that uses only non-animal products and supplies leading department stores in Australia and overseas. HH purchases materials using the following process:

The production manager raises a purchase order, which is then sent to the relevant supplier;

When goods are received, the warehouse manager inspects the goods and only accepts them (and signs the shipping document) if goods are in good condition;

When invoices are received from suppliers, they are given a sequential invoice number in the accounts department;

Before payment of supplier invoices, the accountant ensures that the invoice amounts and quantities match the purchase order;

At the end of each month, the accountant reviews the list of invoices received to identify any missing items.

1. Identify two controls in the above system. For each control state the relevant assertion, whether it is preventative or detective, and how you would test the control.

2. Identify two weaknesses in the above system and explain the relevant assertion affected.

Part B - Your supervisor tells you that controls testing of HH's purchases may not be required because the internal audit department has already performed this testing. Briefly explain which element of the COSO framework the internal audit function relates to, and provide two factors you would need to consider before placing reliance on the work of internal audit.