Question

(A) Mara Limited produced wipers for motor vehicle. It had 120 workers in the production department. The production manager kept all the employment contracts and documents of the workers. The workers were responsible to record their working hours in their weekly timecards. Every Friday afternoon, the production manager would collect all the timecards and pass them to the accounting department for preparing the payroll report. The accountant would prepare the cheques based on the payroll report. After the treasurer signed the cheques, he would pass the cheques to the production manager for distribution to the workers of the production department. Evaluate the main issues of internal control in the above situation and suggest ways for improvement. (Your answer should be limited to 1 page.)

(B) In Year 2017, Rumi Limited used the double-declining balance method to calculate depreciation expense for its machine. The director of Rumi Limited questioned about the amount of depreciation expense of 2017. He suggested to change the depreciation method in 2018 to reflect better performance of the company. Discuss which accounting principles would be violated and state the implications and consequences if Rumi Limited changed the depreciation method in 2018 as suggested by the director. (Your answer should be limited to 1 page.)

Answer 1

A) Internal control issues

Internal controls in the organisation helps increase the operational efficiency and effectiveness and provides safeguard of assets and compliance with laws and regulations. Following are the internal control issues are found

1. Documentation

Supporting documents of all transactions required to be maintained to ensure existence of transactions and controls are in place.

In this company only workers are responsible to record working hours on time cards. And every friday production manager collect time cards and pass to accounting department. No any other documents or registers are maintained.

Production manager required to maintain daily register to verify no.of hours worked by each worker. Required to appoint supervisor who is responsible to record all employees working timing.

If possible kept thumb impresion machine to record data of working hours.

2. One employee work should be checked by another employee.

This type of control will help to avoid misrepresentation of fact. Appointment of supervisor helps to ensuring proper recording of data.

3. Collusion among employees

Employees through collaboration commit frauds and illegal activities. Possibility of fraud commision by recording excess hours by workers.

4. All the employment contracts and documents are to be kept in a security, with authorised person, Appointment of workers should by aurthorised senior person.

5. Employee should go atleast once in a year on vacation.

Ways of improvement

1. Evaluate the complete authoriasation procedure
2. Ensure optimum utilisation of resources ie man, material, mahine
3. Ensure all douments of transactions are kept with security
4. Maker of the transaction should not be checker.