Effective and Efficient Asset Management - Assignment Example

Name Tutor Course Date PART: A 1. Five principles of corporate governance (a). Promote responsible and ethical decision making (b). Structure the board to add value (c). Respect the rights of shareholders (d). Recognize and manage risk (e). Remunerate fairly and responsibly 2. Internal controls is necessary tool for auditors since internal control assist in the safeguarding funds, provide effective and efficient asset management, and allow accurate financial accounting and consequently reducing the burden to the auditors. Internal controls may not remove all irregularities and errors, but they can bring to the attention of the management incase of any potential problems thus making the auditors realize the main issues before they escalate. 3. (i). This is error of omission happening during posting. This error increases the credit side of the profit and loss account by $5000. The assets amount in the balance sheet will indicate a higher amount by $5000 while the sale of the asset should have reduced the amount. (ii). This is error of omission. The amount on the credit side of the profit and loss account will be more by $800 while the balance sheet will not be affected. (iii). This is error of principle. This has no effect on the profit and loss account but in the balance sheet it leads to recording of lesser amount by$500 in the fixed asset side. (iv). This is error of commission where the wrong amounts were incorrectly entered. In the place where the invoices were recorded as receivables in the sales journal instead of debtors ledger; this makes it to be error of principle. In the profit and loss account, the amount increased credit side indicating more income by &610. In the balance sheet there were more creditors who were supposed to have been paid the amount of $760. The differences in the amounts of $150 indicate the error of commission. (v). This is error of principle. In the profit and loss the amount on the credit side will be increased by $2000 while the balance sheet will give the current asset account to be more by $2000. (vi). This is error of principle. It raises the amount of assets in the balance sheet by $1000, and it has no effect on the profit and loss account. 4. Five activities of financial or administrative control (a). Ensures that the company gets and include in its books any revenue which is entitled to the business (b). Ensures the assets of the company are accounted for to the latter. (c). Ensures expenditure is incurred when it is authorized properly. (d). Ensures the records of accounting provide a basis that is reliable for accounts preparation (e). Ensures the company’s liabilities are recorded properly and provision is made known or expected losses 5. Effect of poor management of internal control system on organization structure Internal control systems reduce the amount of work and personnel needed to process financial information hence resulting into a lean structure of organization. Poor management of internal controls will lead to a bloated or extended structure of the organization due to non-concentration of functions. 6. Comparison list between individual tax deduction and business tax deduction Individual tax deduction is the reduction or reprieve that an individual receive from his income tax. This is the amount that one pays less from the total income tax. Business tax deduction is the less amount that an organization or business less from the chargeable income tax. 7. Major internal control weaknesses in company’s procedures over sales If a business is not able to come up with enough sales revenue, it will in turn not get sufficient funds to meet all its operating expenses. The enterprise will more so not produce enough return to the owners. Sales transactions are handled by many staff and thereby increasing the changes of fraud being involved in the case of the transactions. Massive documents are also involved. 8. Internal control weaknesses in purchases and accounts payable systems The processing of invoice is not performed by personnel totally independent of the purchasing function. The invoices from the suppliers are sent to the purchasing department for verification of prices. The statements of the creditors should be agreed regularly with the respective ledger accounts and any disagreement investigated before payment is made making the whole process cumbersome. 9. Alternative procedures which would overcome the weakness and strengthen internal control in this area The accounts payable officers should compare product descriptions, prices, and quantities and other details on the invoice of the creditors with the purchase order and goods inward report. The ledger section will usually use accounting machine to post invoices to the ledgers of the creditor account and prepare a summary of purchases in a single operation. 10. Select a payroll system of a medium size business. List suggestions for improving internal control over payroll system (a). An adequate time recording system should be used. For example, mechanical time recorders with clock cards that are properly authorized to record the hour worked by employees. (b). A time-keeping section that is separate and maintains an accurate attendance record for every employee. (c). The rates of pay should be checked regularly against files of personnel to make sure that they are correct. (d). The overtime documented on the forms of requisition and authorized by the departmental manager prior to the overtime. (e). The staff taking part in preparing payroll records should not be connected with any other sections of payroll control, like time recording, engaging employees and authorization of the overtime and many others. 11. EDP recording is an integrated accounts receivable system for organization applying a number of accounting software packages. 12. Is backup necessary in computerized information for internal control of an organization? Backup system is important for computerized information for internal control for an organization and security measures that are appropriate to prevent any cyber crimes like cyber squatting and hacking and protection from virus attacks. 13. Difference between general EDP controls and application EDP controls General EDP controls are significant in the provision of a reasonable degree of assurance that the overall objectives of internal are being met. The general controls include: controls over programs, standby arrangements, and division of responsibility. On the other hand EDP application controls are required to ensure completeness and accuracy of the whole sequence of processing for every application. PART: B 1. E-commerce has advanced the way in which business is being conducted. With growing number of households making use of internet, e-commerce sufficient safeguard against numerous hazards is needed. Significant e-commerce and transactions supported by electronic networks includes on-line shopping by households that comprise of on-line banking, ordering, purchases and payment, on-line information and transaction transfers between on-line marketing and businesses. E-commerce has enhanced business operations. 2. Electronic funds transfer is a means of transferring money through electronic means or the use of internet to transfer money. The internal control concerns involve storage and confidentiality of the information entrusted to the organizations to their suppliers and customers. The customers, suppliers and employees should have a good understanding of the e-commerce procedures and policies of the organization. 3. The monitoring process in the internal control covers: (a). Evaluating of internal control making sure the accounting systems provides: information that is accurate and adequate, control over all phases of operations, and protection from losses due to the embezzlement, theft, or carelessness. (b). Evaluating of accounting and clerical efficiency, checking: effectiveness of procedures, utilization of space adequacy of personnel, use of electronic and mechanical equipment, program of records destruction and retention. (c). Evaluation of overall performance of various operating, examining: plan of organization, procedures being followed, policies in effect, and individual performance. 4. Assurance services refer to independent professional services that improve the information quality or its context for decision makers. They are services that are provided by the certified public accountants (CPAs) in the public practice. Assurance services are provided with the objective of improving the information or the information context. Attestation services are provided in a structure way to help organization members to address specific issues. 5. (a). Financial statement audit: is an examination of financial statements of an entity and the disclosures accompanying them by an auditor who is independent, with the outcome being a report by the auditor, attesting to the fairness of presenting of the related disclosures and the financial statements. (b). Operation audit: is a future oriented, independent and systematic evaluation of the activities of the organization. The primary sources of evidence are the operational achievements and policies related to organizational objectives. The internal control systems are reviewed in this process. (c). Compliance audit: is a review that is comprehensive on the adherence of the organization to regulatory guidelines. The audit is taken to make sure whether a firm is adhering to the terms of an agreement or the regulations and rules to an activity or practice prescribed by an external authority or agency. 6. Internal audit services are directed towards evaluating and examining the internal control structure, operating and financial information, efficiency, economy, compliance and effectiveness with regulations and legislation. The internal audit services are carried out to determine the strength of the operation of the company. The internal audit assesses the strength of the business since it evaluates the daily working of the business. Internal audit verify if the management meets that responsibility through the audit process and risk assessment. 7. Steps for audit preparation (a). Planning for the audit (b). Fieldwork of the audit (c). Preparing the audit report (d). Audit follow up. 8. (a). Determine the suitability of a specific substantive analytical procedure, either alone or in combination with tests of details (b). Evaluation the reliability of data from which the expectation of the auditors of recorded amounts or ratios is developed, taking account of source, nature, comparability, and relevance of available information, and control over preparation. (c). Develop an expectation of recorded amounts or ratios and evaluate if the expectation is sufficiently precise to identify any misstatement that may cause the financial report to be misstated materially. (d). Determine the amount of any difference of recorded from the anticipated values that are acceptable without further investigation. (e). Carrying out the process. 9. An external auditor is engaged to basically assess and give a report on the reliability and relevance of the general purpose financial reports of the client. The external auditor opinion strengthens the credibility of financial statements of those individuals using the information. The internal auditor is more powerful because the external auditor relies on the information from the internal auditor. The external auditor maintains a relationship with the internal auditor of the client. The external auditor looks at the competency and independence of the internal auditor in the evaluation. If the internal auditor’s work is credible then it can be used in the evaluation the system of internal controls of the client. 10. Corporation law deals with the operations and formation of corporations and is concerned with commercial and contract law. A corporation is a legal entity or artificial person that can be sued, sue, enter into contracts, and perform duties necessary to maintain a business which is separate from its stockholders. 11. The audit committee evaluates the issues concerning the control of business activity; the overall process is duly reported to the board of directors on regular basis. The independent internal audit firm assesses the administrative-accounting system and any other function from time to time according to the wish of the management. 12. Professional ethics are the standards that are imposed on the profession who accept standards of professional behavior that are above those required by the law. They give a definition to the profession. The public has faith in the accountants owing to the rigorous expectations imposed on the accountants by the professional bodies and accounting profession. Read More