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Greystone Co is a retailer of ladies clothing and accessories. It operates in many countries around the world and has expanded steadily from its base in Europe. Its main market is aimed at 15 to 35 year olds and its prices are mid to low range. The company’s year end was 30 September 2010.


In the past the company has bulk ordered its clothing and accessories twice a year. However, if their goods failed to meet the key fashion trends then this resulted in significant inventory write downs. As a result of this the company has  recently  introduced  a  just  in  time  ordering  system.  The  fashion  buyers  make  an  assessment  nine  months  in advance  as  to  what  the  key  trends  are  likely  to  be,  these  goods  are  sourced  from  their  suppliers  but  only  limited numbers are initially ordered.


Greystone Co has an internal audit department but at present their only role is to perform regular inventory counts at the stores.


Ordering process


Each country has a purchasing manager who decides on the initial inventory levels for each store, this is not done in conjunction with store or sales managers. These quantities are communicated to the central buying department at the head  office  in  Europe.  An  ordering  clerk  amalgamates  all  country  orders  by  specified  regions  of  countries,  such  as Central Europe and North America, and passes them to the purchasing director to review and authorise.


As the goods are sold, it is the store manager’s responsibility to re-order the goods through the purchasing manager; they are prompted weekly to review inventory levels as although the goods are just in time, it can still take up to four weeks for goods to be received in store.


It  is  not  possible  to  order  goods  from  other  branches  of  stores  as  all  ordering  must  be  undertaken  through  the purchasing manager. If a customer requests an item of clothing, which is unavailable in a particular store, then the customer is provided with other branch telephone numbers or recommended to try the company website.


Goods received and Invoicing


To speed up the ordering to receipt of goods cycle, the goods are delivered directly from the suppliers to the individual stores. On receipt of goods the quantities received are checked by a sales assistant against the supplier’s delivery note, and then the assistant produces a goods received note (GRN). This is done at quiet times of the day so as to maximise sales. The checked GRNs are sent to head office for matching with purchase invoices.


As  purchase  invoices  are  received  they  are  manually  matched  to  GRNs  from  the  stores,  this  can  be  a  very  time consuming process as some suppliers may have delivered to over 500 stores. Once the invoice has been agreed then it is sent to the purchasing director for authorisation. It is at this stage that the invoice is entered onto the purchase ledger.



1. (b)   As the external auditors of Greystone Co, write a report to management in respect of the purchasing system which:

(i)    Identifies and explains FOUR deficiencies in that system;


(ii)   Explains the possible implication of each deficiency;

(iii)  Provides a recommendation to address each deficiency. A covering letter is required.

Note: Up to two marks will be awarded within this requirement for presentation.                             (14 marks)


(c)   Describe substantive procedures the auditor should perform on the year-end trade payables of Greystone Co.

                                                                                                                                                          (5 marks)


(d)   Describe  additional  assignments  that  the  internal  audit  department  of  Greystone  Co  could  be  asked  to perform by those charged with governance.                                                                                                                                                                                                                   (6 marks)


                                                                                                                                      (30 marks)


Answers submitted

Created by Ref Marking Action
Namiq Musayev M
05/03/2020 - 20:52
1. (b)   As the external auditors of Greystone Co, write a report to management in respect of the purchasing system which: