In: Accounting
Kotakkatik Berhad makes lunch boxes. This company has factories
in Kepong Baru, Tampin, Wangsa Maju and Ulu Selangor. The auditors,
KMPG have completed the interim audit for the year ended 31
December 2019 in November 2019 and prepared their report to
management.”
Your staff observed the following: Each factory has a separate
bank account at their local Bank Raykat. At times the individual
accounts are overdrawn but the bank has agreed to set-off for
interest calculations. Sometimes, the auditor noted that the bank
account has a net credit balance. The manager of the Nibong Tebal
factory uses the policy of straight line depreciation for its plant
when preparing the factory accounts. However the managers of the
three other factories do not keep a plant register. The factory
at Ulu Selangor purchases large quantities of scrap plastic from
scrap merchants and paying in cash. The plant manager will approve
the purchase in writing but there is no regular check of the cash
balance kept to make these purchases. The stock of finished goods
at Wangsa Maju is valued at total absorption cost using budgeted
direct wages for overhead purposes. The other factories practice
overhead absorption using machine hours. All the manual workers
are considered as casual workers and are paid in cash. Their wage
packets are simply given to the foreman to hand out. The workers
need not sign any documents when receiving the cash. The
factories each use a computerised sales ledger system with
sophisticated analytical facilities. The sales team at the Kepong
Baru plant does not analyse their sales on a month to month and
year by year basis like the other three locations. You will be
holding a meeting with your partners to discuss issues to be
brought out in the management letter.
Required Describe, from the information above, the issues to be highlighted to your partners in the management letter
Please adjust the format according to the need. Here Information regarding issues is given | ||||||||||||||
Issues to be described in management letter | ||||||||||||||
1 | As far as concerned regarding maintaenance of separate accounts there is No issue but the reasons being Net credit balance need to be looked into | |||||||||||||
2 | The manager of Nibong Tebal factory is using Staright line depreciation for its plant and managers of three other factories don not keep a plant register. | |||||||||||||
This needs to be looked upon and company as a whole should be using one method of depreciation as it provides consistency of financial statements and Plant registers need to be not only kept but maintained and updated regurarly . The managers need to be asked why they are'nt maintaining and stric guidelines need to be provided regarding its maintenance and updation on regualr basis | ||||||||||||||
3 | There need to be first looked into that why amount is being paid in cash and not thorugh any electronic mode. Secondly, there is a need for segregation of duties i.e one person should not purchase the goods , and raise invoice and pays amount. Moreover, it need to be looked into that If large quantitites are purchased , a seperate stock in and out register can be maintained and cash balance to be checked regularly and if discrepancy found, needs to be urgently reported to appropriate authority | |||||||||||||
4 | This is difference in methods of Valuation of closing stock between factories, this needs to be looked into and One method should be implemented on all. | |||||||||||||
5 | There are a lot of discrepancies here. Firstly Record of workers need to be maintained from where amount payble to them can be calculated properly. Secondly ,register will help in finding that the payment in not being made to any Bogus workers. Thirdly, WOrkers need to sign in front of their name when payment is made to them and lastly amount should not be given to foreman to be paid but rather Foreman should distribute amount in presence of Some other person, this way responsibility of foreman will also be fixed. | |||||||||||||
6 | The sales team at Kepong Baru needs to be asked as to why they aren't using the analytics and should be guided and communicated about the benefits of analysing the data as other factories are doing. | |||||||||||||