BSBFIM601 Manage Finances: Budgeting and Financial Analysis of Houzit

This case study presents a financial analysis of Houzit Pty Ltd, a retail chain, focusing on the development of a budget for the upcoming year. It includes a sales budget, profit budget, cash flow budget, and debtor aging summary. The analysis identifies reasons for past profits and losses, comments on the effectiveness of existing financial management approaches, and outlines assumptions used in creating the budget. Key issues include the impact of price reductions, increased advertising, and the introduction of new products on profitability. The study also discusses the ineffectiveness of certain management decisions, such as the purchase of a luxury car and the decision to lower prices amidst rising inflation. Finally, it provides notes on the implementation and monitoring of budget expenditure, emphasizing the importance of proper authorization, reconciliation, and communication within the organization. Desklib offers a variety of solved assignments and past papers to aid students in their studies.

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
Assessment Submission Sheet
Course SIT60316 - Advanced Diploma of Hospitality Management
Unit BSBFIM601 Manage Finances
Assessor Name
Student Name
Student ID
Due Date
Please read and sign this assessment coversheet and submit it together with your assessment to
your Assessor by the due date.
Student Declaration
I declare that the work submitted is my own, and has not been copied or plagiarised from any person
or source.
I have read the Plagiarism Policy and Assessment Appeal and Reassessment Policy in the Student
Handbook and I understand all the rules and guidelines for undertaking assessments.
I understand that by typing my full name in the student field this is equivalent to a hand-written
signature.
I give permission for my assessment material to be used for continuous improvement purposes.
Student
Signature
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Submitted
Assessor Use Only
Assessment Items Result
Task 1 Case Study S NS
Task 2 Report S NS
Task 3 Report S NS
Final Result for this unit C NYC
Student Declaration: I declare that I have been
assessed in this unit, and I have been advised of
my result. I am also aware of my appeal rights.
Assessor Declaration: I declare that I have
conducted a fair, valid, reliable and flexible
assessment with this student, and I have
provided appropriate feedback.
Signature Signatur
e
Date
Assessor’s Final Comments
AIC-UP-BSBFIM601-V4.0 Page 1 of 26

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
Task 1
Assessment Instructions
This is an individual assessment. This assessment requires you to determine the requirements to
undertake budgeting, financial forecasting and reporting requirements for an organisation. You will also
need to review the case study provided and prepare a budget (in electronic spreadsheet format) and
budget notes for distribution and implementation in the organisation.
Procedure
Read the case study.
Analyse the case study information (including business plan summary and previous financial data)
and complete the following.
Develop a sales budget, profit budget, cash flow budget and debtor ageing summary using
electronic spreadsheets (as separate worksheets) making sure each budget is divided into
quarterly periods and that you use previous financial data to determine allocations for
resources.
Ensure each budget you prepare complies with the organisational and policies and
procedures as provided.
Develop budget notes which include:
identification of reasons for previous profits and losses
your comment on the effectiveness of existing financial management approaches
all assumptions and basis that have been made or used to form budgets
any relevant notes regarding implementation and monitoring of budget expenditure.
To be deemed competent you will need to successfully demonstrate the following:
You must provide:
a completed annual budget in a single spread sheet with a separate sheet for each budget
component. You must print out all worksheets and submit to your trainer.
budget notes
evidence you have reviewed the case study information provided by submitting an appropriate
budget with budget notes
AIC-UP-BSBFIM601-V4.0 Page 2 of 26

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
Task 1
b. Development of budget notes
Identifying the reasons for past profit & losses
On the basis of analysis performed between previous years and upcoming year trend in profits and
losses pertaining to Houzit Pty limited, it has been identified the trend of increasing trend of growth in
sales remains the same for the accounting year 2022 / 2023 despite the fact that the upcoming trading year
would be quite difficult as compared to previous years. The reason behind this increase in sales was the
reduction in prices to ensure similar growth in sales even in the difficult trading conditions. Also, the
advertisement budget has increased for the year 2022 / 2023 through which Houzit would be able to
secure greater market share even in the contracted market, thus accounted for higher expenses and
accordingly losses. Further, to ensure growth in the sales of Houzit, there are higher anticipated
expenditure in terms of wages and salaries in order to encourage better efforts from casual staff through
offering commissions for higher sales made by them. In addition to this, a new product has been added to
the existing product line that is, lighting fixture which is anticipated to have contribution of around 20%
of total sales which acts as an element due to which there are higher profits for Houzit in 2022 / 2023. At
last, the reason for which the profit are in the upcoming year's budget is due to the lower interest expenses
resulting from repayment of principal loan amount.
Therefore, all these reasons listed above contributed towards low profitability of Houzit in an attempt to
maintain the similar sales growth.
Along with this, there are losses attributed to the increase in expenses on account of inflation as
well as luxury car bought by CEO but there is an increasing trend in last many year's gross profit.
Commenting on the effectiveness of existing approaches of financial management
The current financial management approach is quite ineffective which can be explained
through the example that Houzit made unnecessary expense for the purchase of luxury car which is fuel
inefficient and have attracted luxury car tax which is not a profitable deal for Houzit and by avoiding this
expenditure they could save much towards higher profitability. Another, ineffective decision made by
management is that of the increment in advertisement budget which leads to higher expenditure but lower
profitability for the business (Mora and Triana, 2018). So, at this point it could be said that management
could resort to some other strategies in an attempt to maintain sales growth. At last, it could be said that
the decision to lower the prices is not effective in the scenario of increasing expenses as a result of rise in
inflation. Therefore, instead of raising price, the prices has been lowered which doesn't seems to be
effective approach of financial management team at Houzit.
Assumptions and basis made or used for creating budget
There are certain assumptions and basis that are used or made while preparing a budget for 2022 / 2023,
such as the following:
1. All the costs are increased to the extent of rise in inflation that is, 4% followed by their respective
behaviour in previous year.
2. On the basis of sales growth determined for the last three years, the budgeted sales has been increased
by the same proportion that is, 8%.
3. The balance of debtors at the ending of each quarter has been kept at 20% of the sales made during that
particular quarter.
4. It has been assumed that the expenses such as depreciation, bank charges and fringe benefit tax would
remains the same as it was in previous year.
Notes associated with the implementation & monitoring of budget expenditure
1. To ensure better monitoring of budgeted expenditure, all the time sheets needs to be approved &
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Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
authorized (Ahrens, Ferry and Khalifa, 2018).
2. All the service invoices needs to be signed & linked with the respective purchase order.
3. Performance of reconciliation must be ensured between third party bank statements and company's
books.
4. Appropriate communication between department and employees at head office and shop floor to ensure
required lines of feedback and proposing a solution for the correction of errors along with making sure
that new strategy devised at top level has been communicated to them.
AIC-UP-BSBFIM601-V4.0 Page 4 of 26

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
Case study
You have recently been appointed as the business manager of Houzit Pty Ltd having been a store
manager for the past three years. Houzit Pty Ltd is a 15 store retail chain located in Brisbane. Houzit is
the leading homewares retailer, catering to the growing need for furnishing new and renovated dwellings
in the greater Brisbane area.
The assortment on offer of bathroom fittings, bedroom fittings, mirrors and decorative items together with
the recently added lighting fixtures has positioned Houzit as a leader in homewares retailing in Australia.
Houzit has grown over the past five years from a single store to the current chain. Houzit prides itself on
superior after sales service which has been a key reason for the continued growth in sales and
corresponding profit increases. Today Houzit employs over 150 staff.
Houzit Pty Ltd is a proprietary limited company (ACN 34 765 234 02) registered with the Australian
Securities and Investment Commission. The registered address is with Houzit’s solicitors (Langs
Lawyers, 535 Queen Street, Brisbane, QLD 4000) and the principle place of business is 505 Boundary
Street Spring Hill Brisbane QLD 4000.
Computer software requirement
The current accounting information system has not adequately provided sufficient analysis of revenue
and expenditure and has made it difficult to make informed estimates of future profits. Estimates have
relied on the ‘gut feel’ of the experienced traders on the board and of the senior managers. The board
sees the need to apply more analysis to past results that they believe could be done with the introduction
of state-of-the-art computer software.
Houzit Pty Ltd wants to upgrade their existing accounting system which will manage the company
accounts more efficiently in the long run. They request that the new system you recommend to them to
be compliant with all legislative and statutory requirements for small to medium businesses.
None of Houzit’s products are GST free however the accounting information system records the GST
collected as well as the input tax credits earned on the purchases of stock and assets. These amounts
are reported and paid in accordance with the business activity statement (BAS) schedule determined by
the Australian Tax Office.
They have 100 fulltime and 50 part-time staff, but only 10 of the staff will have or need access to the
financial system. Some staff are paid on a salary sacrifice arrangement that attracts fringe benefits tax.
The staff with access to the financial system want software that is a single purchase with no ongoing
license fees, and a plan to keep using if for the next 3–5 years, while the organisation continues to grow.
They are anticipating that within five years they will have over 250 full-time staff, and at least 20 staff will
require access to the financial system by then.
The payroll system deducts withholding tax from the employees and remits this along with the firm’s pay
as you go (PAYG) instalment each quarter as reported on the firm’s business activity statement. Income
tax return for the company and its annual statement is completed by the firm’s accountant. Taxes and
fees due are paid by the due dates. Financial records are kept at Houzit’s principle place of business.
Houzit have just upgraded their computers and have five new desktop PCs which will be used by the
finance staff. They are current specification machines with i5 CPUs and 8Gb RAM each, and all have
Windows 10 Professional and Norton’s 360 installed with the professional version of Microsoft Office
Small Business as well. Other staff will use their machines at various times, so it is important that the
software requires a login to access data and that data stored by the software cannot be accessed in any
other way.
AIC-UP-BSBFIM601-V4.0 Page 5 of 26

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
Corporate details
Jim Schneider, the CEO, has asked you to prepare some financial budgets for the 2022/23 financial year
as a preliminary overview of the financial year ahead. He asked you to first prepare a 12 months budget
and then break it up over the four quarters. The areas he is particularly interested in seeing is:
Sales budget for 2022/23 by department by quarter.
Profit budget (including detailed expenses) for 2022/23 by quarter.
The cash flow result per quarter of the GST after adjusting the GST collected by the allowable
GST tax credits.
The anticipated aged debtors summary at the end of each quarter.
The CEO wants to be given all the budgets except for the aged debtors budget which the accountant
and accounts receivable clerk can monitor. The CEO produced a summary of the current business plan
that covered the budget year to highlight some of the key goals, objectives and strategies he would like
incorporated into the budget.
AIC-UP-BSBFIM601-V4.0 Page 6 of 26

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
AIC-UP-BSBFIM601-V4.0 Page 7 of 26
Business plan summary
The anticipation that the coming financial year would maintain the same sales growth as the
growth that took place between 2018/19 to 2021/22.
To budget for an increase in inflation to 4% per annum and that all costs subject to inflation
should incorporate this particular increase.
A new car costing $97,466 including GST has been planned for in the coming period to
replace the five year old vehicle currently used by the chairman. This fuel inefficient car will
attract a luxury car tax.
Sales breakup over the departments is anticipated to be bathroom fittings 30%, bedroom
fittings 25%, mirrors 15% and decorative items 10% together with the recently added
lighting fixtures 20%.
Profits are to be built on securing a growing customer base which will generate loyalty sales
and become the refer other customers to the organisation. The superior after-sales service
is the key strategy to achieve this.
Reduction on the principle of the loan by a payment of $100,000 on the 31 December 2022
from the profits generated by the business.
One objective in this plan is to manage the debtors more efficiently in the current period.
This will involve an analysis of the debtors to identify ways to reduce the amount of cash
tied up in outstanding debtors.
The expectation that 2022/23 would be a difficult trading year but that the budget net profit
should target the same result as achieved in the 2021/22. The strategy to achieve this in
the business plan included three key elements:
To reduce the expected gross profit rate by 1% on the 2021/22 result in the hope that lower
prices on the products would help maintain the sales growth even in difficult trading
conditions.
To increase the advertising budget by $70,000 over the 2021/22 results in the hope that
Houzit can secure a greater market share in a constricting market. $200,000 is planned for
the first quarter with the balance apportioned equally over the following three quarters.
To increase wages and salaries by $172,500 over the 2020/21 amounts in the hope that
allowing the existing high number of casual staff to earn commissions on sales that should
help to maintain Houzit’s sales growth.

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
After going through the business plan summary, the CEO gave you the previous year’s financial reports
and asked you to speak with the accountant Celina Patel to get some of the figures and detailed
expectations for the coming year.
You arrange a meeting with Celina Patel, Houzit’s accountant, and she gives you the following insight
into the historical expense relationships and the current statutory compliance liabilities.
Sales and profit budget information
Celina explained that the only budget she monitors on a day-to-day basis is the cash flow budget and the
store manager is primarily responsible for the sales budget.
These are the notes you take at the meeting:
The overall sales for 2022/23 target set by the business plan should be apportioned across the
quarters in the same % as was achieved in 2021/22.
This was:
Qtr 1 Qtr 2 Qtr 3 Qtr 4 2021/22
3,142,822 3,771,386 4,085,668 4,714,232 15,714,108
Cost of goods sold is the inverse of the gross profit rate determined by the business plan and is
determined by the quarterly sales budget.
Accounting fees have been negotiated for the year at a fixed amount of $10,000 to be paid in equal
amounts each quarter.
The interest charges on the bank loan are anticipated at a reduced amount of $84,508 due to an
agreed repayment of some of the loan principal. This is to be paid in equal amounts each quarter.
Bank charges are expected to be the same as 2012 and paid in equal amounts each quarter.
Celina has requested that a new expense (store supplies) be recognised in the new budget that was
previously included in with the cleaning expense amounts. Store supplies in the 2020/21 results
was $3,500 of the cleaning expense and $3,605 of the 2021/22 result. Cleaning expense will then
be lower but identify the real labour costs involved in the cleaning expense.
Depreciation is expected to be the same as 2022 and allocated in equal amounts each quarter.
Advertising is to be apportioned to each quarter based on the business plan.
The following expenses are expected to increase by the determined inflation rate in the business
plan summary:
Insurance – apportioned in equal amounts each quarter.
Store supplies – is calculated for to each quarter using the same % as determined by the sales for
each quarter.
Cleaning – is calculated for each quarter using the same % as determined by the sales for each
quarter.
Repairs and maintenance – apportioned in equal amounts each quarter.
Rent – apportioned in equal amounts each quarter.
Telephone – is calculated for to each quarter using the same % as determined by the sales for each
quarter.
Electricity – is calculated for to each quarter using the same % as determined by the sales for each
quarter.
Fringe benefits tax is expected to be the same as 2022 and paid in equal amounts each quarter.
Wages and salaries are calculated for each quarter using the same % as determined by the sales for
each quarter.
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Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
The statutory requirements are:
superannuation is 9% of wages and salaries for each quarter
payroll tax is 4.75% of wages and salaries for each quarter
workers compensation is 2% of wages and salaries for each quarter
company tax is 30% of net profit before tax for each quarter.
AIC-UP-BSBFIM601-V4.0 Page 9 of 26

Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
Houzit Pty Ltd
For 12 months ended
Profit & Loss Actuals 2018/19 2019/20 2020/21 2021/22
Revenue
Sales 12,474,336 13,472,315 14,550,100 15,714,108
– Cost Of Goods Sold 6,860,901 7,409,773 8,002,555 8,799,900
Gross Profit 5,613,465 6,062,542 6,547,545 6,914,208
Expenses
– Accounting Fees 5,500 6,500 8,500 9,000
– Interest Expense 45,000 65,000 96,508 90,508
– Bank Charges 1,200 1,300 1,580 1,600
– Depreciation 170,000 170,000 170,000 170,000
– Insurance 12,500 12,500 12,500 12,875
– Store Supplies - - - -
– Advertising 50,000 100,000 280,000 280,000
– Cleaning 12,560 15,652 18,700 19,261
– Repairs & Maintenance 40,250 52,600 60,000 61,800
– Rent 2,465,000 2,465,000 2,465,000 2,538,950
– Telephone 9,862 12,523 14,000 14,420
– Electricity Expense 22,500 23,658 25,000 25,750
– Luxury Car Tax - - 12,400 -
– Fringe Benefits Tax 26,000 26,000 26,000 28,000
– Superannuation 148,500 160,737 166,500 171,495
– Wages & Salaries 1,649,998 1,785,965 1,850,000 1,905,500
– Payroll Tax 78,375 84,833 87,875 90,511
– Workers’ Compensation 33,000 35,719 37,000 38,110
Total Expenses 4,770,245 5,017,987 5,331,563 5,457,780
Net Profit (Before Tax) 843,220 1,044,554 1,215,982 1,456,428
Income Tax 252,966 313,366 364,795 436,928
Net Profit 590,254 731,188 851,188 1,019,499
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Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
Houzit Pty Ltd
Statement of Financial Position
As at 30 June 2020/21 2021/22
Assets
Current Assets
– Cash On Hand 50,000 55,000
– Cheque Account 144,842 160,314
– Deposits Paid 950,000 950,000
– Trade Debtors 850,000 975,000
– Merchandise Inventory 1,530,000 1,430,000
Total Current Assets
Fixed Assets
– Motor Vehicles At Cost 500,000 500,000
– Motor Vehicles Accum Dep ( 100,000 ) ( 125,000 )
– Furniture & Fixtures At Cost 1,950,000 2,250,000
– Furniture & Fixtures Accum Dep ( 650,000 ) ( 770,000 )
– Office Equip At Cost 400,000 400,000
– Office Equip Accum Dep ( 90,000 ) ( 115,000 )
Total Fixed Assets 2,010,000 2,140,000
Total Assets 5,534,842 5,710,314
Liabilities
Current Liabilities
– MasterCard 17,800 14,860
– Trade Creditors 780,000 679,000
– GST Collected 1,455,010 1,571,411
– GST Paid ( 943,125 ) ( 987,626 )
– Superannuation Payable 100,000 120,000
– Luxury Car Tax Payable 20,920 -
– income Tax Payable 364,795 436,928
– PAYG Withholding Payable 65,000 44,872
Total Current Liabilities 1,860,400 1,879,445
Long-Term Liabilities - -
– Bank Loans 1,608,459 1,508,459
Total Liabilities 3,468,859 3,387,904
Equity
– Owner/Shareholder’s Equity 500,000 500,000
– Retained Earnings 850,000 1,565,982
– Dividends Paid ( 500,000 ) ( 1,200,000 )
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Australian Ideal College
Registered as Australian Ideal College Pty Ltd
RTO No.: 91679 | CRICOS Provider Code: 03053G
Sydney Campus: Level 7 & 8, 75 King Street, Sydney NSW 2000 Australia
Adelaide Campus: Level 3, 21-23 Rundle Mall, Adelaide SA 5000 Australia
Hobart Campus: GRD Floor, 116 Murray Street, Hobart TAS 7000 Australia
T: [phone] (Sydney) | [phone] (Adelaide) | [phone] (Hobart)
E: [e-mail] | W: www.aic.edu.auEducating for Excellence
– Current Year Earnings 1,215,982 1,456,428
Total Equity 2,065,982 2,322,410
Internal auditor
Carl Kerns is one of the directors of the board. Carl said that as a board member they are given the profit
and cash flow budgets. He was appointed by the board to conduct an internal audit of operations to look
for weaknesses in the internal control system. His report uncovered the following processes that he
believed needed to be strengthened.
While the overall customer base is increasing from year to year, there may be internal control issues
relating to how these new customers are secured.
Some discounts that were being given to customers were recorded as a net amount on the invoices
and gave no indication of the discount from standard prices.
Some cash registers in the stores were not reconciling the cash in drawer with the register printout.
Not all timesheet overtime amounts were being authorised by the line manager.
Service invoices for some items of equipment were not signed or linked to a purchase order. There
was no check that the work had actually been carried out.
Not all assets in the stores had unique codes fixed to the asset.
There were minimal feedback lines of communication from the shop floor to head office, particularly
when an error in the budgeting report process was recognised.
Debtor reconciliations were not done monthly and sometimes not at all.
In busy times the cashiers that operated the registers were also asked to do their own reconciliations
and banking. Sometimes the cash was held in the store for a day or two.
Job roles were not clearly defined so that responsibilities and liability can be identified.
There was little rostering of duties and cash receipts were not pre-numbered.
Of particular concern to Carl was the directive given by the board to ensure that audit trails were created
and maintained. These included:
Signing the timesheets for employees under the authority of a department manager.
Maintenance of a numbered cash receipts book.
Using sequenced cheques as a systematic way of evidencing all monies paid out.
Ensuring proper coding of evidenced transactions against appropriate general ledger account and
cost centre.
Ensuring reconciliations between company books and third party bank statements are performed.
GST cash flow budget
Statutory requirements for GST is 10% of the recorded amounts in sales. The only capital purchase
planned for the year is the luxury car for the chairman. Those expense payments on which 10% GST
was paid include the following:
Cost of goods sold:
accounting fees
insurance
store supplies
advertising
cleaning
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