- Information
- AI Chat
Tutorial solution - Internal control testing - KH
Concepts In Biochemistry And Microbiology (SHGB6115 )
Universiti Malaya
Students also viewed
- Audit procedures and sampling - tutorial solutions KH
- Auditing inventory tutorial solutions KH
- Tutorial solution – Auditing liabilities, capital and directors emoluments - KH
- Tutorial Solutions – Not for profit entities - KH
- Tutorial solutions - audit review and finalisation
- Tutorial solutions - Audit reporting
Preview text
Internal controls – tutorial solutions
Question 1
NB: Students are not required to use a columnar format, but may choose to do so. If they do not use a table, they must clearly distinguish between each of the deficiencies and show the consequences and recommendations matched to each deficiency clearly.
Deficiency Consequences Recommendations No centralised control of preferred suppliers
Royal Icing may not achieve best prices or maximise discounts available for larger purchase volumes.
Best quality may not be obtained/inconsistent quality across branches
Undertake a review of all suppliers; negotiate contracts with preferred suppliers for the whole business and issue a list of suppliers for use by each outlet.
No controls over amount of ingredients ordered within each outlet/no one individual responsible for ordering at each outlet/many employees ordering.
Items running low on quantity may be ordered by more than one employee resulting in wastage
Items running low on quantity may not be ordered at all resulting in lost sales
Increased risk of ordering items for personal use
Designate one/two employees to be responsible for ordering at each outlet
Introduce a process for notifying the employee responsible when items are running low
Orders to be approved by supervisor/manager
No records of items ordered by phone maintained, orders are placed with suppliers haphazardly throughout the day.
Staff may forget whether items required have been ordered or not, resulting in over or under ordering.
Suppliers may be called more than once in any day leading to increased risk of errors
Lack of records means goods delivered cannot be checked against those orders – goods delivered may not be those required/incorrect quantities
Goods ordered may not be delivered at all – lost sales and loss of customer goodwill
Document details of order (for example use pre-printed order pad for completion when orders are placed).
Telephone (or email) suppliers once a day, with full order list
On receipt of goods check delivery note to record of order for correctness of goods delivered
Order records checked daily for non- delivery of goods ordered
No check of goods delivered to delivery note.
Items delivered may not agree to items recorded on delivery note – this could lead to Royal Icing being overcharged for items not received/incorrect quantities / incorrect items.
Royal Icing staff should unpack delivery and agree type and quantity of items to delivery note before accepting the delivery.
No check as to quality of goods received/checking of expiry dates.
Items may be of inferior/insufficient quality or too close to their 'sell by' date.
Royal Icing staff should check quality of items being delivered and the 'sell by' date on perishable goods.
No controls apparent over completeness of delivery notes sent to head office..
Accounts staff at head office may understate liabilities at year end
Accounts staff will be unable to agree invoices to delivery notes if delivery notes are missing – loss of supplier
The outlet manager should attach each delivery note to the relevant order in the order pad
A copy of each delivery note should be made and filed at the outlet
goodwill if invoices paid late/accounts put on 'stop'. Each note/order should be sequentially numbered and kept in a file for sending to head office at the end of each week
Sequence regularly checked for completeness at head office
Question 2
Deficiency Consequences Recommendations Failure to compare costs with budgeted on fixed- price contracts
Failure to compare actual costs to budgeted costs on a weekly basis may result in cost overruns on individual contracts not being identified at an early stage. This may result in loss making contracts which have an adverse impact on cash flow and could impede the company’s ability to continue to trade. Work in progress may be overvalued if provisions for losses are not recognised.
The lack of control may encourage the misappropriation of raw materials and failure to identify contracts behind schedule may trigger penalty clauses for late completion.
Senior management should write to contract managers, informing them of their responsibility to compare actual costs with budget on a weekly basis and that the comparison should be evidenced by signature. A progress report should be submitted to senior management on a monthly basis. Contract managers should also be informed that disciplinary procedures will be implemented for breaches of company policy.
A system of monitoring should be implemented to ensure that procedures are being followed.
Failure to reconcile non-current asset register
Failure to reconcile the property plant and equipment register with the physical assets may result in failure to identify the following: - Assets recorded in the register which have been stolen; - Acquisitions or disposals which have not been recorded; - Assets which are fully written down but still in use; - Assets which are impaired; and - Inappropriate useful lives and consequently inappropriate depreciation charges.
Unrecorded acquisitions may result in incorrect claims for capital allowances.
Senior management should introduce a policy requiring a designated employee to undertake checks which involve comparison of the: - Physical assets to the register to ensure completeness of recording; and - Assets recorded in the register to the physical asset to confirm existence and condition.
The reconciliation should be performed by an employee independent of the custodian of the assets and differences should be reported to senior management and investigated.
A system of monitoring should be implemented to ensure that procedures are being followed.
accounts. As such there is a risk of fraud /error going unnoticed.
(iv)The fact that only one senior member reviews the list and the other one merely signs leaves room
for error or collusion if it is always the same member of staff who signs first.
(5b) (i)The wages payable list should be checked in more detail by the salaries manager and chief accountant. Employees should be randomly selected and evidence of their employment scrutinised.
(ii) The wages paid should be compared to the wages budget.
(iii)Internal audit should audit the wages and confirm occurance and existence, accuracy, completeness,cut off.
iv)Both members of staff should do extensive checks to confirm accuracy, occurrence, completeness, cut off and correct classification.
(6a)Gross pay could be inflated by the wages department staff.
The staff in the wages department could add extra hours to the records of some employees, and remove the net pay from the received cash prior to making up the pay packets. This risk exists because wages staff have write access to the system.
(6b)The computerised payroll system should be programmed to produce a list of all amendments
made to the payroll. This list should be reviewed by a responsible official outside of the wages department prior to wages being paid.
Also, the computerised payroll system should produce payslips for each employee showing the hours worked, gross and net pay and leave. Employees should then check that the cash paid agrees to the
net payment recorded on the payslip.
(7a)The foremen check to ensure existence of employees is only filed in the wages folder and not reviewed by anyone. The foremen check would also not serve any purpose if a foreman were making up fake employees, as he would sign off on this check.
(7b)(i)The foremen check should be reviewed by internal audit.
(ii)Surprise visits should be made to sites to verify the existence of employees.
(8a)There is no mention of verification of deductions from gross wages-the deductions of PAYE and NI could be incorrect.
(8b)(i)The accuracy of deductions should be verified periodically and standard
data such as tax scales should be updated on a timely basis.
(ii) There should also be a reconciliation between the gross earnings , deductions and net pay. This needs to be signed off by a snr member of personnel.
(9a)There is no proper custody over cash; Sally cashes the cheque and takes the cash to the wages ladies who make up the wages packets. The cash can get stolen in transit, get lost or get stolen by
the ladies making up the wages packets.
(9b) There should be controls over cashing cheques, secure transit of cash from the bank to the business, secure transit of pay packets from the business to the payment site and security and prompt banking of unclaimed wages.
(10a)There is no mention of acceptance of responsibility or ownership. Neither the wages ladies nor the foremen sign for the receipt of the money. The money could get lost/stolen without anyone taking
ownership.
(10b)Sally should have the wages ladies sign for the exact amount they receive in cash. The wages ladies should have the foremen sign for the exact amount of cash they receive.
(11a)There is no mention of a reconciliation between the physical cash and the net wages paid.
Money can be stolen by the ladies making up the wages packets.
(11b)There should be a weekly reconciliation of the amount of the physical cheque cashed , and the net amount of wages paid out between signed cash acceptance reports (see previous point), the bank statement, the cash requisition form signed off and the signed wages register.
(12a)Employees don’t sign acceptance of the wages packet. Employees can claim that they did not receive the money or someone can claim to be the employee and pick up money that does not belong to him/her.
(12b) Employees need to sign and date the wages register as proof of receipt. The register should indicate the amount of net pay. The foremen should request to see clock cards with photos if they
don’t know all the employees.
Etc. other valid weaknesses and i/c procedures...
Adapted from fundamentals pilot paper ACCA: Question 4 Paper F8 (Int)
Question 4:
One mark for each risk and one mark for each suggested control.
One person opens mail
a) Risk: One person opens the mail. As such this person could steal money that clients post to the business.(misappropriation of cash)
b) Two people should open the post and prepare a cash receipts list. They should sign as evidence of ownership. This cash receipts list should be reconciled to the daily cash receipts journal to establish accuracy, existence and completeness.
Remittance advices are not aggregated on a remittance report
a) Risk: Payments by clients might go unnoticed. The journal to account for cash receipts might be inaccurate.
b) The two people opening the mail should keep a list/report of remittance advices.
This should be taken to the accounts department and reconciled to the daily journal that is credited to debtors and debited to bank.
The accounts manager locks the cash in the safe before this is deposited in the bank account
a) Risk: There is not a proper segregation of duties as this is the same person that will review the bank reconciliation and has the ability to override controls.
the accounts are not accurately classified. Also, keeping payments in a suspense account leads to the incorrect classification of payments.)
b) Payments should be captured when they are made and the bank statement only used as reconciling tool to ensure all bank payments and receipts have been picked up and accurately reported.
Remittance advices are stacked in the cash book clerk’s in-tray
a) Risk: Remittance advices could go missing. There is no orderly accounting for remittance advices.
b) The cash book clerk should have a systematic approach to filing and accounting for remittance advices. He should identify each credit on the bank statement that relates to each particular remittance advice. Any outstanding credits 1 (where a remittance advice has been sent and the corresponding credit hasn’t appeared on the bank statement) should be referred to the debtors department for follow-up with the particular debtor.
Deposits for which a remittance advice is not available are circled and filed in the outstanding deposits file
a) Risk: The bank account is understated and debtors are overstated.
b) The cash book clerk should refer these payments and the detail description on the deposit to the debtors department in order for them to confirm what client account should be credited with the receipt. Whilst waiting for the debtors department to come back to the cash book clerk, he should debit the cash book and credit the “suspense account”. Once the debtors department confirms who paid, the “suspense account” is credited and the correct debtor debited.
**There is no mention of sending out debtors statements **
a) Risk: The individual debtors’ accounts could be inaccurate. The debtors’ ledger could be inaccurate. Debtors could be overstated/ not exist.
b) Debtors’ statements should be prepared and sent out once a month. The debtors department should prepare and send these out. This is another form of segregation of duties, because the person acknowledging the receipts (cash book clerk) is not the one sending out the debtors’ statements.
**The outstanding deposits file is reviewed by the accounts manager monthly **
a) Risk: Debtors are overstated and bank is understated.
b) See the control improvement where unidentified deposits are posted to the suspense account. The accounts manager should review the suspense account monthly with the cash book clerk and the debtors’ manager and get explanations for large unidentified amounts.
1 Note how a debtor’s payment will appear as a CREDIT on the bank statement. The accounting signage on the
bank statement (from the bank) and the company’s own bank account is the direct inverse.
Tutorial solution - Internal control testing - KH
Course: Concepts In Biochemistry And Microbiology (SHGB6115 )
University: Universiti Malaya
- Discover more from:
Students also viewed
- Audit procedures and sampling - tutorial solutions KH
- Auditing inventory tutorial solutions KH
- Tutorial solution – Auditing liabilities, capital and directors emoluments - KH
- Tutorial Solutions – Not for profit entities - KH
- Tutorial solutions - audit review and finalisation
- Tutorial solutions - Audit reporting