assignment 2

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Assessment task 1

Report on corporate governance practices and internal controls

You are required to research current corporate governance practice and internal controls

and then collate this information in a written report. The following websites and documents

have been provided to assist you with this task but these are a guide only. You can use any

other accounting text or websites that you think might assist you in completing this

assessment.

· Australian Securities and Investment Commission at www.asic.gov.au

· Australian Taxation Office at www.ato.gov.au

· The Australian Securities Exchange at www.asx.com.au

· The Corporate Governance Council at http://www.asx.com.au/regulation/corporate-

governance-council.htm\

· Australian Institute of Company Directors at http://www.companydirectors.com.au/

· In 2002, the ASX (Australian Securities Exchange) was given the responsibility of

convening the Corporate Governance Council. The Council developed the Corporate

Governance Principles and Recommendations. A copy of the second edition of this

document with 2010 Amendments is provided with this assessment task.

Your report on corporate governance practices and internal controls is to be broken down

into key sections that relate to effective and transparent corporate governance for

companies operating in Australia. Major headings for these key sections have been provided

for you. You will need to use appropriate sub-headings to break up the information – some

questions or topic ideas have been included under each heading to help you.

Please note that marks will be allocated to each topic, so ensure that you have answered

each of them adequately. While these have been included to assist you, this assessment

task is not meant to be completed in a question-and-answer format – it is a written report

that demonstrates that you can not only source and research appropriate information, but

also present the information using professional report writing and referencing guidelines.

Grades will be awarded as follows:

Grade Mark

Pass 27 ½ - 35 1/2

Credit 36 - 41

Distinction 41 ½ - 46 ½

High Distinction 47 - 55

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Report title: Corporate governance practices and internal controls

· Include your name, student ID and the date on the title page

Title 1: What is corporate governance?

In this first section you should clearly define the following:

· What is corporate governance?

· The importance of effective corporate governance for Australian companies

· Individuals/stakeholders who may be involved in the corporate governance of a

company. The Corporations Act and summary of tax legislations and how they apply

to companies

· Who is the ASX, the Corporation Governance Council and what are their functions?

· The ‘if not, why not’ principle of corporate governance as it applies to reporting

periods.

· Where can you find information in regards to corporate governance? Please list at least two

different sources.

Title 2: Regulatory authorities and internal controls systems

· ASIC’s role in the formation and running of companies

· List the eight key principles of corporate governance as defined by the Corporation

Governance Council

· In some detail, of approximately two paragraphs, explain the importance of Principle

4: Safeguard integrity in financial systems

· Explain how sound financial management systems might relate to ATO reporting

requirements.

· As a Financial Control Manager how would you:

o Ensure that you delegate financial accounting responsibilities to personnel who

report to you. Provide two examples.

o Ensure that you monitor and review financial accounting responsibilities. Provide

two examples of monitoring and reviewing activities.

Title 3: Internal control procedures

· Define internal controls and describe their importance

· Describe two reasons why accounting systems should have sound internal controls

· Explain why regular reviews of internal controls procedures are necessary in relation

to corporate governance requirements. In particular, pay attention to the financial

systems of a business and how they might assess risk.

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· List at least four steps that you might take in order to promote consistency when detailing

and disseminating internal control procedure.

Bibliography

All resources used during the creation of the report should be included here.

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Formatting requirements

Marks will be allocated for the correct formatting and construction of the report. This should

include the following:

· all reports are to be typed in Microsoft Word

· all report titles are to be 14 pt and bold

· all main text is to be 12 pt Times New Roman or Calibri

· your name should appear on each page of the report in either a header or footer

· include a brief introductory paragraph before topic 1, briefly outlining the content of

your report

· include a brief conclusion after topic 3 to summarise the report and conclude

appropriately

· include a page number on each page of the report

· prepare each section into appropriate paragraphs by grouping key concepts together

· ensure that you spell-check your document and that appropriate sentence and

paragraph construction is used

· include a bibliography listing websites and print resources used at the end of the

report on a separate page.

Assessment checklist

Before you submit the assessment task ensure that you have completed the following:

Task Completed þ

Title page included

Introduction

· Brief paragraph introducing the report and the topics of

conversation

Topic 1: What is corporate governance?

· All topics included

Topic 2: Regulatory authorities and internal control systems


Topic 3: Internal control systems and procedures


Conclusion

· A brief conclusion outlining what was discussed in the report

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Bibliography

· Appropriate referencing of all texts, websites and PDF articles

included

Formatting

· Page numbers included

· Font formatting correct

· Appropriate sentence construction and paragraphing complete

· Naming convention correct

· Spell check complete

· Copy of assessment saved to your computer

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Assessment task 2

Case study

Consider the scenario below for the fictitious company AAA Insurance Ltd, and then answer

the questions that relate to the case study.

AAA Insurance Ltd

AAA Insurance Ltd recently had some bad media publicity about their significant financial

loss after they had budgeted for a 1 million dollar surplus. Shareholders were furious and

stock prices fell in response to the quarterly loss and publicity. The board of directors have

appointed you to investigate their current internal control policies and procedures and to

recommend any changes to be made.

AAA Insurance sells insurance to the general public – primarily in the areas of home and

contents insurance and car insurance. They plan to increase the insurance products they

offer to include caravan and travel insurance, but this has been put on hold until next

financial year. They have an approximate annual turnover of 13 million per annum and are

governed by a board of directors.

The company employs 120 staff, of which 60 are involved in the call centre assisting clients

with their insurance needs. All staff are paid as employees and subsequently, AAA

Insurance Ltd incur all relevant payroll liabilities including PAYG withholding and

superannuation. They also pay Fringe Benefits Tax on behalf of management who have

private use of company vehicles.

External auditors on an annual basis audit AA Insurance financial reports. There are also

internal auditors employed within the company within a separate auditing team.

Upon investigation you find that general expenditure has exceeded budgeted forecasts in

call centre operations. An extract of the operating expenses budget is found below.

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Extract from Operating expenses budget (from Call centre performance report)

Budget Actual Variance

Call centre expenses

Wages 650,000 640,000 98.5%

Advertising 95,000 105,000 -10.5%

Stationery 10,000 13,500 -35.0%

Heat, light and power 15,000 14,500 96.6%

Internet & phone 26,000 33,000 -26.9%

Printing & photocopying 6,400 7,000 0.09%

Staff amenities 6,000 8,900 -48.3%

Policy selling costs 22,000 21,000 95.4%

General expenses 13,000 20,000 -53.8%

TOTAL 843,400 862,900 -2,31%

Task

1. Describe at least three areas of concern that you have found when reviewing the call

centre operating expenses for the last six-month budget period.

2. Provide one reason why you think the category of ‘general expenses’ might be of a

particular concern to you.

3. Based on the table above describe at least two other internal reports, that you might

request for further investigation and explain why you think you might need to review

these documents.

You suspect that something may be amiss in relation to the internal controls within the

accounts payable department. You request the accounts payable procedure manual and are

provided with the following:

Accounts payable information

The accounts payable software is limited by staff login to accounts payable staff only and is

password protected. There are eight full time and part time staff employed in this section.

All accounts payable staff can process and approve accounts from suppliers. Where

possible, all accounts are paid electronically direct to the supplier within seven days of

receiving the tax invoice. Cheque runs occur on a weekly basis for all other accounts. The

general accounts payable cycle includes the following:

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Extract from accounts payable procedure manual

· Any goods required, such as stationery, are ordered using a purchase order. All

staff has the authority to request goods as required.

· Purchase orders are sent directly to the supplier by the employee.

· Goods are received, and delivery dockets/tax invoices are checked against

relevant purchase orders.

· All tax invoices are entered into the accounting software and allocated to the

appropriate general ledger code for suppliers or expenses.

· Payment is generated within seven days of receipt of the tax invoice or a cheque

is generated at the next cheque run and sent to the supplier after signing.

· Any adjustment notes are generated and recorded for goods not received,

damaged in transit, or for overcharges. All staff can enter adjustment notes as

required.

· All financial reports are generated at the end of the accounting period for

management.

4. Describe two potential control risks that you see in the current accounts payable

procedure that might account for overspends. Explain why you see these as potential

problems.

5. Upon meeting with the accounts payable staff, you are informed that one staff

member was dismissed last year for entering dummy invoices into the system and

then having them paid into her bank account. Current legal action is pending in

regards to this, but it is estimated that approximately $15,000 was stolen by this

employee.

Describe what changes need to occur to the procedure to ensure that appropriate

internal control measures are in place in the accounts payable department based on

the control risks that you noted in the previous question and the additional

information regarding fraudulent activities. Explain why these changes need to occur.

6. Before modifying any written documentation regarding policy changes to accounts

payable procedures, you will need to consult both accounts payable staff and

management. Provide two reasons as to why it is important to consult with these staff

members.

7. How long might it take you to implement changes to the accounts payable

procedures? Give reasons for your timeline choices.

8. A performance indicator might be used to measure or evaluate how successful a

change in procedure is. Suggest at least one performance indicator that you could

use to evaluate how successful a change to the accounts payable procedure might

be. Explain why you think this might be a measurement of success.

9. Rewrite the accounts payable procedure to include any modifications that you

identified to be necessary to the internal controls procedures. Aim for at least five

changes to reinforce control measures:

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· keep any parts of the procedure that remain valid and true

· ensure that the procedure is sequential, where possible

· keep the same standard format that you see in previous procedures

· include who will be responsible for certain tasks

· provide timeframes for completion of tasks.

· head your document: Accounts Payable Procedure for AAA Insurance Ltd.

10. Why might the audit committee of AAA Insurance Ltd need to sign off on any

changes to the internal control procedures?

Grades will be awarded as follows:

Grade Mark

Pass 15 – 19

Credit 19 ½ - 22

Distinction 22 ½ - 25

High Distinction 25 ½ - 30

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Assessment description

By completing this assessment you will gather evidence of your ability, knowledge and skills

necessary to Provide management accounting information including:

• Gather and record operating and cost data

• Analyse data

• Prepare budgeted reports

• Review costing system integrity

Assessment tasks

The assessment tasks to be completed for this unit is as follows:

• Task 1 – Knowledge Test (multiple choice, short answers)

• Task 2 – Project (practical)

Marks will be awarded as follows:

Question Mark

Part A 10

Part B 17

Part C 12

Part D 15

Part E 18

Total /72

Grade will be awarded as follows:

Grade Mark

Pass 36–46½

Credit 47–53½

Distinction 54–61

High Distinction 61½–72


Instructions

You are required to read and answer the following questions in full. Write your assessment in a

commonly used software program such as Microsoft Word, or download a Microsoft Word copy

of this assessment from the relevant Study Period of your course in OpenSpace. Refer to

Assessment Submissions section of this assessment for full submission details.

Your responses will be used as part of the overall evidence requirements of the unit.

For this assessment you will be required to obtain a copy of accounting policies and

procedures. You can use policy and procedures from your workplace or via the internet. Please

submit a copy of the policy and procedures as part of your assessment.

Part A – Manufacturing statement (10 marks)

Using the template provided, prepare a manufacturing statement for Monash Ltd for September

2013 from the following figures:

$

1/9 Inventory of Raw Materials 1,260

1/9 Work in Progress:

Raw materials 900

Direct labour 300

Factory overhead 300

Payroll:

Direct labour 8,100

Indirect labour 2,400

Factory manager’s salary 18,00

Materials:

Purchases 13,500

Indirect materials used 180

Depreciation on factory plant 390

Electricity used in factory 1,160

Factory maintenance 450

Factory cleaning 600

30/9 Inventory of raw materials 1,170

30/9 Work in Progress:

Raw materials 1,200


Direct labour 360

Factory overhead 360

Manufacturing statement for September 2013

$ $

Cost of goods manufactured


Part B – Cost ledger (17 marks)

1. Prepare the entries in the Cost Ledger journal for the month of September 2013 from the

information below. Use the template provided. (10 marks)

$

Cost of Goods Sold 237,000

Materials Purchased 162,000

Cost of Goods Completed 248,000

Materials Issued:

Direct 147,000

Indirect 12,000

Factory Payroll:

Direct 44,000

Indirect 11,000

Invoices Received for Factory Overhead Costs 38,000

Depreciation on Factory Plant 7,000

Factory Overhead Applied (160% of direct labour)


Cost ledger journal DR CR

$ $

2. Prepare a standard Chart of Accounts for a Cost Ledger (3 marks)

3. Using the Chart of Accounts you prepared above, how would you code/allocate the

following items in a plastics factory? (4 marks)

(a) Purchase of chemicals to make plastic

(b) Payment of wages for a process worker

(c) Purchase of cleaning materials

(d) Invoice for repairs to a machine


Part C – Budgets (12 marks)

S Knight Ltd makes storage boxes. They are preparing budgets for September. They expect to

sell 5,000 boxes in September and 7,000 in October and 6,000 in November.

The finished goods inventory at the end of each month should equal 20% of the estimated sales

for the next month. Each box requires half a kilo of plastic. Plastic costs $14.00 per kilo.

The raw material inventory at the end of each month should equal 10% of the expected

production requirement for the next month.

At present each box takes 15 minutes to produce. New production methods will reduce this time

to 12 minutes from 1 September. Direct labour costs are $16.00 per hour.

Task

Prepare the following budgets:

1. Production budget – in units, for September and October (3 marks)

2. Material purchases budget – in kilos and $, for September (3 marks)

3. Materials usage budget – in kilos and $, for September (3 marks)

4. Labour usage budget – in hours and $, for September (3 marks)


Part D – Performance report (15 marks)

Ajax Bathrooms Ltd has prepared the following budgeted income statement for the month of

September 2013:

$ $

Sales (49 bathrooms at $2,000 each) 98,000

Cost of Goods Sold (49,000)

Gross Profit 49,000

Expenses

Selling (Variable) 9,800

Administration (Fixed) 13,500

Financial (fixed) 1,800 (25,100)

Net Profit 23,900

During September the company sold 45 bathrooms at the budgeted price.

The cost of goods sold was $45,678.

The actual expenses for September were:

• Selling $9,400

• Administration $12,900

• Financial $2,100

Task

1. Prepare a performance report for the month of September. (8½ marks)

2. Identify the significant variances for the month and suggest three possible reasons that

could account for the variances. (3 marks)

3. Prepare a flexible budget for the activity level of 60 bathrooms. We only need to see the

new budget and not the variance to actual in this exercise. (3½ marks)


Part E – Short answer (18 marks)

1. Using the internet, research the ethical considerations surrounding the handling and treatment

of financial data. (10 marks)

Write approximately 150–200 words each on two different ethical considerations:

• confidentiality

• conflicts of interest

Ensure that you address the following for each ethical consideration:

• Why is it an ethical consideration and what does it mean in terms of ethics?

• How does it relate to the treatment of financial data?

• Provide a brief example of the consideration in the workplace.

• Provide a reference list of where you obtained your information (minimum 3 websites).

2. You work for ABC Manufacturing Pty Ltd as the financial accountant. Your boss has requested

that you write a procedure outlining the process for recording, processing, storing and backing

up data in the organisation.

Your boss reminds you that a procedure is a list of step-by-step instructions. He asks that you

also provide a flowchart as a pictorial way of recording the flow of data. (8 marks)

Task

Write a procedure for recording, processing, storing and backing up data. Include details about:

• the type of data

• the type of software

• how the data is to be stored securely

• back-up procedures, including how to restore data, if required.

Prepare a flow chart showing the procedure that you wrote in step 1.

This is the final part of your assessment.

assignment 2

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