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Hey Kim,
Could you please explain the reasoning behind including risks that seem like business risks (to me) in internal control deficiencies ?
For example :
company might lose valuable sales- an explanation for the deficiency that the company does not allow inter store transfer of inventory among its local stores and customers are required to enquire availability of inventory in other stores themselves
company might miss out on prompt payment discounts from suppliers – deficiency of late suplier payments or delay of grn process ( I do recognise that understatement of payables and purchases is a valid point for this deficiency )Thank You !
You are quite right in identifying these as business risks and that they are control deficiencies that affect reporting in the financial statements. See my answer point 1 here https://opentuition.com/topic/comey
And in the 2nd point you give, it is not true that there is a risk that payables/purchases are understated unless the company is recording purchases net of a discount which they are not entitled to because they will pay later.
I have, incidentally, reported to ACCA the discrepancies in published answers that include business risks and the syllabus – as business risks are not examinable in AA.
So the right thing to do with point 1 is just omit it ?
About point 2, if the goods recieved notes are sent out to the accounts dept for processing late then isn’t there a possibility of purchases/ payables being understated ? ( I didn’t phrase that right in the first question, my bad )
It is a business risk if invoices are processed late and that means foregoing a discount – there is no misstatement if purchases/liabilities are recorded at the amount at which they will be settled.
To be relevant to AA it must be possible to express a risk in terms of misstatement in the financial statements – so I suggest to ignore anything that occurs to you as a business risk.
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