Question

Amanda Ltd is a manufacturing company operating in Parramatta, Sydney. The company has been successful since its inception in the early 1990 and has even won twice the “Best Corporate Citizen Award” presented by the City of Parramatta Council. The company has recently been facing multiple problems including declining profit, loss of inventory (through theft or spoilage) in the warehouse, and declining reputation from its stakeholders. Coincidently, all these problems started when the head of Accounting Department, Sofia Bryant, voluntarily retired from her position recently. Her retirement was provoked by a sarcastic comment made by the Sales Manager during board meeting, that “Amanda Ltd can cut down its cost by shutting down Accounting Department. Afterall we will even be better off without this department”. You are required to conduct research (i.e. reviewing relevant academic and professional journals, and/or texts) and write a business report by addressing the questions below.

Discuss how Accounting and Governance helped Amanda Ltd in winning the Best Corporate Citizen Award.

Explain how using perpetual inventory system could help Amanda Ltd to minimise the loss of inventory.

How would the application of the principle of segregation of duties could prevent the loss of inventory at Amanda LTD?

Answer 1

Requirement 1

The perpetual system keeps track of inventory balances uninterruptedly, with updates made mechanically whenever a product is received or sold. Purchases and returns are instantly recorded in the inventory account. It helps in keeping track of theft or damage too. Under the perpetual system, there are frequent updates to the cost of goods sold account as each sale is made. Transaction examinations are easily possible in perpetual inventory system, where all transactions are available in detail at the individual unit level.

Since perpetual inventory system has lots of benefits and can be used to track day-to-day inventory, it is highly recommended to use perpetual inventory.

Requirement 2

Segregation of duties highlights on the idea of maker and checker i.e. there will be 2 different and autonomous persons for critical functions to ensure that at least two individuals are accountable for the separate parts of any task. It is an internal control method to curtail frauds and error risks. It guarantees that there is mistake and review to catch errors.

Thus, if Amanda Ltd., hires two independent persons for duties of inventory/store manager and accountant, then controls can be better in place.