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FN505 Internal Control Procedures in Business Assignment
Assessment Task 1 - Questioning
1.1 In the present scenario, confidentiality of the files and records of the company has become the major issue to minimize and control the illegal activities. Disclosure of price sensitive information can lead to heavy losses to the company. The company shall keep the files and records in safe custody to prevent them from any misuse with the objective of applying the ethical consideration and confidentiality requirements.
1.2 Cash handling procedures that an organization should incorporate are:
1. In the business premises, minimum cash should be kept and deposited to a deposit account to ensure accountability for the use of cash for business purposes.
2. To keep minimum surplus cash at workplace, timely payments to the vendors, banks etc should be practiced.
3. Records of cash receipts and cash transactions should be maintained.
4. Separate department to be made for practicing internal control with regard to cash handling to prevent frauds.
5. Proper policies for safeguarding of cash.
6. Security cameras shall be installed in the organizations to keep a check.
As per the Australian taxation Office (ATO) website:
2.1Assessable income is the gross income of an individual earned out of his ordinary course of business or profession including salary, wages, dividend, interest, capital gains etc. and excluding the amount received in the form of gifts, prizes, GST collected etc.
2.2 Allowable deductions that can be claimed at the time of lodging tax return are:
Expenses directly related to the assessable income.
If asset is purchased for the business purpose, deduction can be claimed for that expense.
Capital expenses and operating expenses directly related to business can be claimed as deduction.
2.3As per the requirements of the Australian Taxation Office, a company is required to lodge a company tax return in which the company has to disclose its taxable income, instalments of pay as you go tax scheme, and any offsets and credits over the income and deductions allowable to the taxpayer (Brandon, 2015).
2.4Business Activity Statement (BAS) is a form that is submitted by the companies to the Australian Taxation office (ATO) for the purpose of reporting their tax obligations. This statement includes certain methods such as Fringe benefit tax (FBT), Luxury car tax (LCT), Wine equalization tax (WET), Pay as you go withholding (PAYGW) and Pay as you go instalments (PAYGI).
2.5 Due dates for lodging BAS quarterly:
July, August, September
October, November, December
January, February, March
April, May, June
3.1 Internal control is a process which assures the efficiency of the organization in terms of achievements of the organizational goals and objectives, to ensure the compliances of various requirements, rules and regulations of law, reliability of the financial statements of the company. Efficient internal control system in the company can help to minimize the risks of fraudulent activities.
Establishing and implementing a control environment
A control environment can be established in a company through audit. There are internal as well as external auditors appointed for the companies to keep a check on the performance of the company from time to time, to review the operations of the company and to check whether the requirements of the law have been complied with or not. A risk assessment is also done in which risks in various departments of the company are ascertained and steps are taken to eliminate such risks.
Initiate control activities
Internal control activities can be initiated by spreading the consciousness of the control environment in the organization and to create awareness among all about the responsibilities towards the ethical standards.
Systematic approaches to communication
Systematic approaches to communication in internal control system plays a pivotal role. The flow of communication should be from top to bottom and bottom to top as well for better clarity. The management should communicate to the employees about their duties and responsibilities in the internal control system. Information regarding external risks should also be communicated to every department concern so that steps can be taken in advance to eliminate risks (Hollnagel, 2012).
Monitoring is a continuous process which has to be practiced in every organization to keep a check on the internal control system’s effectiveness. The internal control must be reviewed at various time intervals for a reason that the external factors of the company keeps on changing and so the system has to be updated accordingly. Periodical monitoring such as self assessment activities by various departments also provides helpful information.
3.3 The three key principles of auditing are as follows:
1. Improve the performance of an organization through achieving the desired goals and objectives.
2. Evaluating the emerging risks and take steps to eliminate it.
3. To check the compliance requirements of the company has been fulfilled.
4.1Corporate Governance is the process through which the organizations are governed and directed. The stakeholders’ interest is very important part of corporate governance. It is the mechanism implemented within the organization in order to safeguard the interests and rights of the stakeholders and provide them assurance with regards to the accuracy and reliability of the operations of company and its financial reporting framework.
4.2A company should have a proper corporate governance practice as it can boost the reputation of the company which will attract the investors such as stakeholders who will then be willing to invest their funds in the company. It allows the transparency in the company and also the consequences of the ignorance of law is minimized to a certain level. The market value of the company will also gradually increase.
4.3The eight principles that promote good governance are:
1. Lay solid foundation for management and oversight:This applies to the listed entities that they are required to disclose the roles and responsibilities of the board to avoid misunderstandings.
2. Structure the board to add value:This principle focuses on the size, composition and skills of the board for performing duties effectively.
3. Act ethically and responsibly:As per this principle ethical conduct should be practiced by the company.
4. Safeguard integrity in financial reporting: The financial statements of the company should depict the true picture of the company.
5. Timely and balanced disclosure: Disclosures are to be made by the company time to time regarding matters having material effect on price and value of its securities.
6. Respect the rights of security holders:Providing the stakeholders proper information for their benefits.
7. Recognize and manage risk: to establish proper risk management in the company.
8. Remunerate fairly and responsibly:Remuneration should be paid as sufficient to attract and retain the valuable employees.
5.1Segregation of duties is a process to distribute the task among more than one person to complete the task efficiently and to prevent errors and fraud. Segregation of duties makes sure that the concerned task is completed timely. And also restricts an individual to have the overall power and control. The examples of when the duties shall be segregated include reduction of workload, training of sub-ordinate and ensuring participation of subordinates (Chen, 2016).
5.2As per ATO, Australian Securities & Investments commission (ASIC) is the recognized body to provide clarifications on corporate governance application.
5.3The enquiries related to tax affairs can be sort with the help of Information publication scheme, a facility provided by ATO and the publications of ATO on the official website.
5.4Australian Business Number be checked by the help of the site ABN lookup which is a facility provided by the ATO, to view Australian Business Register, as all the required details regarding ABN is stored in it so the company can have access about the authenticity of the vendor or supplier.
Assessment Task 2: Scenario Analysis and Research
1.1Report on the policies and procedures of the company.
The errors in the current policy and procedures of the BRB Pty Ltd are as follows:
1. Company does not have a proper channel program so that company could reach its buyers easily.
2. The products whose market demand is very low are also included in the sales inventory and those products which are trending in market with higher demand have not been introduced.
3. There are no proper checks performed before appointing any person with regards to his qualifications and skills as company needs assets for it not the liabilities.
4. Improper allocation and delegation of duties and responsibilities by Board.
5. Ineffective monitoring and control procedures to evaluate the performance of the employees.
6. Ineffective corporate governance mechanism
Eight principles for good corporate governance are as follows:
1. Lay solid foundations for management and oversight.
2. Structure the board to add value.
3. Act ethically and responsibly.
4. Safeguard integrity in corporate reporting.
5. Make timely and balanced disclosure.
6. Respect the rights of security holders.
7. Recognize and manage risk.
8. Remunerate fairly and responsibly.
A principle that should be applied to assist BRB in its effort to establish good corporate governance is:
Lay solid foundations for management and oversight.
As the management is of a company is responsible for the activities of a company same is the case in BRB. There are many problems from which BRB is suffering like there is no proper management in the company, duties of management are not defined, and there is no proper management of team who could recruit the right people for the company. All these problems can be resolved if the duties and responsibilities of each board member are assigned to them, their work and performance should be evaluated after a certain time period so that their working level could be identified and there should be a proper background check before appointing any candidate for the company so that his efficiency and effectiveness will work for betterment of the company and the board should be delegated a duty to keep a check on working of employees of the company. The performance of each and every person relating to company should be supervised and assessed. Through this BRB can avoid fraudulent activities in the company and this will implement a positive change in current policy of the company (Ling, 2015).
The management of the company had a meeting with the external auditor. The summary of the discussions of the meeting is as follows.
First of all the auditor explained the errors which he identified regarding the policies and procedures of the company that the board of the company is not working as a team otherwise they would not have appointed an ineligible person as sales manager as if the recruitment process was done properly then they should have verified the documents of the candidate first, there is no proper delegation of duties in the company, after all this Senior manager asked the external auditor to recommend the corporate governance principles that should be applied to company for its betterment. Then the auditor explained some corporate governance rules which should be applied by the company such as laying solid foundations for management and oversight. The duties and responsibilities of board and management should be disclosed, company should conduct a proper check before appointing any person for company, company should have a written document relating to appointment of each director, and performance of each and every employee should be monitored and evaluated. Through this company can overcome its current problems (Donelson, 2016).
Identify the changes to be implemented
Prepare a plan for the implementation of changes
Document the plan
Delegate the authorities and responsibilities
Implement the plan
Conduct monitoring and evaluation
The existing system of the company is not strong enough to maintain internal control because there is no proper management in the company, duties of management are not defined, and there is no proper management of team who could recruit the right people for the company. Company is not concerned with conducting a proper background check before appointing any candidate. There is no assignment of duties and responsibilities of management of the company. There is no performance evaluation of employees. Company does not follow good corporate governance practices properly. If all these issues are resolved company will have a good internal control system.
Procedure that BRB Pty Ltd could implement in order to modify the existing system in place for the delegation of financial accountabilities include the following:
1. The roles and responsibilities delegated by the Board shall be defined appropriately and clearly.
2. A proper check shall be conducted before appointing any person on any position in the company.
3. A written agreement with each director in regard to their duties shall be executed an agreement shall be signed properly by the authorized persons.
4. Performance of each person related to company shall be monitored and evaluated.
5. Sound and effective policies and code of conduct shall be prepared and included in the behavior of the employees.
Suggested changes should be implemented as follows:
Actions to be taken
Assignment of duties and responsibilities
Board of Directors
Conducting a check before appointment of a person
Human Resource Manager
Before every recruitment
Execution of written agreement with director in regard to their duties
Legal and compliance Manager
Performance monitoring and evaluation
General manager/ Human Resource Manager
Disclosure of evaluation results
2.1 Safeguard integrity in corporate reporting.
This principle says that every company shall have a proper process for corporate reporting. Every listed company should have an audit committee who shall be responsible for appointing statutory auditors, external auditor and internal auditor for the company. Sec 295A of the corporations act says that the CEO/CFO of the company shall ensure that financials statements of the company are made in accordance with the accounting standards. External auditor should attend the AGM.
The application of corporate governance is accounting operation is that financial statements of the company shall be prepared in accordance with the act along with in comply with accounting standards. Financial statements should be prepared in such a manner that it should clearly disclose all the true facts relating to financial statements of the company. There should be a proper reporting process and company should disclose all the true facts to its stakeholders it is a good governance practice (Leitch, 2012).
Corporate governance is such a crucial topic now days although the research on it is very limited but due to its positive results and leading the company towards achieving the goals is creating interest about corporate governance among companies that even international financial organizations such as IMF and World Bank are also investigating the corporate governance. Corporate governance plays a very important role in creating a relationship between company and its stakeholders. Investors are getting attracted to those companies who are following a good corporate governance practice. The main objective of corporate governance is to lead the company towards success and corporate accountability with a view to safeguard the interest of stakeholders.
Assessment Task 3
Stage 1: Plan
The basic objective to have internal control system in the organization is to create a control environment. Objectives of the internal control system are to ensure the fulfillment of the legal compliances as per law, to achieve the company’s pre determined goals, and to ensure the reliability of the financial statements.
The plan for the development of internal control manual shall be created within initial 2-3 days. After this the policies and procedures for internal control shall be identified within next 7-8 days. The document shall be prepared incorporating the policies and procedures in next 5-6 days. In this way the project will be completed within 10-15 days.
Stage 2: Review
Review the risk management policies of the company, review the compliances required to be fulfilled by the company, strategies adopted and the financial statements of the company.
Stage 3: Evaluate
As per the report of the internal auditors the current internal control system of the company is not well defined. The communication system in the organization is not efficient in terms of flow of information regarding the roles, duties and responsibilities of the employees.
Stage 4: Design
The internal auditors will review the current internal control system and if any loopholes are found then the system will be redesigned in order to control the changing risk environment. And roles and responsibilities of the employees in the internal control system to be communicated clearly.
Stage 5: Document
A document describing the practices which need to be performed as part of the internal control, policies to be undertaken, goals to be achieved, time limits, risk management policies to be practiced, etc will be prepared.
Stage 6: Educate
The manual explaining the whole internal control system will be distributed among all to avoid any misunderstandings in the objectives and roles defined. The company will conduct the workshops and training programs at regular intervals to get the employees acquainted with the system.
1.2 The Internal Control Manual shall include the following sections:
The purpose of the internal control manual is to explain the objectives and importance of the internal control system in the organization. The manual contains information regarding all the policies which have to be undertaken by the management to perform the control activities.
Internal control basics
Internal control process in the company creates a control environment in the organization which helps the management to achieve the organizational goals effectively, and to avoid the consequences of non compliance of various laws, along with making the financial statements reliable.
The frauds and risks in the organization shall be reported from time to time to the management. The actions and activities to be performed shall ensure the prevention of frauds and errors in the transactions as well as reporting.
Through control activities management will be able to reduce the incidences of risk and ensure the process of the risk assessment is undertaken efficiently.
Information systems and security
This section will include the methods by which the information systems can be used to implement the internal control within the organization and ensure the security and privacy of the transactions and information. The processes to ensure data integrity and security shall be included along with the safety and security controls such as password authentication, digital passwords, firewalls, data encryption etc. (Biegalman, 2012)
1.3As per Woolworths’ policy and procedures, a corporate governance statement is required to be issued by the Woolworth limited that specifies the work which has been undertaken by the board of the company in relation to corporate governance. The corporate governance statement provides the information regarding the composition of the board and committees. It ensures the fulfillment of all the compliances required by law and also to keep a check on the risk management policies framed, code of conduct, proper and timely disclosures etc. The basic purpose of the statement is to ensure that the directors, executives as well as employees are performing their duties ethically and the rights and interests of the stakeholders are protected.
1.4 The indicators which ensure the fulfillment of criteria which is Specific, Measurable, Attainable, Traceable and relevant are included in the SMART performance indicators. The SMART performance indicators to be included to evaluate the compliance with internal control procedures are as follows:
Detection and prevention of frauds and errors – The strong internal control ensures the advanced detection of frauds and errors in the operations and transactions performed by the company so that the probable losses from such frauds and errors can be prevented. If the errors, omissions and fraudulent transactions are reported then it suggests that the internal controls within the company are effective.
Improved company performance – Due to strong internal controls that exist in an organization the procedures and operations are performed in a logical and sequential manner which results in improvement in the overall performance of the company.
Decrease in conflicts – The logically and effectively implemented internal controls in an organization reduces the probabilities of ambiguity and confusions in the roles and responsibilities of the tasks to be performed. Thus the decrease in the conflicts of rights and interests among the employees is the key indicator of sound internal controls (Marinovic, 2013).
2.1 Finance control checklist
Is the record of cash receivables and payables maintained separately?
Are the duties segregated for each of the financial activities?
Who is authorized for recording and making purchase orders?
Are the applicable financial regulations have been complied with?
Who is authorized for access to IT systems?
Do physical audits take place at regular intervals?
Is double entry accounting system being followed?
Is approval authority given to an authorized person to authorize certain types of transactions?
Are standard document formats used for the preparation of documents?
Is accounts reconciliations practice conducted at regular intervals?
Actions to be taken
Subscribe with news letter, review the webpage, document the changes noticed and educate the changes to the team members and the concerned staff
Accountant/ Financial Manager
Review the updates on website and read the case examples and legal decisions
Federal government announcements
Subscribe to journals and other official publications, research from internet and observing the relevant news from newspapers.
Financial statements that will be affected by the change in rate of GST from 10% to 15% are as follows:
Statement of Profit or loss and other comprehensive income - Due to increase in the rate of GST the profit will be affected and thus the statement of profit or loss and other comprehensive income will have to be changed as a result of increase or decrease in profit as the case may be.
Balance sheet - The earnings will be affected because of such change in rate of GST and as a result the statement of financial position or balance sheet will also have to be changed.
Cash flow statement – As a result of increase in the rate of GST, the amount of cash payable will also increase which will affect the cash flow of company. Thus the cash flow statement will also have to be changed.
Action plan for such change in rate of GST by federal Government will be:
Task 1 –The research will have to be conducted on the changes that have taken place in the rate of GST and the extent to which such changes applies. The goods and services on which the new rate will be applicable shall also be identified.
Task 2 –The affect on the financial statements that is likely to take place from the change has to be identified. The elements that need to be changed in the financial statements shall also be identified.
Task 3 – The stakeholders shall be informed about the changes and the person responsible for implementing the change including the finance manager and the accountant shall be authorized to implement the changes.
Task 4 –Review and monitor the implementation and identify and analyse the differences.
Task 5 –Actions shall be taken to overcome the loss from the implementation of the changes.
Relevant stakeholders that will need to be informed about the changes in the rate of GST include Investors, customers, suppliers, creditors, employees, owners, financiers, managers and all other related persons who hold interest in the company and are the users of financial statements of company.
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