Fundamentals Of Auditing: Solution of Assignment 2, Exercises of Business Administration

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Solution of Assignment # 2

Strengths Impact of control

Operational certificates and pre-numbered machinery received notes are available to the accounting department for comparison with purchase invoice of machinery and equipment.

Proper documentation of amount paid for machinery is available to accounting department that reduces the chance of embezzlement.

Operation of the equipment is assessed prudently by qualified people of production department.

It will help to ensure the operational usefulness of machinery and equipment.

Production and accounting departments are independent; so updating the non-current asset register only by authorized persons is major strength of its internal controls.

It minimizes the fraudulent entries in non-current asset register. Manipulation of asset register is very difficult by the production department.

Checking of non-current assets is performed on specific date ensures the effectiveness of internal control and better asset management policy.

The risk of loss and theft of plant, machinery and equipment is reduced.

The internal audit department tests on a sample basis either recorded non-current assets are in existence.

The internal auditing department will be more independent than the accounting department and hence will provide further comfort that the non- current asset register is not overstated.

Internal audit tests the operation of the entire Non-current assets recording system.

Any control which is not operating effectively is likely to be identified and ratified before significant errors can occur.

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