Internal controls and accounting systems
Assessment tasks
You have recently been employed as Senior Accounts Clerk for Cookridge & Cookridge Carpets. This is a full time position, and the organisation is willing to support you finishing your AAT Level 4 studies by attending the local college on an evening.
The first job the directors have asked you to do is to review the accounting system, the effectiveness of its internal controls, and whether the culture of the organisation could be improved in terms of working ethically and their environmental sustainability.
You are then asked to make any recommendations for improvements that you feel are necessary.
The directors know there are many weaknesses, but are uncertain as to how these should be managed.
To help you in this they have asked the accounts clerks to prepare some brief information about themselves, an overview of the accounting system, and also a list of events that have occurred over the previous few months. This information can be found in the company diary.
You are required to produce a business report for Peter and John Cookridge. This should be approximately 4,000 to 5,000 words long.
The report should be mapped to the learning outcomes and assessment criteria on page 4 by paragraph number to ensure all criteria are covered.
The detailed task requirements are set out on pages 5 and 6.
Learning outcomes and assessment criteria
1. Understand the role of accounting within an organisation
1.1 Describe the purpose, structure and organisation of the accounting function and its relationship with other functions within the organisation.
1.2 Explain the various business purposes for which the following financial information is required – statement of profit or loss, statement of cash flow, and statement of financial position.
1.3 Give an overview of the organisation’s business and its critical external relationships with stakeholders.
1.4 Explain how the accounting systems are affected by the organisational structure, systems, procedures and business transactions.
1.5 Explain the effect on users of changes to accounting systems caused by external regulations, and organisational policies and procedures.
2. Understand the importance and use of internal controls
2.1 Identify the external regulations that affect accounting practices.
2.2 Describe the causes of and common types of fraud and the impact of this on the organisation.
2.3 Explain the methods that can be used to detect fraud within an accounting system.
2.4 Explain the types of controls that can be put in place to ensure compliance with statutory or organisational requirements.
2.5 Explain how an internal control system can support the accounting function.
3. Evaluate the accounting system and identify areas for improvement
3.1 Identify an organisation’s accounting system, including hardware and software packages.
3.2 Review record keeping systems to confirm whether they meet organisational requirements.
3.3 Identify weaknesses in and the potential for improvements to the accounting system and consider their impact on the operation of the organisation.
3.4 Identify potential areas of fraud arising from lack of control within the accounting system and evaluate the risk.
3.5 Review methods of operating for cost effectiveness, reliability and speed.
4. Conduct an ethical evaluation of the accounting system
4.1 Evaluate the accounting system against ethical principles.
4.2 Identify actual or possible breaches of professional ethics.
5. Conduct a sustainability evaluation of the accounting system
5.1 Evaluate the accounting system against sustainable principles.
5.2 Identify where improvements could be made to improve sustainability.
6. Make recommendations to improve the accounting system
6.1 Make recommendations for changes to the accounting system, including ethical and sustainability considerations with a clear rationale and an explanation of any assumptions made.
6.2 Identify the effects that any changes would have on the users of the system.
6.3 Enable individuals to understand how to use the accounting system by use of training, manuals, written information or help menus.
6.4 Identify the implications of recommended changes in terms of time, financial costs, benefits and operating procedures.
Task one
Review and evaluate the accounting system
The review and evaluation can be of the complete system or of one or more of the accounting functions, depending on your findings, but it must specifically cover the following points:
• Record keeping systems – explain the purpose of financial reports, and the suitability of the organisation’s current reports to meet organisational needs.
• Internal systems of control – identify how internal control supports the accounting system, the types of internal control in place, and any controls that are missing.
• Fraud – explain the causes of fraud, common types of fraud, methods that can be used to detect fraud and potential areas for fraud within the organisation.
• Working methods/practices – review the working methods used, including the use of appropriate computer software, and the operating methods in terms of reliability, speed and cost effectiveness
• Training – Identify how training is or can be used to support staff.
• An evaluation of the accounting system’s professional ethics against the professional ethics code of AAT and the organisation; identifying actual or possible breaches of any of the five fundamental principles of the code of professional ethics. Examples of this could include breaches of confidentiality, integrity, professional behaviour, objectivity and professional competence.
• An evaluation of sustainability within the accounting system, identifying where improvements could be made. This should look at the impact that the organisation has on the environment, the economy or society. Examples of this could be to reduce the carbon footprint, reduce the use of natural resources (paper, electricity, petrol, etc) or improving corporate social responsibility.
The review should cover all aspects of the assessment criteria, as mapped above, when it can naturally be introduced into the report. If it cannot be covered in the report then it can be covered within a written explanation included in the appendix.
Whilst a SWOT analysis may be a good starting place, this should not be placed in the body of the report.
Task two
Conduct an ethical evaluation of the accounting systems
• Evaluate the accounting systems against ethical principles by reviewing working practices.
• Identify any actual or possible breaches of professional ethics.
Task three
Conduct a sustainability evaluation of the accounting systems
• Evaluate the accounting systems against sustainability principles by reviewing working practices.
• Identify any possible improvements that could be made to improve sustainability.
Task four
Identify weaknesses and make recommendations for improvement
• Evaluate the system to identify significant weaknesses, which should be clearly explained along with their impact upon the organisation.
• For every weakness that has been identified, there should be one or more recommendations made to attempt to improve the situation.
o The recommendations should concentrate on the effect that the changes would have on both the organisation and on individual members of staff. They may also highlight training needs or aids to improve staff performance, or changes needed to organisational culture.
• Prepare a cost-benefit analysis
o At least one of the recommendations made should be subject to a cost-benefit analysis. Whilst not all benefits are quantifiable, all costs are, and students should make any necessary assumptions or ‘guesstimates’ to allocate costs to such items as time, unknown salaries, or any other unknown expense involved in the recommended changes.
o All benefits should be identified, including those that cannot be allocated a financial figure. This can include such things as improved customer relationships, improved documentation systems or staff morale (though this could be allocated a financial benefit as improving staff turnover cutsrecruitment costs).