Case Analysis Question 2

CPAs A and B of ABC Accounting Firm accepted the appointment to audit the 2004 accounting statements of listed company A (hereinafter referred to as company A). Company A has not yet adopted computer accounting. Certified public accountants A and B conducted an understanding and testing of Company A’s internal control system from November 1 to 7, 2004, and recorded the understanding and testing matters in the relevant audit work papers. The excerpt is as follows:

(1) When Company A’s finished products are shipped, the sales department will fill in a four-part warehouse release form. After the warehouse sends out the finished products, the first copy of the outgoing document will be kept to register the finished product card, the second copy will be retained by the sales department, and the third and fourth copies will be handed over to Accounting Personnel B of the Accounting Department to register the finished product general ledger and detailed ledger. (2) Accountant E is responsible for issuing sales invoices. Before issuing sales invoices, he first checks the shipping voucher and the corresponding approved sales order, and fills in the price of the sales invoice according to the authorized and approved commodity price list. According to the price on the shipping voucher Quantity fills in the sales invoice quantity.

(3) Company A’s material procurement needs to be authorized and approved before proceeding. The purchasing department issues purchase orders based on the approved purchase requisitions. After the goods arrive, the acceptance department will inspect the goods according to the requirements of the purchase order and prepare a multi-part, non-consecutively numbered acceptance form. The warehouse accepts the goods based on the acceptance form. After signing the acceptance form, the goods are moved to the warehouse for safekeeping. The acceptance form contains factors such as quantity, product name, unit price, etc. The acceptance slip is submitted to the Purchasing Department to register the purchase detailed account and prepare the payment voucher. After the payment voucher is approved, it is submitted to the Accounting Department at the end of the month; one copy is submitted to the Accounting Department to register the material detailed account, and the other is retained by the warehouse to register the material detailed account. The accounting department records the relevant accounts based on the payment voucher with only the acceptance note.

(4) The accounting department will pay the purchase price after reviewing the payment voucher. Company A authorized the manager of the accounting department to sign the check, and the manager delegated the authorization to accountant Ding, but retained the check seal. Based on the properly approved voucher, Ding signed the check after confirming that the name of the check payee was consistent with the contents of the voucher, and stamped "paid" on the voucher. A walk-through test of the payment control procedures revealed that CPAs A and B found no inconsistencies with company regulations.

(5) Based on the approval, the planning department issues a pre-numbered production notice, and the production department fills out a four-part picking list based on the production notice. After the warehouse releases the materials, one copy will be retained and the other will be retained. Together with the materials, they are returned to the material requisition department, and the remaining two copies are registered in the warehouse and sent to the accounting department for material receipt and receipt accounting and cost accounting.

(6) Company A’s shareholders’ meeting approved the investment authority of the board of directors to be less than 100 million yuan. The decision of the board of directors is implemented by the general manager. The general manager decided that the securities department would be responsible for stock transactions totaling less than 100 million yuan. Company A stipulates that the company's funds transferred to the business department shall be applied for by the securities department, reviewed by the accounting department, and transferred to the company's capital account opened in the business department after approval by the general manager. With the approval of the general manager, the securities department directly withdraws funds from the capital account of the business department. Accounting records of securities transactions, fund deposits and withdrawals are handled by the Accounting Department. After understanding and testing the internal control system of investments, certified public accountants A and B found that the relevant agreement and supplementary agreement for the securities department to open an account in a certain business department had not been reviewed by the accounting department or other departments. According to the approval of the general manager, the accounting department has remitted 80 million yuan to the account. The Securities Department handles the accounting records of securities transactions. At the end of the month, the securities transaction list is handed over to the Accounting Department, and the Accounting Department compiles and registers it accordingly.

(7) The legal representative of Company A’s controlling shareholder also serves as the legal representative of Company A, and the general manager is appointed. The financing authority and approval procedures of the shareholders' meeting, board of directors, and management team are not specified in the company's articles of association and relevant resolutions. It was learned that the finance department of Company A was responsible for financing. In 2004, it borrowed a loan of 100 million yuan from the Industrial and Commercial Bank of China based on the instructions of the general manager.

(8) Company A has established an internal audit department, which is directly responsible to the chairman of the board.

Conduct audits on subsidiaries and business departments every year and issue internal audit reports. Certified public accountants A and B obtained all internal audit reports for 2004. A spot check showed that the internal audit reports pointed out deficiencies in internal control and suggestions for improvement.

(9) Company A sets up cash tellers and bank tellers. Bank tellers are responsible for picking up and delivering checks and other bills to the bank, and recording bank deposits in the journal. At the end of the month, the bank teller obtains the bank statement and prepares the bank balance reconciliation statement

(10) Employee reimbursement must be submitted for approval according to the company's approval procedures. The accounting department will review the reimbursement form. Payment will be made after showing proof of approval stamp.

Requirements:

Based on the above excerpt, assuming that there are no deficiencies in other internal controls not described, please point out the deficiencies in the design and operation of Company A's internal controls and provide suggestions for improvement.

Analysis and Tips

[1] As for the internal control of Company A, as stated in (1), Accountant B registers the finished product general ledger and detailed ledger at the same time, and the incompatible duties are not performed separation, it should be recommended that Company A have different accountants register the product general ledger and detailed ledger

[2] Regarding Company A’s internal control, as stated in (3) (4), the acceptance documents are not serially numbered and cannot be guaranteed All purchases are recorded or not duplicated. Company A should be advised to number the acceptance documents consecutively.

[3] The payment voucher is not attached with the purchase order and supplier's invoice, etc. The accounting department cannot verify whether the purchase is true. When registering the relevant account books, there may be errors in the amount or quantity. Company A should be advised to submit the purchase order and invoice to the accounting department together with the payment voucher.

[4] Payment will be made after the accounting department reviews the payment voucher at the end of the month. The purchasing department of Company A should be advised to submit the payment slip to the accounting department in a timely manner and pay according to the agreed time.

[5] As for the internal control of Company A, as stated in (6), the securities department directly withdraws funds, so authorization and execution of duties are not separated, and the safety of the funds cannot be guaranteed. It should be suggested that when Company A withdraws money from its capital account, it should be reviewed and recorded by the accounting department and handled by the securities department.

［6］Activities related to securities investment shall be controlled by two departments. If the relevant agreement has not been reviewed by an independent department, all relevant terms may not be specified in the agreement, and there may be extra-agreement stipulations. It is recommended that the agreement between Company A and the sales department should be reviewed by the accounting department or legal department. The Securities Department handles the accounting of securities purchases and sales itself, and the execution of the business is not separated from the recording duties and does not receive appropriate authorization and approval. At the end of the month, the accounting department summarized and registered securities investment records, and failed to set up detailed accounts for each security in a timely manner. It should be suggested that Company A should have the accounting department be responsible for accounting for investments and set up detailed accounts by category in a timely manner.

[7] Regarding Company A’s internal control as stated in (7), borrowings should be appropriately authorized or approved. It should be recommended that Company A specifically stipulate in the company's articles of association or relevant resolutions the authority and approval procedures for fundraising of the shareholders' meeting, the board of directors, and the management team.

[8] As for the internal control of Company A, as stated in (9), the bank cashier prepared a bank balance reconciliation statement, incompatible duties were not separated, and vouchers and records were not controlled. It is recommended that Company A's bank balance reconciliation statement be prepared by an accounting staff other than the cashier.