Internal control activities regarding replacement purchases, Cost Accounting

Your firm is the auditor of Easy Hire Pty Ltd (Easy Hire).the company hires out equipment to industries such as construction, engineering & event management. It has 76 branches nationwide, with its head office located in Sydney. Each branch has designated amount of stock for hire.  The amount of stock for hire is by the marketing department at head office, according to the local demand for products.  
In the past, branch managers had to obtain authority form the financial controller at head office to purchase equipment from suppliers. Replacement equipment is issued due to either wear & tear or loss by the customer. In the case of a customer losing or destroying the equipment, the replacement value of the lost item is charged to the customer. 

Customers are given credit, but the credit limits are set by the credit controllers at head office. Standard terms of payment are 30 days from the date of the monthly statement.  The company has a new managing director who, early in the financial year, decided to decentralise decision making & give the branch managers more authority. She also introduced an incentive scheme for branch management, based on branch profits. Branch managers can now purchase replacement equipment & set credit limits for customers.  

The managing director has set up a list of designated suppliers for equipment& has negotiated additional credit terms and /or special settlement discounts from them. A contract of repair of equipment has been granted to an organisation with links to the main shareholder in the company.

You have the task of planning the audit & identifying the risks of material misstatement. Your preliminary analysis, which compared the year under review to the previous year, showed the following.

a)  Branch sales & profits have increased considerably

b)  Debtors levels (days outstanding) have remained relatively constant.

c)  Creditors levels (days outstanding) have increased marginally.

d)  Equipment write offs (due to wear & tear) have reduced relative to sales.

e)  Equipment stocks at branches have increased considerably.

f)  Repair-of-equipment costs have increased as a % of sales 

Required:

Describe three internal control activities regarding replacement purchases that you would expect to see in place.

Posted Date: 2/16/2013 7:24:08 AM | Location : United States







Related Discussions:- Internal control activities regarding replacement purchases, Assignment Help, Ask Question on Internal control activities regarding replacement purchases, Get Answer, Expert's Help, Internal control activities regarding replacement purchases Discussions

Write discussion on Internal control activities regarding replacement purchases
Your posts are moderated
Related Questions

Slash and Burn is a monopolist that can sell its output at these prices and with these total costs:                    Output             Price        Total Cost

The Pacific Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based

using relevant examples discuss the meaning and scope of cost accounting

explain various type of cost ccounting

Calculate the equal monthly payments and the cost of financing on a 25-year mortgage. The cash value of the house today is $500,000. You are paying monthly at a fixed rate of 6% pe

You want to have $2,000,000 in your retirement account (IRA) at the end of 30 years. You hope to earn 6% per year. How much must you save each year?

are eploration costs of a mining industry regarded as an asset or expense or both?

1. Issuance of stock Prepare journal entries to record the issuance of 100,000 shares of common stock at $20 per share for each of the following independent cases: a. Jacks

Calculate Cost or Equivalent Units The given work in progress account concerns to the blending department of a company, a soft-drinks company for the month of January in 1999