Assessment Essay Example

Accounting 10

Questions

All questions are compulsory. You must attempt all questions.

Please refer to the Open Learning Support site (OLS) for a template to use in answering these Questions.

Question 1

Definition of Corporate Governance 6 marks

List three features of “Corporate Governance”

  1. Strategy

  2. Compliance

  3. Accountability

Question 2

Definition of Internal control system 4 marks

Provide a definition of “Internal control system”

Internal control system is any action taken by an organisation in order to enhance the achievement of set objectives.

Question 3

Objectives of Internal Control 6 marks

List the three basic objectives of an Internal Control System

  1. Property of transactions

  2. Reliability of information

  3. Compliance with regulations

  4. Security and efficiency

Question 4

Features of an Internal Control System 4 marks

List four of the foundation elements of an Internal Control System

  1. Control environment

  2. Risk assessment

  3. Control procedures

  4. Monitoring

Question 5

Limitations of Internal Control 6 marks

List three limitations of Internal Control Systems

  1. Human error

  2. Easier to over ride by management

  3. Possible collusion within the company

Question 6

Effectiveness of Internal Control 4 marks

List two documents used in the sales transaction process (Do not include accounting records or reports)

  1. Invoices

  2. Receipts and Delivery Note

Question 7

Effectiveness of Internal Control 4 marks

List two tests to assess the effectiveness of internal controls to ensure goods cannot be dispatched to customers who represent a bad credit risk?

  1. Used in systems to detect failures

  2. Achieved the balance of cost of deploying controls by managing the level of residual failures

Question 8

Accounting System 10 marks

(a) What is the objective of the Accounting System? (5 marks)

  1. Preparing timely and accurate picture of performance

  2. Generating financial reports for management

  3. Facilitating filing of tax returns

  4. Preventing and detecting fraud, waste and theft

(b) What are five features of accounting controls? (5 marks)

  1. Cash and receipt recording

  2. Payroll management

  3. Appropriate recording of grants and gifts

  4. Cash disbursements

  5. Recording of assets

Question 9

Accounting System 10 marks

  1. Administrative

This is a process that involves management of business operations. It also involves managing people and resources efficiently.

b) Accounting controls

These are important business function used in growth oriented organizations used to protect companies from fraud, abuse and inaccurate recordings. They also help an organisation to keep track of important financial activities (Bishop, 1991).

Question 10

Internal Control Weakness and Improvements 25 marks

Hippo Roofracks Pty Ltd is a company that produces roof racks for cars. The company has recently computerised its accounting transactions. There have been some difficulties with the systems operations and a computer expert has visited the company to report on the problems and any inadequacies. The following points are in the report he sent to the management of Hippo Roofracks.

Each time the computer program is run, it is assigned to a specific employee who is responsible for running the program and making any changes and answering all questions. No records of computer operations are kept because each employee is responsible for their own computer run.

All staff in the organisation has access to the computer room during office hours.

The accounting records are kept with the backup files in an unlocked cupboard in the computer room

There are no computer checks built into the program as the organisation has decided to retain the manual controls from the previous system.

Many of the computer staff have excessive outstanding annual leave and rarely take time off.

You are the auditor of Hippo Roofracks Pty Ltd. Your task is to describe the Weaknesses in the internal control system and recommend Improvements in these controls and processing procedures.

The weaknesses in the internal control system are caused by lack of control activities for example since all staff members have access to the computer room and especially during office hours. This may reduce effectiveness and staff members may access financial reports that are specifically used by management. Roth (1997) describes that to improve the internal control system management has to set up regulations where staff members should not be allowed to access the computer room. The staff should also not be given full control over their computer for example in running their programs, making changes and answering question. This should be controlled by one system to improve efficiency (Galloway, 1994).

Question 11

Internal Control Weakness and Improvements 10 Marks

Assume that the following problems with the processing of Tin Shed Pty Ltd’s sales transactions occurred.

List and discuss the internal controls that could be implemented to prevent or detect each problem.

  1. A debtor’s ledger card for John Wilson was deliberately deleted from the company’s computer files by a company employee who is his friend. He has managed to access all debtors’ details, although he works in another part of the company.

-In this situation the type of internal control system to use is the detective type since it is used to detect errors and irregularities for example like deletion of debtor’s details.

prices. unauthorisedb. Sales were made at

— This situation will use the corrective control system which is designed for correcting irregularities that have been detected.

c. Sales invoice was correctly journalised but was not posted to the individual debtor’s account in the debtor’s subsidiary ledger.

-Employee collusion causes the above problem and organizations have to input detective controls to avoid this issue.

d. A shipment to a bona fide customer was not invoiced.

Completeness should be observed and detective control should be applied.

-This problem is as a result of human errors and should be prevented through preventive control system.

e. Sales were made to customers who were poor credit risks.

-This is caused by invalidity where transactions are unfairly represented.

Question 12

Internal Control Weakness and Improvements 10 Marks

Assume that the following problems with the processing of Rusty Nail Pty Ltd’s cash receipts transactions occurred.

  1. Recorded receipts of $2,500 were diverted to the personal use of the cashier, as the company only deposited money at the bank once a week.

-This is causes by employee collusion in a manner that financial data is not identified by control systems.

b. A mail remittance of $500 in cash was misappropriated before being receipted.

-This is as a result of employee error while handling transaction which should receive prompt corrective action upon detection.

  1. A cash sale for $2,000 was not recorded in the cash register and was put into the cashier’s pocket.

-This is as a result of employee collusion since the cashier deliberately failed to record the transaction.

  1. A payment received from a debtor was entered into the cash receipts journal but was deliberately not posted to the individual debtor’s account so it could later be misappropriated from a fictitious debtor’s account.

-Corrective controls could be appropriate to use in this situation to ensure that receipt was entered

e. Cash of $10,000 was stolen from an unlocked cash register, which was also left unattended by a casual employee who was not authorised to be in that area.

-Preventive controls are necessary to avoid errors and fraud of the internal system.

References

Bishop, W. 1991. Internal Control, Internal Auditor, 1 (9): 117-123.

Galloway, D. 1994. «Control Models in Perspective.» Internal Auditor, 5 (4): 46-52.

Roth, J. 1997. Control Model Implementation: Best Practices. Altamonte Springs, FL: Institute of Internal Auditors Research Foundation.