AYB221 Critical Thinking 13 2 PDF

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Critical Thinking Tutorial 1 -Week 10 Perfect Plumbing sells bathroom and kitchen plumbing fittings to plumbers across Australia and uses a perpetual inventory system. The business imports their fittings from Italy and Asia and stores the fittings for resale at its business premises at Acacia Ridge. The Johnson Family owns the business and accounting is undertaken using MYOB. Sam Johnson is the CEO, his sister Brittany is the Finance Manager, his brother Alex is the Sales and Marketing Manager and his other sister Natalie is the Purchasing, Warehousing and Distribution Manager. When the individual plumbing fittings stock is low, Natalie orders more by requesting the Purchasing Officer to place the order with the appropriate supplier. When the goods are received from suppliers, the receiving officer enters them into inventory records upon receipt. No comparison is made to the purchase order, but the receiving officer checks that the items and quantities received to the invoice received from the supplier at the time of delivery. If the items received agree to the invoice, the purchase order is converted to an invoice by the purchasing staff. If not, changes are made to the order to make it agree with the supplier invoice in MYOB ready for payment. (Documents and words are not cross-referenced) Inventory going in and out of the business premises is not tracked by individual items, as the staff in the distribution area are long-term trusted employees. Natalie as Purchasing Manager considers she knows what items should be in the warehouse each week in terms of inventory and would ask questions if she thought that stock was lower or higher than anticipated. Sales occur to trades people only; there are no sales to the general public. The sales area receives a customer order from various plumbing businesses. Sales staff process the order, produce an invoice, a packing slip, and dispatch docket. These documents are forwarded to the warehouse staff. These staff distribute the goods to the customers and check the sale has been recorded in the sales system. No reconciliations are made between total customer balances and the general ledger. Alex, the Sales Manager tries to monitor the sales area, but he is also busy sourcing new customers and is often out or on the phone during the day. (Segregation of duties not implemented effectively, manager is maintained multiple task not specified in his area of work) Brittany pays wages weekly to all 50 employees, based on employee timesheets. There is no check on the timesheets as all the employees are trusted employees and have been with the business for many years. When an employee does leave the business, Brittany deletes them from the payroll table a few weeks later.

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Critical Thinking Tutorial 1 -Week 10 Question 1 (a)

Identify a potential threat(s) in Perfect Plumbing for each of the 3 cycles (Expenditure, Revenue, and HR & Payroll) and how you could minimise these threats. Categorise your solutions using the five (5) Control Activities (Authorisation, Segregation of Duties, Documents & Records, Safeguarding Assets, Records & Data and Independent Checks).

Expenditure Cycle (Threat + Solution + Control Activity) Threat - improper checks with the purchase order. Solution - Comparing the report is required and only accepting the order of the goods at the correct price (Documents and Records)

Revenue Cycle (Threat + Solution + Control Activity) Threats to inventory, accounts such as a general ledger is mismatched and it needs to be reconciled (Independent Checks). Inventory going in and out of the business without proper authorisation and tracking allows theft to occur. Solution – Keep recordings, performing stocktakes prevents theft from inventory (Authorisation, Documents and Records and Safeguarding assets)

Payroll (Threat + Solution + Control Activity) Threats – Unauthorised timesheets. Employees will claim more hours than they work. Ghost employees may be implemented. Employee history working records are deleted upon transferring to an alternative work position. Time Sheets are unchecked, no thorough action was taken to maintained the wage paying hours. Solution - Make sure timesheets are managed by a manager to ensure it is authorised (Authorisation). Ensure employees are placed as “inactive” and not “deleted” when leaving the business (Records and data and independent checks)

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Critical Thinking Tutorial 1 -Week 10 (b) i) Perfect Plumbing uses the following tables in MYOB to keep their general ledger up to date. Using these tables explain how a credit sale for $10,000 to a customer (goods cost $8,000) would be recorded and other tables updated in MYOB (assume no GST). You will need to provide the journal entries and how the tables would be updated. Credit Sale – Dr Acc Receivable CR Sales Credit Goods – Dr Cost of goods Sold Cr Inventory Sales update inventory and receivables account. Inventory, customer items, etc will also need to be adjusted depending on the sales. Sales – increase, inventory – decrease.

(c) ii) Explain how a sale for $5,000 including freight of $200 to a customer (goods cost $4,000) would be recorded in MYOB (assume GST applies). You need to provide the journal entries but do not need to include $ amounts, only the accounts debited and credited.

Two Journal Entries, includes freight and GST:

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Critical Thinking Tutorial 1 -Week 10 1. Cost of goods sold a. DR Cost of goods sold b. CR inventory

2. Sale + Freight and GST) a. Dr Acc Receivable b. Cr Sales c. Cr Freight Collected d. Cr GST Collected

(d) Consider the following threats to an Accounting Information Systems (AIS) and advise how you would stop these threats occurring. Outline a specific internal control you would implement in your response. Threat to AIS system

Specific Internal Control to stop the threats occurring

Loss of data due to a system crash

Regular Data Backup (Safeguarding Assets) Back up a copy in one copy in a HDD, one in cloud storage and one out of scope of work.

Theft of inventory

Only unique specified segregation of duties. Reconcile accounts to reduce theft. Only Authorised personal may have access to the inventory e.g identification (

Failure to bill customers

Keep accurate invoices (Documents and Records). Reconcile documents. Keeping the information and documents in check will present failure to bill customer

Theft of cash

Security, Safe, Camera. Assigning system e.g petty cash Keep the cash or cheque offsite such as deposit it to the bank. Bank it regularly to decrease theft of cash. (Separation of duties, Safeguarding assets)

Sales to customers with poor credit

Credit check to ensure they have the sufficient credit to pay debt or expenses at a certain rates. Prevent future issues to the business of having to chase people for money, selling it to the debt collection

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Critical Thinking Tutorial 1 -Week 10 agency at a reduced price. E.g you owe 10k, sell it to agency for 5k. Maintain excellent customer relationship prevent debt. (Documents and records?)

Billing errors

Segregation of duties. Checking the amounts are correct. Ensure documents and records are all accurate. Ensure Internal documentation are correct, such the price list, customer list etc.

Shipping errors

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Segregation of duties. Ensure documentation implemented on the package is correct, such as billing price, shipping price and having a bar code on the package to matches the system. Failure leads to incorrect shipping to customers.

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APPENDIX PROVIDED IN FINAL EXAM 5 categories of Control Activities: • • • • •

Authorisation Segregation of duties Documents & Records Safeguarding Assets, Records & Data Independent checks

The COSO Framework on Internal Control • • • • • • • •

Internal Environment Objective Setting Event Identification Risk Assessment Risk Response Control Activities Information & Communication Monitoring

Systems Development Life Cycle • • • • •

Investigation Analysis Design Implementation Maintenance & Review

Expenditure Cycle Key Activities • • • •

Ordering materials, supplies, and services Receiving materials, supplies, and services Approve supplier invoices Cash disbursements

Revenue Cycle Key Activities • • • •

Sales order entry Shipping Billing Cash collections

Payroll Cycle Key Activities • • • • •

Update employee tables, tax rates and deductions Validate time and attendance Prepare Payroll Disburse Payroll Disburse Taxes & Employer paid benefits

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