Paka Sdn. Bhd. is a family-owned construction company located in Sungai Perak. The company is in the business for five years. Your firm, Sun & Poh Associates is a newly appointed auditor succeeding Euha & Co., who had tendered a resignation. A team of three auditors have been doing the review for the past few days. You are the auditor in charge for reviewing and evaluating the accounting system and related internal controls of the purchasing system. Here is the description of the purchasing system and there are no other controls apart from those described. Paka Sdn. Bhd. has no separate department for purchasing. Employees place orders of building materials from the construction site offices. Here, a triplicated order forms are issued: (1) Copy 1 is retained by the respective site offices, (2) Copy 2 is sent to the accounting department, and Copy 3 is mailed to the supplier. Once the building materials are received by the respective site offices, the materials are either immediately use for construction or kept in the store. Here, no employee is assigned to inspect the materials. However, the site offices must ensure that the shipping document and purchase order must be sent to the accounts payable clerk in the accounting department. When the supplier's invoice is received, the accounts payable clerk checks the details, initials and staples the shipping document with purchase order. Then, the accounts payable clerk records the invoice in the purchase register. The invoice is subsequently sent to the respective site offices' manager for perusal. The respective manager approves the invoice and returns it to the accounts payable clerk. The approved purchase invoices are entered in the purchase journal and posted to the general ledger and accounts payable ledger on a weekly basis. The cashier pays the suppliers on monthly basis upon receiving instructions from the accounts payable clerk. The accounts payable control account is reconciled every month by the accounts payable clerk who is also responsible for the reconciliation of the suppliers' statement of account. Required: c. Justify how the size of Paka Sdn. Bhd. affects its internal control system.

Paka Sdn. Bhd. is a family-owned construction company located in Sungai Perak. The company is in the business for five years. Your firm, Sun & Poh Associates is a newly appointed auditor succeeding Euha & Co., who had tendered a resignation. A team of three auditors have been doing the review for the past few days. You are the auditor in charge for reviewing and evaluating the accounting system and related internal controls of the purchasing system. Here is the description of the purchasing system and there are no other controls apart from those described. Paka Sdn. Bhd. has no separate department for purchasing. Employees place orders of building materials from the construction site offices. Here, a triplicated order forms are issued: (1) Copy 1 is retained by the respective site offices, (2) Copy 2 is sent to the accounting department, and Copy 3 is mailed to the supplier. Once the building materials are received by the respective site offices, the materials are either immediately use for construction or kept in the store. Here, no employee is assigned to inspect the materials. However, the site offices must ensure that the shipping document and purchase order must be sent to the accounts payable clerk in the accounting department. When the supplier's invoice is received, the accounts payable clerk checks the details, initials and staples the shipping document with purchase order. Then, the accounts payable clerk records the invoice in the purchase register. The invoice is subsequently sent to the respective site offices' manager for perusal. The respective manager approves the invoice and returns it to the accounts payable clerk. The approved purchase invoices are entered in the purchase journal and posted to the general ledger and accounts payable ledger on a weekly basis. The cashier pays the suppliers on monthly basis upon receiving instructions from the accounts payable clerk. The accounts payable control account is reconciled every month by the accounts payable clerk who is also responsible for the reconciliation of the suppliers' statement of account. Required: c. Justify how the size of Paka Sdn. Bhd. affects its internal control system.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 22E: Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different...

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