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ACC3113 Audit Assignment Help

ACC3113 Audit Assignment Help

ACC3113 Audit Assignment Help





Account receivable conversion period is an important source of finance in modern organizations. Entities manage working capital cycle in such a way that receivables are received in small conversion period, while payables are paid in long conversion period then receivables conversion period. Simons has weak internal controls on credit control system. List of weakness is given below.

Weakness in credit control system:

It does not have appropriate level of management to review and approve the decisions of extension in credit limits. It also lacks in segregation of duties as only junior manager grants credit more then the limit. Procedures to check exceeded credit limits are not followed as in case of Pylon Company, manager has given mount of credit more then credit limit. No interest is charge or any extra payment is received for payment after due date. Absence of balance check system before issuance of goods. Lack of information and communication between finance department and sales department. Absence of system while giving more credit then credit limit. Further Credit to Pylon Company is issued without check of conditions of extended credit limits. It also lack system where goods given to customer as per credit limit set. There is lack of accountability of application of procedures made for credit issuance.


Following are suggestions for improvement in credit control system of Simons.

Suggestions on internal control:

Segregation of powers and duties shall be made among employees. Senior management shall approve the transactions of customers of more than their credit limits. Credit limits data of customer shall be given to store department. Transactions shall be made before considering the credit limits of customers and transactions of more then credit limit shall be approve by management upon satisfaction of credit limits set by entity. Computer based software shall be use by Simons. Software should be based upon the procedures set by entity. Transactions violating the credit policies shall not be processed by software. Exception reports shall be generated at regular basis to check applicability of policies.


Simons should deal Pylon case specially. Credit amount shall be divided into five equal Instalments. Credit period shall be extended more then time frame set. This would give recognition to Pylon as major customer. Discounts shall be offered for payments before the due dates. Specific procedures shall be set for recovery.


Strong internal controls on grant of credit are set by the Pylon. However, some of its policies has robust the system of internal controls .Examples of robustness are given below:

 1) Approval of transactions from directors

 2) Requirements of 5 references from existing customers

 3) Review of credit facility by third party

Strengths of credit controls:

1) Requirement of bank statement of customers

2) Requirement of Cash flow for credit application of more than AED 100,000.

3) Approval of credit from higher management

Weakness of Credit Controls:

Internal controls are not applied as in the view of policies. Some of the examples of weakness of credit control are given below:

1) Approval of credits of more then credit limit by senior managers

2) Absence of procedures on outstanding dues after due date.

3) No regular analysis of balances due and financial position of customers


 Sales policies and proceeds has given audit evidence. No segregation of duties among receiving of order, recording of goods and delivery of goods among staff. Banking channel is not used rather then it Cheese are normally collected. Cashier record receipts upon collection of cheque rather then at deposits in bank. Cheques may be dishonored by the banks. Sales transactions show application of sales policies. No authorization of carrier charges created by sales team. No controls on acceptance of orders. Some orders may be processed twice and some order are not processed at all.


Internal Control:

Internal control is defined as a process designed, put in place, and maintained for the successful implementation of strategies and achievement of the objective of the entity. Pylon being semi-computerized entities have a large number of internal control that are currently in process. Some of the major internal controls are as below.

· While shipping orders to customers, Pylon uses a bar code scanner which automatically shows the prices against every product reducing the causes of error.

· Customer credit policy in Pylon is also strong and requires proper approval of management before allowing credit to the customers. Pylon also limits the credit allowed to the customer and allows credit to customers with reliability.

· Bookkeeping and invoicing policies of Pylon are also strong. Three different colored invoices are generated and sent to the purchasing department, account department and one to the customer to keep proper records of each transaction.

· To reduce the payment period by the customers, pylon also gives the facility of deposit through cash and directly into the bank.


Weakness of internal control:

Weakness in the control system is the failure in the effective implementation of a control system in an organization. If internal controls in an organization are weak this may lead to financial and non-financial losses. Therefore, internal control weaknesses must be monitored and reduced to reduce the risk of errors and fraud. Some internal control deficiencies are discussed below;

• Bar codes in the computer system are selected manually by the drop-down menu, which may cause human error.

• A credit control system is overlooked by the management which allowed some people to go beyond their allowed time limit. Due to this reason these debts are bad debt now.

• In order shipping system there are many control deficiencies and internal control system is not in place, some of the discrepancies are as below;

1. There is no supervision of stock-in and stock-out in stock room and records are maintained manually. This may lead to theft and fraud.

2. Due to manual recording orders are lost in the system of the pylon.

3. Deliveries are made by the individual and no record is maintained for delivery charges. This may cause fraud.

4. Allowing a credit clerk to deposit cheque may allow him to commit fraud.


Not matters how effective a system is, but it still needs improvement. In the case of Pylon, there also exist some loopholes that need to be fixed foe better and effective productivity of Pylon. Some of the improvements needed in light of scenarios given are as below;

      ·       The computer system in the process must be updated so that scan barcodes to reduce human            error.

      ·       Inventory records in Pylon must be computerized and stock-ins and stock-outs must be                        supervised to reduce the threat of theft.

·       Debtors must be continuously followed for their remaining debts and their status must be updated        regularly.


Substantive testing approach depends upon the result of test of controls. Pylon has strong policies of internal control but their application is not as such so detail substantive testing approach shall be used . Account receivables shall be checked by sampling use Haphazard technique by selecting following balances:

1) Accounts having negative balances

2) Accounts of higher amounts

3) Accounts with zero balances

4) Accounts having balance in general figure like 50000. Positive confirmations shall be sent to debtor till possible, while in case of negative confirmation follow international standards on auditing.

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