Conduct of internal audit

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UNIT:1875

TITLE:ASSIST THE CONDUCT OF INTERNAL AUDIT

Task 1

1.1.1

  • Companies should have a system where the employees work as a team. Employees should be provided with a safe working environment.
  • Different departments within the company should share information in order to get more ideas and information which is helpful in business decision making and for future growth and development.
  • There should be ample time given when preparing or checking bank statements to prevent from any errors.
  • The company should closely monitor or double check all the cheques that is issued or cancelled, as well as the company should closely examine all the credit or debit transactions being incurred by the company.
  • The company should maintain proper accounting system in order to prepare accurate accounting records. The company should have good accounting system in order to give a correct picture of the company’s progress and productivity level. This can only be done when the company follows the accurate or appropriate policies and accounting standards needed to formulate a reliable, complete and usable financial report.
  • The company should secure the auditing services from a reliable and competent or accounting firm.
  • The company should protect the support from external auditors that could provide with complete and honest auditing services in order to regulate auditing standard.

1.1.2

Answer

  • Implementation

The company should develop or impose an organizational structure which would boost up the company with honesty and dignity. The environment should be safe free environment where the employees should feel safe and are encouraged to work as team work in order to increase in productivity.

  • Methodologies should be implemented by the company in order to reduce the indiscretion of the financial documents. The implementation should be set off by the company CEO, the management and should be participated by all employees within the accounting departments. It should be closely and well monitored and crossed checked by external auditor in order to ensure intelligibility in the budget operation. The company should maintain proper accounting system in order to prepare accurate accounting records. The company should have good accounting system in order to give a correct picture of the company’s progress and productivity level. This can only be done when the company follows the accurate or appropriate policies and accounting standards needed to formulate a reliable, complete and usable financial report.

1.2 Irregularities

  1. There has been an over-valued stocks which has been accounted for 5 years worth $US 25 million
  1. There were no provisions made in the debtors account worth US$9 million for non-performing accounts.
  1. The current operating outflow valued US$ 7 million has been recorded as prepaid expenditure.
  1. The bank reconciliation statement had not been accurately done for the past 3 years, but it was accepted by the external auditors with the figure value of US$30 million.
  1. There had been 10 unpresented cheques valued US$3 million. These cheques have been returned by the banks as the customers did not have sufficient funds.
  1. The short-term debts should have been shown in the statement as US$65 million and not US$ 55 million.
  1. According to the record there had been a mistake in the disclosure of the overdraft facility. The figure has shown as US$ 85 million and not US$ 75 million.
  1. According to the sales and marketing manager, had entered in the financial contract for one of the raw material suppliers in order to supply equipment to the value of US$ 15 million to increase the production level of twisties, but this contract doesn’t reflect in the statement of accounts.
  1. Since there had been only a commercial contract the external auditor stated that there is no point to show in the records.
  1. The review of the quarterly report issued by the Risk Manager.
  1. The authorization concluded by the manager is false/misleading. For example, “I foresee that the company is operating in a very sound and successful manner.
  1. There was misleading information given about company’s productivity and growth.
  1. The Finance manager also gave wrong information about the company’s progress as well.

1.3 Answer

  • There should be an appropriate identification made in the transaction for the current/prepaid expenditures
  • All financial documents should be updated regularly whether it of small or big amount.
  • Correct/accurate information should be entered in each transaction.
  • The current or prepaid expenditures of the company should be properly classified in each transaction incurred.
  • All transactions incurred whether it is a big or small amount should be properly and accurately recorded.
  • Correct information should be delivered by the person incharged, whether he or she may be the finance manager/risk manager/sales manager for the board to know of the true standing of the company.
  • There should be regular change of person in charge in each department particularly in the budgeting department in order to prevent any mishaps with the company.

Task 2

2.1 Answer:

PIFCO ZEN CHEN COMPANY'S BALANCE SHEET

AS AT 30 DECEMBER 2011

Assets

fixed assets

(45 - 15)

30

Investment assets

Investment in subsidory

30

60

Current Asset

stock (125 - 25)

100

Debtors (90 - 9)

81

Prepaid expenses (40 - 7)

33

Bank Deposit

60

cash at bank (30 - 30)

0

petty cash

1

275

Less Current Liabilities

Creditors (accounts Payable)

45

accrued expenses

30

short-term debt (55 + 10)

65

Draft (75 + 10)

85

225

Net Current Asset/liability

50

Total Assets

110

Financed by:

Long-term debt (80 + 15)

95

Capital

90

accumulated loss

{75}

15

Total liabilities and equity

110

2.2 Answer:

According to the balance sheet the company did not follow the correct procedures and policies of the accounting system and standards. All financial documents should be updated regularly whether it is of small or big amount. Accounting and auditing standards were wrongly followed. The company did not follow the appropriate accounting system.

According to the act of management, the company did not perform the accounting principles such as NZ GAAP. In order to have proper financial reports the company should strictly follow the accounting principles and procedures.

2.3

Strength

  • The company made a significant growth in terms organic growth because they had confidence in the three executives.
  • Good marketing stream and sales strategies used by the company, resulting in smooth running of business flow.
  • Production improvement leads to increase in productivity.

Weakness

  • Untrustworthy managers. The managers did not perform with dignity and honesty. The company should follow standard policies and accounting needed to formulate a reliable, and proper financial reports.
  • Lack of intelligibility due to poor information system. Information regarding the company was not delivered clearly.
  • Incompetent internal and external auditors. The external auditors would come to the company for a very short time only, to perform the auditing process. They will not able to perform an efficient auditing due to time duration, and the Pifco-Zen Chen Company Limited would face a risk for corporate collapse, when the three managers had left.
  • Accounting and auditing standards were wrongly followed. The company did not follow the appropriate accounting system.

RECOMMENDATIONS

  • The company should replace/change managers, who can perform their duties with honesty.
  • The company should impose proper accounting system in order to get clear and correct information.
  • The company should develop or impose an organizational structure which would boost up the company with honesty and dignity. The environment should be safe free environment where the employees should feel safe and are encouraged to work as team work in order to increase in productivity.
  • The company should have good accounting system in order to give a correct picture of the company’s progress and productivity level. This can only be done when the company follows the accurate or appropriate policies and accounting standards needed to formulate a reliable, complete and usable financial reports. Team work should also be encouraged to help increase in productivity. All procedures should be carried out with honesty.
  • The company should secure the auditing services from a reliable and competent or accounting firm.

© IANZ | 1875 Assist the conduct of internal audits| ASSESSMENT TASKS | Page 1 of 5

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