Task 1. Identify Control Weaknesses

Question 1

Weaknesses:

Answer 1

1. Lack of written procedures. (Organisation)
2. Lack of adequate supervision by line manager. (Supervision)
3. Lack of Segregation of duties (Segregation)
4. Absence of management checks:
   (Arithmetic accounting.. reconcile ctrl acc. & Management .. review variances)
5. Lack of awareness of implication not taking holiday.

Question 2

Internal control system:
Controls

supported by strong ethical values, example

Answer 2

SOAP SPAM
1. Segregation - of duties

2. Organisation - defined roles; instructions; eg. stated authority levels; use only approved suppliers..
3. Authorisation - above certain amount; restricted access; passwords
4. Physical - Locked up petty cash. Also locked up physical records eg. payroll
5. Supervision - Line manager
6. Personnel - Qualified, competent staff (who notice eg holiday absence) KKB Performance review.
7. Arithmetic & Accounting - Reconcile eg wages control. KKB Information processing?
8. Management - Management accounts reviewed, investigate variances

Question 3

Types of fraud

Answer 3

Theft

False accounting or misreporting misrepresentation

Bribery & Corruption

Deception

remember collusion

Question 4

Impact of fraud

Answer 4

Financial (lost income or assets)

Non-Financial (loss of reputation & future custom, god employees)

Lost of opportunity

Question 5

Fraud definition

Answer 5

The use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to someone else or to an organisation.

Question 6

Segregation of duties explain

Answer 6

SoD is where no one person is able to completely record a financial transaction from beginning to end.

eg. Cannot raise a sales invoice, then collect and record the cash receipt

SEPARATE:

1. recording transaction
2. recording it’s settlement

Minimise fraud as requires collusion… less likely

Question 7

When looking at scenario - remember to look at bigger picture to try and figure out whats going on?

Answer 7

.

Question 8

If in doubt - Authorisation/ Segregation of duties !!!

Answer 8

Payroll - Ghost employees

Purchasing - Fictitious suppliers

Question 9

Need to write enough … only 100 marks so need to give more cntent

Answer 9

.

Question 10

SLCA reconcile to SL - will it detect…

A batch of purchase invoices posted to the sales ledger control account

Answer 10

Yes (BPP QB)

I assume because the TOTALs from the Day book are posted correctly to the PLCA

Question 11

SLCA reconcile to SL - will it detect…

A pricing error in a sales invoice

Answer 11

No (BPP QB)

I think have to think about day books ie. the invoice is received THEN posted (wrongly) to day book , totals from day book form the PLCA so the 2 match and the error is not detected.

Maybe if the error is in the source document it wont be detected is a good rule?

Question 12

PLCA reconcile to PL - will it detect…

A pricing error in a purchase invoice

Answer 12

No (AAT P2)

Question 13

PLCA reconcile to PL - will it detect…

A supplier has been paid twice for an invoice

Answer 13

No (AAT P1)

Question 14

Reconcile Petty Cash to Vouchers & Float

Shortage discrepancy
Could be caused by…

Addition error of PC Voucher ?

Answer 14

No.

I got this wrong but I think I was thinking of the error being by the reconciler

I think it’s No because the addition was wrong on the voucher but the cash would have been paid according to the total … so it would reconcile as using totals to do the reconcile.

Think of PC vouchers being like Purchase invoices.. a pricing error in an invoice isnt detected either

Question 15

The statutory duty to report if the FSs presented a true and fair view belongs to ?

Answer 15

Auditors (not directors)

Question 16

First intuition
Consistency concept. - about prepaing things on same basis year on year eg. using historic cost method for valuing. so can make comparison yoy easier

Substance over form concept. we consider Economic substance of a transaction more important over legal form of something. (eg preference shares as a debt??)

Separate entity concept: Individual is separate, treated separately to the biz.

Accrual concept

Answer 16

.

Question 17

In time of rising prices what effect does use of historic cost method have on:

Asset values? - understate

Profit? - overstated (because depreciation expense will be lower)

Answer 17

.