Assig nment Question:

A large engineering company has 1 2 manufacturing plants all over the country. Its production/manufacturing process is capital intensive and company has different types of plants.

Preparatio n of annul d etailed budget of assets especially non-cuurrent assets is the responsibility of finance manager. Thereafter, this final b udget is sent to the Board of directors for final approoval. This bud get is approv ed for more

than five years by the   oard of direc tors after con sulting with the audit com mittee. Finally, the approved budget is

fed into t he computeriz ed system with proper issuing authority.

At time, p lant is receive d by the Com pany; a pre- numbered note is prepared with different copies. One copy is sent to the accounting department so t h at they could update no n-current ass ets and one copy is sent to the audit department. In the next step, plant is thorough ly inspected by the qualified persons an d is tested fo r operation. Production department prepares an operational efficiency certificate for the accounting department. Then Pre-numbered purchase invoice and the operational efficiency certificate are checked when they received.

When the	purchase of plant is entered into the computerized purchasing sy stem, a soft  copy of non-current asset	
register  is	updated.  No  one  can  access  to  this  n on-current  assets  register  from  the  accounting  department.  On	

different dates during the year, the non-current assets register is compare d to the actual plant by a n authorized person who compares identification number of the machine in register and allso engraved on the plant.

The inter nal audit department also examines on a sample basis from requisition of machi nnery to operation i.e. from preparatio n of budget to entry in the assets regiister. A sample of assets eentries from non-current a ssets is also compared with machinery on work shop floor by the internal audit staff.

Required:

Pinpoint FIVE strengths of the Company y’s control environment with reference to no n- current assets and explain the impact on control risk. (5X5X5X5X5)

Outcomes of the Assignment:			
Student  will be able to:			
v R eview internal control  in non-current assets			
v L earn  the  strengths  an d  weaknesses  of  internal  controls  in  Non- current  ass ets	(Fixed	
	assets).			

Solution of Assignment # 2

Strengths	Impact of control	
		
Operational     certificates     and     pre-numbered	Proper    documentation    of    amount    paid    for	
machinery   received   notes   are   available   to   the	machinery  is  available  to  accounting  department	
accounting   department   for   comparison   with	that reduces the chance of embezzlement.	
purchase invoice of machinery and equipment.		
		
Operation of the equipment is assessed prudently	It  will  help  to  ensure  the  operational  usefulness	
by qualified people of production department.	of machinery and equipment.	
		
Production    and    accounting    departments    are	It minimizes the fraudulent entries in non-current	
independent;  so  updating  the  non-current  asset	asset  register.  Manipulation  of  asset  register  is	
register   only   by   authorized   persons   is   major	very difficult by the production department.	
strength of its internal controls.		
		
Checking  of  non-current  assets  is  performed  on	The risk of loss and theft of plant, machinery and	
specific date ensures the effectiveness of internal	equipment is reduced.	
control and better asset management policy.		
		
The  internal  audit  department  tests  on  a  sample	The  internal  auditing  department  will  be  more	
basis  either  recorded  non-current  assets  are  in	independent than the accounting department and	
existence.	hence will provide further comfort that the non-	
	current asset register is not overstated.	
		
Internal  audit  tests  the  operation  of  the  entire	Any  control  which  is  not  operating  effectively  is	
Non-current assets recording system.	likely    to    be    identified    and    ratified    before	
	significant errors can occur.	

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