Corrimal Ltd Manager Case Study & Goods Received Note (GRN) - Accounting Assignment Help

Assignment Task

Corrimal Ltd
You are the audit manager on the audit of Corrimal Ltd for the year ended 30 June 2021. Corrimal Ltd is a furniture manufacturer and wholesaler and purchases large quantities of inventory near 30 June, as July is one of its largest sales months. As a result, a material amount of inventory arrives in its Adelaide warehouse around balance date.
When goods from suppliers are delivered to its Adelaide warehouse, a goods received note (GRN) is prepared and signed by the warehouse foreman. The GRN is dated the day the goods are received and includes details of the type and number of goods received. The warehouse foreman then sends a signed copy of the GRN together with the supplier’s invoice to its accounts payable department. The accounts payable clerk, Judy Essex, matches each GRN to the original purchase order. Judy then immediately enters the GRN details into Corrimal Ltd’s purchasing system, which updates the inventory records and the accounts payable records. The date the GRN is entered into the system by the accounts department is the posting date for the transaction.
Sam Penman, your audit senior, has performed a test of controls procedure over GRN transactions processed in Corrimal Ltd’s purchasing system. A tolerable deviation rate of 5 per cent was set and from the total population of 250 GRN transactions for the year, a sample of 50 GRN transactions were randomly selected including the periods either side of balance date. The test revealed five errors in posting to the correct date. Sam noted on the audit working papers that two of the errors were not valid deviations, because Corrimal Ltd’s purchasing officer had advised him that these GRNs had been cancelled and replaced. Sam also noted that the five GRNs in question were not material, either individually or on an aggregate basis, and concluded that the controls around the GRN transactions were reliable.
As a material amount of Corrimal Ltd’s inventory is located at its Chinese production facility, Sam instructed the Chinese auditing firm, Tan & Chan, to attend the stocktake in China and sign off on the inventory account balance at the Chinese warehouses as at 30 June 2021. Tan & Chan reported that, while there were some minor discrepancies between warehouse stock and the count sheet, they were not material. Sam concluded that no further work was required to be undertaken on the existence of the inventory located in China on the basis that the stocktake was audited by Tan & Chan and the discrepancies found were not material.
In testing the ‘accuracy, valuation and allocation’ assertion for fixed assets, which is a material balance, Sam focused on the increase in the fixed asset account balance between 30 June 2020 and 30 June 2021. Sam ensured that the dollar value of the asset additions for the year ended 30 June 2021 were included on the fixed asset depreciation schedule. As all fixed assets additions were properly included and appropriately depreciated, Sam concluded that the accuracy, valuation and allocation of the fixed asset account balance was correct.
In testing research and development, which is a material balance, Sam reviewed the expenses accounts listed in the trial balance to determine what amounts should be capitalised.
Required:

• Identify one manual control and one IT application control associated with the receipt of goods from suppliers and explain the objective of each control. 
• Provide three reasons why Sam’s conclusion regarding the controls around the GRN transactions is not correct. 
• Indicate whether you agree with Sam’s conclusions for inventory and fixed assets. Justify your decision. 
• Indicate whether sampling could be used to check the depreciation calculations and to review the capitalisation of research and development. Justify your responses. 

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