ROPE Ltd. is a manufacturing and trading Company of leather goods since last 12 years. You are the internal auditor of the company for the year…
CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · September 2025
ROPE Ltd. is a manufacturing and trading Company of leather goods since last 12 years. You are the internal auditor of the company for the year 2024-25. In order to review internal controls of the company, you visited the departments and noticed: (i) The store manager, Mr. Abhishek, who is responsible for maintaining the inventory, also keeps the inventory records. (ii) The company's staff has been working in the same roles for over seven years without any rotation. The finance manager, Mr. Krishna, in particular, has never had his duties rotated since joining the company. (iii) The head of procurement, Mr. Sumit, has complete control over purchasing, receiving goods, and approving payments to suppliers. His actions are not reviewed by any other person in the company. Do you think that general conditions pertaining to the internal check system are violated in the given situation? Comment.
Suggested Answer and Working Notes:
Yes, in the given situation general conditions pertaining to the internal check system are violated as follows: (i) Allowing Mr. Abhishek, the store manager, to maintain inventory records while also having custody of the inventory violates the principle that those with physical custody of assets should not have access to accounting records. (ii) The lack of staff rotation for over seven years violates the principle that staff duties should be rotated periodically to prevent any single person from performing the same function for too long. (iii) The head of procurement, Mr. Sumit, having complete control over the procurement process without oversight violates the principle that no single person should control any important aspect of the business operation.
Topics: Standard on Auditing (SA), Internal Audit
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