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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Kestrel Foods' management accepted that its stock counts are unreliable. The audit committee asks for a recommendation that follows a cost-benefit approach to the control weakness. Which recommendation is most consistent with that approach?

Focusing frequent counts on high-value or fast-moving items and counting low-value items less often is best. It applies cost-benefit thinking by directing control effort where the risk of loss is greatest, rather than spending heavily on low-risk inventory.

  1. AIntroduce full daily counts of every item regardless of value
  2. BOutsource the whole warehouse operation without analysis
  3. CIgnore the weakness because no control is ever perfect
  4. DFocus frequent counts on high-value or fast-moving items and count low-value items less oftenCorrect

Explanation

Controls should cost less than the risk they reduce. Targeting counts at high-value or high-risk items gives most of the benefit for much lower cost. Daily counts of everything are disproportionate, and ignoring the weakness or outsourcing without analysis does not weigh cost against benefit.

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