ICAS Paper essay

During May and June when she is chasing up debtors for payments she tends to fall behind in finishing her accounts receivable work which lead to transaction not being collected, recorded and communicated properly. With the qualification or experience the employees have only one of them can operate the Sage payroll system. All IT system must be fully backed up ;ice each day one at lunch time and one at the close of business each day unfortunately a power cut occur in the late afternoon and neither of Dave nor John worked were saved this shows that backed up are not being done regularly.

Lack of staff available to take on new responsibilities and to cover for other staffs that are off sick or on holiday. Brett was concerned that there as a number of items that he would not have expected to be ordered in such abnormal large quantities which shows that there is no procedures followed to check if the correct amount have been ordered. 2. 3 The main recommendation that was made are as follows: Installation of camera and a clock in and out machine: The warehouse will be kept safe and it will be easier to monitor staff coming in and out Of the organization.It will be easier to charge overtime because there will be an exact record of employees entering and leaving the organization.

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Installation of a bigger generator: In time of power cut down the organization will be able o continue with their operation due to a bigger generator that will be able to give enough electricity in the whole organization. Staff training: To get better staff with more qualification and skill to carry out the work on high standard and staff that will be able to replace others.Advertisement: Getting new employees so that others won’t be stress with work. More supervision on the work carried out by each staff 2. 4 With the installation and improvement of the following recommendation the company will operate in a faster way and it will also minimize the risk Of fraud. 3. Methodology 3. To be able to achieve this report and analyses the accounting system, a lot of information had to be gathered and further research had to be collected.

3. The accounting system of Chic Paints Ltd was analyses by observing the accounts departments with additional information about their day to day operations by conducting questionnaires. Furthermore there is also a list of events that have been occurred over the previous few months. 3.

3 References: Chic Paints Ltd case study Internet Osborne text book (CICS) Oxford dictionary CICS guide book for writing report 3. 4 Sincere gratitude to: Mr..

Kamala shabby, the internal control and accounting system lecturer. Grey Pearce the managing director of Chic Paints Ltd 4.Introduction 4.

1 Chic Paints a limited company which produces paints, was formerly part of Stashed Pl, however it was on a management buyout from its previous owners six years ago which consist of 5 directors. 4. 2 Two years before Stashed put CAP up for sale in 2007 the company was no longer viable as a manufacturer of everything from bricks to butter and pursue to change its business model away from being a conglomerate. 4. 3 Seated put CAP up for sale in 2007, and Appendix 9. Shows the organization charts with the various departments available in the organization.

CAP has a hierarchal structure which may cause poor communication between the different levels. This may cause information not to be conveyed to some employees. Most documents needs to be approved and signed by the shareholders which could be very time consuming but is also a good procedure to prevent fraud. Since most transactions need to be authorized it can take a while to be approved. This can be very time consuming. 4. 4 During the MOB the former CAP directors believe with their extensive contacts and future negotiation they will raise enough money to be managing to buy the company.

Their plan was to exit the general household paints sector and replace it with specialist paints that was having high demand so eventually its will increase capital expenditure and reduce the amount of competitors and gain higher gross margins. 4. 5 Chic Paints Ltd mission statement is ‘Aiming to manufacture paints and allied products that are expertly formulated to meet the highest international standards, using the best available technology for end user consumers. We also employed a team of highly experienced, dedicated and customer- oriented employees to ensure process and product excellent. . 6 In Appendix 9.

5 shows the different stakeholders interested in the company 4. 7 For the following 6 years on, CAP company have reduce it turnover from QUO million to El 20 million, however its gross profit margin have increase from around 12% to 30% today, in addition the net asset have increase from EYE million to over EYE million even though its workforce have reduce from around 500 to 350 employees. 4. 8 In 2012 Ruth Jones and Aimed Khan decided to sell their shareholding in the company to Colon Addison and Ghana Wee so that they can retire. . 9 External regulations that affects the way which he accounting system operates are: Taxation regulation: value added tax, corporate tax Company law: set out in the company act which requires that company accounts should be audited: financial statements are to be drawn up in a set format and sent to shareholders. Data protection act: set out data protection acts 1998.

This protects data relating to individual customers. 5. Analysis and Evaluation of the Current System 5. 1 Chic Paints Ltd covers the following area In its accounting system.Information technology Purchases and supplier payments Banking procedures Sales and customer receipts Payroll procedures .

2 Appendix 9. 1 shows the current board composition of CAP, their line management responsibilities, and their amount of shares in the company. 5. 3 The accounting system provides internal support to the different functions within the organization this can be shown by Appendix 9.

3 the accounting system also receive information from external contact shown on Appendix 9. 4. 5. 4 Majority of time the smooth running of an accounts system can be disturbed by forces outside the control of the organization.This may occur because of the introduction of new external regulations or changes to existing rules.

Examples of external changes are A change in accounting terminology: Changes in the accounting name use, e. G. Referring trade receivables rather than debtors A change in company law: Following the Company Act policy and procedures, e.

G. The requirement for authorized share capital was abolished- this affected the Statement Financial Position A change in the VAT rate: Complying with the taxation law, e. G.

T affects particularly retail businesses, involving the reprising of goods on the shelf and in the warehouse, reprinting Of catalogues, amendments on the website etc… A.

The record keeping system 5. Chic paints Ltd poses 42 computers where the inventory information are kept on Microsoft Excel spreadsheet and a stand-alone full absorption costing system running on a cost wise software. The accounts staffs also have the option to use Microsoft Office 201 3 and Sage 50 Payroll software to record the accounting information. There is a 40-user license for Microsoft office 2013.

Furthermore CAP uses a computer aided design/ computer aided management (CAD/CAM) system which is use to set the manufacturing of CAP products. B. The use of financial statements 5. 6 All organizations produce financial statements on regular basis.

The number and extent of the financial statement will depend on the type and size of the organization. It is the work of the accountants to prepare data for these statements. Usually 3 Statements are produced, which then the internal user (manager) and external user (stakeholders shown on Appendix 9. 5) can both use. . 7 On Appendix 9.

6 there is an example of a statement of profit or loss, statement of financial position and statement of cash flow 5. 8 Area of particular interest to senior management includes: Statement of profit or loss: sales performance, gross and net profit margin and comparison of area of expense. Statement of financial position: liquidity, gearing and return on capital employed Statement of cash flow: explanation of changes in the cash position of a company, investment made in assets and sources of financing.

C. Internal systems of control 5. Internal control systems are sets of procedures establish to promote and protect management practice, both general and financial in an organization. 5. 10 The internal control supports the accounting system because it enables the management of an organization to protect the assets, prevent and detect fraud and error and also to prepare accurate and complete financial tenements which can show the true financial position of the business at all times. Appendix 9.

3 shows how the internal control supports the accounting system. 5. 1 1 CAP has certain information technology policy in place to prevent fraud.

This include: All Of CAP computers must Only be loaded with licensed software, owned by the company No member of staff is allowed to load any software onto computers without prior written permission from their line manager. No unauthorized devices are to be used for saving, uploading or downloading work. Only authorized members of staff are to use JPL’s amputees. Each computer must be individually password protected.

Only the employee and their line manager must know this password. Use of the internet by employees of CAP is only permitted where such use support the goals and objectives of the business, as set out in its mission statement.Employees must ensure that they comply with current legislation, use the internet in an acceptable way and do not create unnecessary business risk to the company All it system must be fully backed up twice each day. 5. 12 Chic Paints Pl has internal control in place to help detect and prevent fraud and errors. They are: Organization Structure- They have a very simple organizational structure which is straight forward and it make it easier so that everyone knows their responsibilities and who to report to when resolving a queries.Authorization- Transaction in the accounting activities requires authorization by management so that they are all business related.

Management Responsibilities- Managers have specific areas of responsibilities. 5. 13 Other internal Controls that are missing at Chic Paints Pl are needed are as follow: Fraud staff: some organization employ employee from ex bank or ex-police to work full time to prevent and detect fraud. Management supervision: management particularly line management should supervise accounting activities on a regular basis.Segregation of duties: The system should set up that duties which, when combined, could lead to fraud are given to different people.

Lock & key facility: There should be adequate physical control to ensure the security and safe keeping of the businesses valuable item do not go missing or stolen. D. Fraud 5. 14 Fraud is a wrongful or criminal deception intended to result in financial or personal gain. It can also be describe as an activity which presents a threat of some form of loss to the employer. . 15 The internal controls of Chip Paints Ltd have many weaknesses and this might lead to possible occurrence of fraud.

There are different risks that can lead to fraud such as: No fraud policy Lack of management supervision Line manager are not clear about their responsibilities Lack of segregation of duties Management are too confident and trust their workforce completely 5. 16 Common types of fraud are: Theft: Dishonestly taking someone else’s property False accounting: Dishonestly destroying defacing, concealing or falsifying an accounting record for personal gain or to cause loss to Someone else. Bribery ND corruption: Taking or giving a bribe that might influence the actions of others.

Deception: obtaining property, money, services or evading liability by deception. Collusion: a set up between an employee and someone else outside the organization. 5. 17 Fraud can be detected by the experienced manager by simple observation and through experience. Some signs include: Employees acting suspiciously. Employees with higher levels of spending than you would expect from their income. Employees working long hours and taking less than the normal holiday entitlement.

Employees who have a grudge against the organization. Employees who are known to be short of money. . 18 In Chic Paints Ltd there are some areas at risk of fraud. They include Access: Employees are given access to confidential information such as payroll Password: Everyone can easily get access to others computer so each individual should have their own password in place.

Entrance of staff in the inventory room: The inventory room should be monitored to limit staff coming in and out of it because things can easily be stolen. Memory stick: employees should be restricted to use memory stick with the organization PC’s because information an easily be stolen leading to fraud.Movement of cash/goods: Cash/goods in the organization are moving quickly so, every amount of cash/goods moved should be recorded and must be provided with supported documents. Payroll: Employees paid in cash supposed to collect money from Issue’s office but if other colleagues collect on behalf of their friend Susie gives them even though it’s against the policy. This can lead to fraud. 5.

19 A fraud matrix is shown on Appendix 9. 7 to enable management to assess the risk and establish an appropriate strategy for minimizing the impact on the organization. 5.

0 The main method that Chic Paints Ltd needs o adopt in order to detect fraud is to set up a fraud policy. This will be important as it gives a clear indication of which managers are responsible for which type of fraud and at what level, the type of control system to help avoid fraud, how to regularly monitor the control systems, the decision about which type of fraud is significant, and the need for anti-fraud culture and the mechanism for weightlessness. E. Practice 5.

21 Chic Paints Ltd has the following working methods to maintain an effective accounting system as it helps increase operating speed and reliability.The organization achieves cost effectiveness as it helps employees o abandon work that are used to be done manually and therefore save time. 5. 22 Every full time member of staff in the company has their own dedicated personal computer.

But part time employees are expected to use share PC’s. 5. 23 The computer uses Microsoft 201 0, Sage 50 payroll software, Cost Wise software and windows 7 operating system to facilitate the job of the staffs. 5. 24 The shop floor productions workers are paid by the hour around a quarter of these hourly paid employees are still paid in cash. 5.

5 The reminder, payments are made directly into their bank accounts via BACK( Bankers Automated Clearing System) 5. 26 CAP has an information technology policy in place which is ignored by majority of staff. F. Training 5. 27 Training is the acquisition of knowledge, skills, and competencies as a result of the teaching of vocational or practice. The more qualification and experience you have the more opportunities you will get and the more confident. It is advisable to take more training as CLC want excellent employees that can be capable of carrying out their given responsibilities.

There are on job training, off job training, on line training and classroom training. Moreover employees are not up to date with the use of the accounting system. G. Professional ethics 5. 28 The professional ethics Of an organization are the moral principles or standards that govern the conduct of the members of that organization. 5. 29 All professional accountants are required to comply with a number of fundamental principles of professional ethics in order to be able to better cope with ethical issues when it arises.

5. 0 CAP aim is to operate to the highest standard of business ethics in dealing with customer, supplier, employees and wider community. 5. 31 The following are possible breach of he code of ethics in Chic Paints Ltd: Breach of professional competence and due care: some employees don’t have the formal accounting training and not all staffs are willing to go on training. Breach of confidentiality: The store manager store material that might be in dispute on his own personal computer. Breach of integrity: Allowing falsifying management accounts to intentionally mislead the bank.H.

Sustainability 5. 32 Sustainability is a term that is widely and loosely used to describe the need for organization and individuals to adopt ‘green’ policies which protect the environment, save energy and benefits. . 33 The mission of CAP is to operate their business in a sustainable manner, reducing impact on the environment wherever possible, and using recyclable material as a matter of course in all their products whenever feasible. 5.

34 The company is so generous to sponsor full team kit to Gaston Wanderers the local football club.Unfortunately during the month of August they decide to drop their sponsorship because the club had performed badly this season and were expected to be relegated to a lower division. 5. 35 CAP could be sustainable by using more method to reduce carbon, offer sponsoring protection, establish a logic of environmental protection, sponsoring staff further studies, finding ways to maximize profit so the future generation can live in an economical country, paying their workers an affordable salary and finally giving their workers a healthy environment to work in. 6.Weaknesses of the Accounting System 6. 1 A diagram of the SOOT analysis of Chic Paints Ltd is shown in Appendix 9. 9.

Below are weaknesses found within the accounting system. With the help of some questionnaires on Appendix 9. 8 have managed to identify other weaknesses. 6.

2 Security Code 6. 2. 1 Unusual entries were found in the general ledger. This prove that apart from the authorize staff (Hazel Richmond, Susie James and Dan Hickman) other members are having access to the general ledger records.

6. 2. 2 During lunch break the warehouse should be locked.Somehow two warehouse staff spends their lunch break playing computer game on the store computer. 6.

23 There are no procedures available that shows that password is changed regularly. 6. 3 Accounts Receivable 6. 3.

1 Customers such as Remorse Boats they were overdue with their payments and their outstanding debt had risen to over EYE,OHO. This shows that customers are not being chased up for payments and debts are not remotely collected. 6. 3.

2 The only other member of staff trained to operate the accounts receivable ledger is Hazel Richmond, the chief accountant.

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