Part 1: Written answers questions

Read the question carefully. 

COMPANY POLICY:

The Directors are responsible for the efficient and effective governance of the Company taking into account:

• Business Risks and ensuring assets are safeguarded and operations are orderly and efficient and comply with company policy. 

• Accounting Information systems are reliable and allow the timely preparation of the annual accounts and other reports that satisfy all relevant legislation including the Corporations Law requirements, tax law requirements and comply with generally accepted accounting principles and Australian Accounting Standards. 

• The system of Internal Control should be sufficient to safeguard assets and ensure the reliability of the accounting information system.

1. Define and analyse the term Corporate Governance.

2. Identify and analyse the ethical requirements of being a Director or Senior Executive officer of a company?

3. You have been asked to review the stock take results of a flower shop with the internal auditor. The results are as follows:

Advise of the gain or loss amount.

4. Internal Control Policies and Procedures.

Access the Internal Control Policy and Procedure for Seaside City Council (in the file named FNSACC516_AE_Kn_1of2_SR3.docx) and read it. 

Your assessor will provide you with a copy.

The Chief Financial Officer (CFO) of the council does not think the current policy is specific enough to guide staff as they carry out their tasks. The CFO has asked you to review the current policy and develop a more specific guideline for staff.

Required

I. Develop 2 guidelines for staff who deal with:

a. Credit Sales

b. Cash Receipts

The procedures/guidelines should identify the internal control measures required to manage credit sales and cash receipts. Make sure the procedures/guideline incorporates the principles found in the internal control policy for Seaside City Council, specifically what is found in Part 6 – Control Activities. 

Write the procedures/guideline on the template below. Both guidelines/procedures should be in point form and have 6-10 points for each.

II. For the credit sales guideline you created, list up to 10 of the potential errors or “What Could Go Wrong” in the systems that you are considering. 

III. List the specific Internal Controls you could recommend that would assist in preventing or detecting these errors.

Your answers to part II and III should be written in the table below:

IV. Select 3 of the internal controls identified in the table above and list the steps needed to implement these controls.

V. The following is an extract from the Local government financial management regulations act 1993, part 4 section 11(e) and (f), it states:

(e) appropriate budgeting and accounting systems (including internal control systems) are established and maintained for the purposes of the council…

(f) adequate measures are taken to protect the council’s valuable securities and accounting records from loss, destruction, damage and theft.

Evaluate the guidelines you wrote and the councils internal control policy and procedure. Do they meet the requirements of this legislative? Provide justification for your answer.

5. You have set a clearly defined organisational chart that shows who each employee reports to and the departments they belong to.  Each department manager, at induction and appraisal time, has discussed with each employee their job description and roles and responsibilities. There are authorisation limits documented in writing that specify how much expenditure each department manager can approve for purchases and expenses without needing Board of Directors approval. How could you ensure these delegations and accountabilities are being consistently complied with?

6. After reviewing corporate governance requirements, you are concerned about the Directors’ responsibility in respect of: 

a) ensuring external reporting requirements and deadlines for taxation returns and financial statements are met; 

b) the internal operations are run as efficiently as possible; and

c) ensuring the safeguarding and confidentiality of company and customer information by formalising a plan for the distribution of reports. 

In order to implement effective operating procedures to ensure organisational compliance, you have decided to prepare a guideline of the key reports to assist thedirector in meeting her responsibilities. The guideline will be a summary of the key reports the director deals with. In the table below:

I. Identify if the report is for internal or external purposes. 

II. How often it will be produced (Monthly, Quarterly, Annually).

III. Which stakeholders the report will be sent to. 

7. If the general internal controls of an organisation are weak or poor, then those specific internal control procedures cannot be relied upon. A previous investigation into fraudulent financial reporting found that of overriding importance in preventing frauds and errors was the “Tone at the Top” set by the Management of the organisation.

You are currently redrafting your organisational Policy and Procedures Manual. You want a checklist to be completed at least annually by the Chief Financial Officer (CFO) ensuring sufficient General Controls in your organisation exist and that the organisation is meeting its regulatory and legislative requirements.

The checklist would help your CFO ensure that good General Controls exists in the following 5 areas:

• Management control methods i.e. How does management assess and control their operations?

• Organisational structure i.e. reporting lines, levels of authority, financial delegations.

• Policies regarding Human Resources i.e. controls over hiring, training, evaluating and rewarding staff.

• Policies regarding computerised information systems i.e. controls over access to computers, changes to programs or databases, distribution of reports.

• Audit Committees/Internal Audit Functions i.e. existence of committees/functions, independence.

By using the checklist provided below, ensure you have two or three questions for each area. The questions can be as simple as: 

Does a particular practice exist? For example, access controls, organisational charts, budgets, KPIs, functions or committees.

Does it have, in the case of the internal audit functions, powers to perform its duties properly and report to the correct level so it is independent and able to operate properly? 

Is the correct amount of responsibility, in terms of financial delegation and accountability, clearly defined in formal charts, procedure manuals, authorization limits etc.? 

8. Explain how performance indicators (KPIs, Budgets, Variance analysis, ratios, cancelled invoices etc.) can be used to evaluate compliance with internal control procedures? 

9. Explain how the size of the organisation can affect segregation of duties and financial delegations and accountabilities?

10. Answer the following short answer questions regarding key principles of internal control and auditing.

a) Regarding cash payments: Why do we recommend two cheque signatories to sign all cheques and payments?

b) Regarding cash payments: Why do we mark the invoices attached to cheques “PAID” and enter the actual cheque number on the invoices?

c) Regarding cash payments: Why should we mail cheques directly to suppliers after signing and not return the cheques to the person who prepared the cheque?

d) Regarding payroll: Why it is important that all timesheets/time recording systems have adequate supervisor approval?

e) Regarding cash receipts: Why do we prepare an immediate listing of all cheques received?

f) Regarding sales: Why do we not allow sales staff to authorise credit?

g) Regarding inventory: Why do we keep valuable inventory in a locked storeroom?

FNSACC516AEKn1of2SR3