FNSACC506 - Internal Controls: Case Study Analysis & Procedures

This assignment presents a detailed case study on internal controls, addressing key knowledge requirements through short answer questions, practical exercises, and case study analysis. It covers topics such as the collapse of Barings Bank PLC, fraud detection in accounting systems, and controls in computer information systems (CIS). The assignment examines the importance of proper supervision, segregation of duties, and the implementation of internal control procedures to prevent fraud and inefficiency. It also explores the organizational structure concerns within CIS, the differences between CIS and manual accounting systems, and the advantages and disadvantages of using modern database systems. Performance indicators (KPIs) are developed to aid in the early detection of fraud, and recommendations are made to improve internal control processes. The document is submitted by a student and available on Desklib.

Instructions
 Use the provided workbook to guide you through this Assessment
document.
 The workbook will ask you to complete parts of this document
progressively – which are your assessment activities.
 By completing this document a part at a time – you will make
steady progress and be able to make the best use of small amounts
of available time.
 Upload this document on Webclass when completed, or earlier if
requested. Note that when uploading this document you are making
the following declaration about your assessment activities.
Internal Controls Assessment Declaration
Student Details
Students Name Vandana Prasad (ENT)
Employer N/A
Assessment for unit/s of competency:
FNSACC506 Implement and maintain internal control procedures
Declaration
 I declare that the answers in this Assessment are my own work.
 I acknowledge that it is a serious breach of academic policy to
copy from another student or the internet.
 I believe that I have satisfactorily met the requirements for
competence.
#Students Signature Submitted under Electronic Signature
via Webclass
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 1

Assessment Activities
To complete this assessment there are a range of assessment activities:
 Short answer questions to ensure that you meet the required
knowledge requirements.
 Case studies to enable you to show practical application of the required
skills and knowledge.
 Practical exercises to show practical application of the required skills
and knowledge in the Practical Skills section.
It is recommended that you complete each Part of the following
assessment activities before progressing to the next.
Workbook - Resource Materials
A workbook has been provided to assist you in learning or refreshing your
knowledge in this field. At the beginning of each separate assessment
activity you will be referred to the relevant section of the workbook and
any other resources.
Alternative Assessment Activities
If you wish to substitute the assessment activities with up to date
workplace evidence, or equivalent activities, please contact your College
Student Adviser.
Please Call to Get Assistance
Phone or email the College to get assistance. Often a quick call can solve a
problem that you may spend too much time on.
Call 1 300 201 881 and ask to speak to a Student Adviser for this subject.
Assessment Results
Your assessment results will be recorded on a separate document called
the Assessment Record that will be available on Webclass once your
assessment has been marked.
Comments on your assessment activities will be provided in the copy of
this document issued back to you in Webclass.
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 2

Part A – Key Required Knowledge
Assessment Method: Short Answer Questions
Complete the following quiz on Webclass.
The information to help you answer this quiz is on Webclass within the
Quiz.
Quiz 1: About Internal Controls
This short quiz summarises the key aspects of Internal Controls
YES NO Date completed:
Quiz 2: Internal Controls & Accounting Systems
This short quiz summarises the key aspects of Internal Controls
YES NO Date completed:
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 3

Part B – Internal Controls Case Study
To answer the following questions, review Section 1 of your Internal
Controls workbook. Some questions may require internet research.
Case Study: Barings Bank PLC
To answer the following questions, go to the following website regarding
the collapse of the Barings Bank –
https://www.e-education.psu.edu/ebf301/node/569
Q1A. According to the extract of the Barings’ collapse, was Leeson
properly supervised at BFS? Justify your answer
The case study which is provided is related to Barings Bank which was one
of the oldest banks in the country. The trader Nick Leeson was provided
consent for lot of things and also access to funds without proper
monitoring and supervision by Barings Future Singapore. Nick leeson had
set up a hoax account which showed gains and covered up losses. This
would have been easily identifiable if proper scrutiny and supervision was
implemented by Barings Future Singapore (BFS).
Q1B. What was considered to be the most serious failing in regards to the
segregation of Leeson’s duties?
The most serious failing which can be identified in case of segregation of
Leeson’s duties is that Leeson was given permission to supervise
accounting and settlements of the business along with a license to trade
freely in futures. This provided Nick Leeson a chance to set up a dummy
account and cook up profits with the anticipation that the he would be
able to adjust the accounts in future.
Q1C. What guidelines or procedures would you put in place to prevent this
from recurring?
In order to prevent such manipulation in the books of accounts of the
business, the management needs to incorporate strict supervision and
control measures for the purpose of ensuring that no manipulation can
take place in the books of account of the business. The management
needs to appropriately segregate the duties of the employee and ensure
that an assessment of the work which is done by the employee is
undertaken by the management of the company. The company can also
conduct internal checks in order to ascertain that the annual reports are
effectively presented and the same are without any manipulations.
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Part C – Internal Controls and Accounting
Systems
To answer the following questions, review Section 2 of your workbook
Internal Controls. Some questions may require internet research.
Q2. Case Study
An employee of XYZ Enterprises has for a number of years been
committing fraud that has remained undetected.
Employee A is responsible for checking deliveries of raw materials for
quantity and quality against purchase orders prepared by the
purchasing department.
In collusion with a supplier’s delivery driver he has consistently accepted
short deliveries but signed a receipt for the quantity of goods ordered.
The delivery driver has subsequently sold the goods and shared the
proceeds with Employee A.
(ACCA adapted)
Q2A. List the internal controls that could have been employed to minimise
the possibility of fraud occurring. Provide the reason for each control.
The steps which can be applied for preventing frauds in the organization
are listed below:
 The management needs to establish another supervisor who would
cross check the materials and accept the delivery. This would allow
the business to cross the order which was initially placed with the
actual quantity which is received by the business.
 The management needs to check whether the stocks records are
properly maintained and every receipt and voucher which is
received for stock should be in the records. Any stock movements
should be with the approval of the management of the company.
 The management needs to apply appropriate use costing techniques
for proper valuation of inventory of the business.
 The management needs to incorporate better internal control
settings in the business so that the overall risks of frauds in the
business is significantly reduced.
Q2B. Develop a Performance Indicator (KPI) that would have been helpful
in the early detection of the fraud.
An efficient performance indicator which can help the business in
maintaining the stock balances and also ensure in early detection of
frauds in business is the rate of conversion of stock of the business. This
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 6

rate can be compared with the budgeted rate of the management of the
company.
Q3. Case Study
The normal purchasing procedure at Jones Wholesalers Propriety Ltd is
for Mr Jones to place orders for merchandise by .
When the merchandise arrives, the receiving clerk records the
information in a book of receipts showing date received, supplier’s
name, description of merchandise and quantity received.
The bookkeeper matches supplier invoices against this record, marking
the invoice ‘OK’ if the quantity shown in the receiving record agrees with
the invoice quantity.
The bookkeeper then prepares a cheque for the purchase, enters the
cheque in the cash disbursement record with a change to inventory, and
passes the cheque and invoice to Mr Jones for approval of process and
other matters and for his signature on the cheque.
Invoices are returned to the bookkeeper and placed in a numerical file
by cheque number; the bookkeeper also places the cheques in
envelopes and mails them.
Adapted from H. Stettler, Stettlers Systems-Based Audits
Q3A. List the changes that you would recommend to improve internal
control, and explain how internal control would be improved by the
changes.
The above case shows that all the power of checking the supplier invoice
and mailing the check amount lies with the bookkeeper. The management
needs to appoint a supervisor who would be reporting directly to Mr Jones.
The Supervisor would look into the work of the receiving clerk and ensure
that appropriate entries are being made by the supervisor. The
management can also conduct surprise internal check in order to check
effectiveness of the internal control and work of the purchase and
reporting department.
Q3B. Develop a Performance Indicator (KPI) that would have been helpful
in the early detection of fraud or inefficiency.
The key performance indicator which the management can consider is the
reorder level for stock of the business. The stock of a business need to be
process and converted into finished stocks and the reorder level represent
the level at which the management needs to reorder the stock of the
business.
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Part D – Controls in Computer Information
Systems (CIS)
To answer the following questions, review Section 3 of your workbook
Internal Controls. Some questions may require internet research.
Q4. What are the two major organisational structure concerns within a
computer information system (CIS)?
The two major organizational structure which are concerned within the
computer information system are the concentration of function and
knowledge and concentration of computer programs and data.
Q5. How are the design and procedural aspects of a CIS different to a
manual accounting system?
The design and procedural aspects of a CIS is very different to a manual
accounting system and the same is presented below:
 CIS is more reliable in nature than manual system and can be
considered for consistent performance. However, it is important to
setup a program control that would ensure consistency in
performance
 The internal control procedures are incorporated in CIS
environment. The CIS system considers logic and limit and
reasonableness checks for the purpose of program controls.
 A single transaction can update the entire database of systems in
case of CIS environment.
Q6. Computer information systems process data in one of three ways.
Name the three types and explain the major differences between each.
The three ways for processing data in a computer information system are
explained below:
 Batch Processing
 Online Processing
 Online real-time processing
The batch processing accumulates data which are similar in nature into
batches and the same are processed accordingly. In case of Online
processing, the data are entered on an continuous basis and are stored in
temporary files for processing after all relevant checks have been
completed. In case of Real-Time online processing, the system effectively
checks the data and edits and process the data as soon as they are
entered into the system. There is no delay time between data entry and
processing and therefore all files and data must be accessible.
Q7. List the advantages and disadvantages of using a modern database
system?
The advantages of using a modern database system are listed below in
details:
 The data which are entered needs to be recorded once only
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 9

 Modern database makes data integration possible.
 The data analysis which is conducted is effective in nature for such
data bases.
The disadvantages which are associated with modern databases are listed
below in details:
 Modern databases are complex in nature and moreover they are
also expensive and therefore cannot be afforded by everyone.
 The backup and recovery process is pretty much time consuming in
nature
 The data which are incurred in modern databases are vulnerable if
effective control is not maintained.
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Q8. Describe the major categories of computer information system general
controls.
There are six major types of general controls that are considered to be
essential in CIS environment and the same are discussed below:
 Organizational and Management Controls: The controls are
designed in such a way to ensure that organizational framework is
maintained over CIS activities.
 Application systems development and maintenance controls:
These systems are designed so that it can be established that the CIS
are developed and maintained in an efficient manner.
 Computer operation controls: These are designed to control the
operations of CIS and the same is also used for assurance that the
system is used for authorised purposes and by authorised personnel.
 Hardware and systems software controls: Hardware control are
incorporated in a system at the time they are initially manufactured
and the same is used for detection of equipment malfunction. System
software are built in the system are mainly used to check
authorization, testing, processing, errors checking and other functions
as well.
 Data entry and program controls: These controls are placed in
order to ensure set procedurals are established for data entry and data
access is only allowed to authorised personnel.
 Backup and recovery controls: These controls are established with
a view point of backup and recovery of data and information.
Q9. Provide at least two internal controls that are in place in your
workplace and identify how they can be improved.
The two internal control measures which are followed in our organization
are:
 CIS Processing of cash and records
 Internal checks
The management can improve the CIS system by ensuring that only
authorised personnel have access to data and records. The internal checks
should be made more frequent in nature in order to improve the internal
control system.
Save this document regularly, and make a spare backup copy
on a flash-drive or another computer.
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 11

Part E – Internal Control and Fraud
To answer the following questions, review Section 4 of your workbook
Internal Controls. Some questions may require internet research.
Q10. What is fraud and what is the key element in the definition of fraud?
Fraud may be defined as a criminal act of deceiving a person in order to
gain certain financial benefit or advantage and causing the victim certain
disadvantage or loss. The main element of fraud is that the act is criminal
in nature and causes loss to the victim.
Q11. Provide two examples of Internal fraud. Misappropriation of funds or other assets
 Purchases made for personal use.
Q12. Provide two examples of external fraud. Cheque Manipulation
 False Invoices
Q13. Why are crime authorities paying so much attention to computer
based frauds?
The usage of computers in recent times have increased exponentially
which is the main reason for the crime authorities to be more concerned
with the frauds which are based on computers. Computers can be actively
used for committing frauds, concealing them and can also be used as an
object of fraud itself. Thus, the advent of computer-based recording and
processing of data is responsible for the increased attention of crime
authorities to computer-based frauds
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Q 14. Briefly describe the term ‘collusion’.
Collusion may be defined as the fraud which is committed by two or more
parties which can be either internal and external, and the fraud is
committed by them working together. These types of frauds are difficult to
detect as the internal control might seem to be working efficienctly.
Q 15. What are the implications of collusion in the fight against fraud?
Collusion can make certain control measures which are applied by the
management of a company ineffective such segregation of duties can be
made ineffective as one individual would commit the fraud and another
individual would hide the same. Therefore, it can be said that collusion
would enhance fraud opportunities
Q 16. List and explain the five opportunities that allow individuals to
commit fraud against and organisation.
The five opportunity that allows individual to engage in frauds are
discussed below:
 If the management style is autocratic in nature than there is high
potential for fraud.
 If the planning process is not appropriately carried out and is short
term in nature than the opportunity for fraud is high
 If the level of internal control in the business is not well established
than the potential for fraud is high in the business.
 Business ethics is not appropriate then fraud can be committed in
the business.
 Internal relationship also plays a vital role and if the same is hostile
then fraud can be committed in a business.
Q 17. What are some of the key features that accompany modern-day
frauds?
The key features of modern-day frauds are given below in point form:
 Frauds are generally for small amount of money
 Majority of Corporate Frauds are committed from within the
organization
 Majority of frauds result from either non-existent internal control or
break downs in those controls
 The frauds are discovered by means of internal control,
investigation or audit programs
 A large percentage of frauds are discovered due to accident or a tip
off.
 Increase in computer based frauds.
Q 18. Explain the term ‘lapping’ of funds.
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Lapping of funds may be defined as one of the fraudulent activities in
which account receivables can be altered to coverup for stolen cash.
Lapping of funds takes place when one individual such as the sales ledger
clerk has access to the cash receipts or where there is a collusion between
the employees carrying out these two functions. This is a serious issue can
affect the entire business.
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Q 19. Review the high and low risk fraud environments on page 47 of your
workbook or page 206 of the textbook (you will have been issued either
one or the other, not both).
From the list choose two high risk and two low risk fraud environments
that relate to your organisation, or an organisation that you are aware of.
Provide a brief explanation justifying your choices.
High Risk
 Planning Function in a business: The planning function which is
followed by the management of the company is centralised and
short term therefore it is susceptible to high risks
 Reporting Framework adopted by the business.: In case, the
management follows a general routine framework the risks would
be high.
Low Risk
 Business ethics: In case a business has a proper code of ethics and
principle established, the overall risks of the business would be low
 Policies and Rules: The policies and rules is appropriately set by the
management would help in reducing the risks of the business.
Q 20. For the risks that have been identified as high, what improvements
could you suggest be implemented to prevent fraudulent activity?
In order to improve the planning process better plans are to be formulated
by the management and plans should be decentralised and a participative
approach should be adopted where view points of every individual is taken
into consideration.
The reporting framework can be improved by following conceptual
framework of accounting and also by initiating regular internal checks in
the business and the management should also follow reporting by
exception principle.
Q 21. How can an organisation recover the costs of fraud?
An organization can recover the cost of fraud in business by taking civil
action through the courts
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Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 15

Part F – Internal and External Auditing
Review section 5 of your workbook Internal Controls prior to answering
the following questions. Some questions may require internet research.
Q 22. Describe the role of internal auditors and their position in the
organisational structure.
The role of an internal auditor is to ensure that the members of an
organization is able to effectively carry out all its operations and discharge
his duties. In addition to this, internal auditors act a safeguard for the
management for any malpractice or fraud activity which may be
undertaken by the business. The internal auditors ensure that the same
does not go undetected from management eyes.
Q 23. Why do you think it is important that internal auditors document the
planning for each audit?
This makes the audit process systematic in nature and audit documents
can be used as reference materials any audits in future and the same can
also be used by the external auditor in deciding the internal controls of the
business.
Q 24. What are the benefits of appointing an internal auditor?
The benefits which can be identified in appointment of an internal auditor
is that:
 The overall efficiency of the business improves which strengthen the
organization
 Ensures that there is no illegal activity or fraund being carried out in
the business.
 The internal auditor can also provide advisory services to the
business
 The internal audits in a business can reduce the costs of external
audits in a business.
Q 25. Should an internal auditor be confined to only auditing financial
information? Why or why not?
The internal auditor should not be confined to only audit functions but as
per IIA the objective of internal auditor should be to assist members of
the organization in the effective discharge of their responsibilities. The
internal auditor can be an advisor of the business and can also help out in
preparation of financial statements of the business.
Q 26. What are the features of a well-organised internal audit operation?
The main feature which can be recognised in case of an well organized
internal audit operation is the independence of the auditor who will be
conducting the audit process. The other important features is that the
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auditor should maintain integrity and should be competent in every way.
There are also certain principles which are required to be followed by
businesses in order to ensure that the effective internal audit can be
conducted by the business.
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Q 27. Independence of internal audit is an important issue. Why is it
difficult to establish independence and how can this be achieved?
The establishment of the independence of the internal auditor is up to the
senior management of the company and the same can be achieved by
making the auditor directly responsible to the board of directors of the
business. The internal auditor should be given any other work in order to
maintenance of independence of audit. The difficulty in ensuring
independence for an internal auditor is because the auditor is an
employee of the management and thereby can be controlled by the
management of the company.
Q 28. Where can you find the guidelines for who may be an external
auditor?
ASIC regulatory Guide 180 Auditor Registration provides the guidelines as
to who can be an auditor of a company and the competencies for the
same as well.
Q 29. Determine which type of engagement would apply to the following
scenarios.
Q29A. A company wants to ensure they are meeting legislative
requirements relating to chemical emissions.
In this case the type of engagement which would be applicable on the
business is ASAE 3100 – Compliance Engagements
Q29B. An organisation wants a report on whether an investment is
correctly valued.
In this case the type of engagement which would be applicable on the
business is ASAE 3500 – Performance engagements
Q29C. A company wants to make sure that their financial reports are
accurate and therefore credible.
In this case the type of engagement which would be applicable on the
business is ASAE 3100 – Compliance engagements
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Q 30. What are the four major reasons for engaging an external auditor?
The four major reasons for engaging an external auditor in a business are
listed below:
 Statutory requirements need to be satisfied by the business which
requires companies to mandatorily conduct audit on the financial
statements
 An umpire may be required in situations where conflicts arises
between the provider and user of resources.
 Organization with which the business is dealing might require audited
financial statements in order to assess whether the business has
potential or not for both short term and long term analysis.
 The auditing process also review the internal control system and can
effectively pinpoint the weaknesses in the system.
Q 31. What disciplinary powers exist to ensure that auditors adopt proper
professional standards?
The auditor are bound by statutory requirements for independence while
conducting an audit of a business. In addition to this, they have a
obligation to report to ASIC under s311 and 601HG of the Corporations Act
in case they encounter any circumstances during the course of audit.
Q 32. Explain where you might find an audit committee and the
advantages it may bring to the audit process.
Audit Committee are nowadays common in a large business which has
complex transactions and such committees are formed from the borad of
directors and such directors are not part of management team. The
advantage of such a committee is that they act as a link between the
auditor and the management. Audit committees have improved the audit
process by being involved in the selection of auditors, determining the
arrangements and scope of the audit and considering the audit report
Save this document regularly, and make a spare backup copy
on a flash-drive or another computer.
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 19

Part G – Performance Auditing
To answer the following questions, review Section 6 of your workbook
Internal Controls. Some questions may require internet research.
Q 33. Briefly define performance auditing.
Performance auditing may be defined as the process of investigating the
internal process and all other activities of the business in order to assess
the economy, efficiency and effectiveness of such activities.
Q 34. Economy, efficiency and effectiveness are essential considerations
in performance auditing. Explain what is meant by each of these terms.
The term economy as per ASAE 3500 refers to the acquisition of
appropriate quality and quantity of resources and the same is achieved at
a lowest possible cost.
The term efficiency means the utilization of inputs in such a manner that
the output is optimised or that input is minimised for any given quality or
quantity of output.
The term effective means the achievement of the objectives or other
effects of the activities of the business.
Q 35. Describe the difference between a functional audit and an
organisational audit.
A function audit is only concerned with a particular function which is to be
examined by the auditor while on the other hand organizational audit
reviews the organisational structure of the entity and whole of
organization. The objective of functional audit is to determine the
effectiveness of a particular function while that of operational audit is to
determine the efficiency and effectiveness of entire structure of an
organization.
Q 36. What are the eight steps to planning a performance audit?
The eight steps of planning a performance audit are listed below:
 The term of audit engagement is to be understood.
 The activity of the business is to be understood
 Access the appropriateness of the activity
 The suitability of the criteria to evaluate and measure the
performance of activity is to be examined by assurance practitioner.
 The assurance practitioner shall consider materiality and
performance engagement risk when planning and conducting a
performance engagement
 Assessment whether the audit staff have necessary skills and
competencies to carry out the audit process
 Identify the probable nature, sources and availability of the
evidence required and such factors as the availability and cost of
the evidence
 Establish the engagement plan and the engagement program
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Q 37. What sort of audit is carried out annually to comply with the
requirements of the Corporation Law?
Statutory audit is conducted annually in order to comply with the
requirements of the Corporation Law
Q 38. How often should a financial audit and a performance audit be
conducted?
Financial audit should be conducted on an annual basis by the business as
per statutory requirements while performance audit can be undertaken as
and when the management wishes. There is no strict law that the same
needs to be conducted on an annual basis.
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Q 39. Why is a performance audit conducted by an outside organisation
likely to be more useful than a management review? Explain fully.
This is because the outside organisation would be impartial in its approach
to review the activities of the business and would be able to judge better
the weaknesses and strength of the structure.
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Part H – Corporate Governance
To answer the following questions, review Section 7 of your workbook
Internal Controls. Some questions may require internet research.
Q 40. What is corporate governance?
The term corporate governance may be defined as the responsibility of the
business to act ethically and responsibly and the concept states that the
business should be held responsible for all the activities of the business.
Corporate governance may be best summarises as a set of principles to
ensure corporate direction, responsibility and accountability, and which
affects those who manage
Q 41. Document Australia’s responses to the corporate collapse of HIH
Insurance, One.Tel and other international corporate failures.
In Australia, the response has been a number of legislative and non-
legislative reforms. These have included the development of the CLERP 9
(the Corporate Law Economic Reform Program) which led to significant
amendments to the Corporations Act 2001.
Q 42. An effective corporate governance system should focus only on the
role and function of the board of directors.
True False
Provide an explanation to justify your answer.
An effective corporate governance principle in a business should not only
be focused on the role of the board of directors but also the focus should
be on the needs of the shareholders and the society of the business. The
corporate governance of the business should aim at overall maintenance
of business.
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Q 43. Referring to the Corporations Act 2001 - Explain the role of directors
and shareholders of a company.
Directors
The directors of the business are appointed for the purpose of ensuring
that they act in the best interest of the shareholders of the business. The
directors can delegate responsibilities to other management in some
areas, but remain responsible for the conduct of the company.
Shareholders
The shareholders of the business are the owners of the business. A share
entitles the shareholder to receive a proportion of the company’s profits in
the form of dividends. Shareholders are the owners of the business and
they have a right to information in the affairs of the business.
Q 44. Explain the difference between executive and non-executive
directors.
Executive directors are the directors of the business and they are involved
in day to day management of the business. Non-executive directors do not
hold a position as an employee of the company and they are independent
and are often members of committee which are operating in a business.
Q 45. What is the ‘if not, why not’ approach in respect to disclosing
corporate governance practices?
The approach suggest that if a company is of the opinion that the
recommendation does not suit its flexibility and operations, then the
management need to provide explanation for the same as to why such
approach was not followed.
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Q 46. Refer to the ASX Corporate Governance Principles and
Recommendations on
http://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-3rd-edn.pdf
Of the principles, which one do you believe to be the most important?
Provide a justification for your answer.
The most important principle which governs corporate governance
principle is safeguarding the integrity in corporate reporting process. The
corporate reporting is an integral part of the business and the same should
be safeguarded in order to ensure that the shareholders get accurate
information relating to performance of the business.
Q 47. Research Activity-
Refer to the Commonwealth bank 2015 corporate governance statement
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/corporate-
profile/corporate-governance/2015-corporate-governance-statement.pdf and provide
answers to the following:
Q 47A. Do the company’s corporate governance principles and practices
meet all the ASX recommendations? If not, what recommendations has the
company not followed?
The company does not follow the recommendation of effectively
structuring the board of directors of the business in order to ensure that
the board can create value in the business and also maintain the
corporate governance level in the business.
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 25

Q 47B. In relation to Principle 1, what are the functions reserved to the
board and those delegated to senior management? How is this Identified
in the Corporate Governance statement?
The board of directors of a business is responsible for day to day
management of the company and also takes all major decisions which is
related to the business. The senior management forms part of the major
committees which oversees the operations and activities of the business.
The corporate governance statement appropriately identifies the role of
the board of directors and also senior management.
Q 47 C. Explain how the company meets Principle 2 with regard to
structure of board. Specifically, to identify the board’s reasons for
considering the independence of a director.
The independence of the director of the bank is of utmost importance as
the same would allow the business to effectively take decisions of any
sorts without any interference of the management. The independence of
factor can ensure that the operations of the business are efficiently
conducted and important decisions can be taken by the management of
the compamy.
Q 47 D. What codes of conduct does the company have in place to guide
business practices and decision making?
 There should be active interaction between the management and
the board in order to ensure that all conflicts can be resolved
through such interactions.
 Disclosure of personal interest of directors so that conflict of
interest situation can be identified and avoided.
Q 47 E. How many members are in the audit committee and also how
many meetings should be held annually?
There should be at least 3 members in the audit committee and the
meetings should be held by the management at least every quarter or
more frequently if required.
Q47 F. Outline the methods the company uses to communicate with its
shareholders.
The company communicates with the shareholders of the business by
following methods:
 Annual reports
 Interim Reports
 Shareholders newsletters
 Discussion in AGM
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 26

Part I – Internal Controls in the Workplace
Q 48. Research Activity
The following activity is designed to demonstrate how you interpret,
comply, review and monitor corporate governance requirements within
your workplace.
Before attempting the activity, read both Q48A and Q48B to ensure you
fully understand the depth of answers that are needed to demonstrate
your competence.
Q48 A. The first step is to complete the following table with a Yes or No
answer. This will give you an insight into whether there are any gaps in
relation to compliance.
Depending on the size of your business, you may need to interview other
employees to get an understanding of how the compliance areas are met
(or not met).
Internal Control Structure – Control
Environment
Control Yes No
Communication and enforcement of integrity and
ethical values
 Is there a mechanism in place to communicate the
ethical values of the organisation to staff?
 Does the organisation have a formal code of
conduct?
 Are there measures in place for dealing with
breaches of the code of conduct?
 Are there penalties in place for breaches of ethical
behaviour?




Commitment to competence
 Are there adequate human resource policies and
practices for hiring competent staff?
 Is there a mechanism in place for the evaluation of
employees’ performance?
 Is there a mechanism in place rewarding
outstanding performance?



Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 27
Note: If you are not
employed at the
present time, please
refer to
Part I for an alternate
activity.

Participation by those charged with governance
 Does the board of directors meet regularly?
 Is there documentary evidence of codes of practice for
those charges with governance?
 Is there a mix of executive and independent non-executive
directors?
 Does the organisation have an audit committee?




Management philosophy and operating style
 Is top management strongly committed to a system of
internal control?
 Are important management and operating decisions
dominated by one or two individuals?


Organisational Structure
 Are all employees made aware that all forms of fraudulent
acts against the organisation will result in criminal
investigations?
 Is there an accounting manual that documents the
organisation’s accounting policies, control and
authorisation procedures?
 Is there an organisational chart that clearly highlights lines
of responsibility and authority?
 Are there mechanisms for ensuring staff are properly
trained?




Assignment of authority and responsibility Yes No
 Are levels of authority and responsibility documented
by way of written policy and more generally through the
entity’s organisational chart?
 Do employee job descriptions clearly document the
authority level of each employee?
 Are effective procedures in place to monitor results?



Human resource policies and practices
 Are there adequate human resource policies and
practices for hiring competent staff?
 Are there standard procedures for recruitment?
 Do new staff complete an induction program?
 Are new staff adequately trained?
 Are staff appraised, promoted and compensated in
accordance with specific guidelines?
 Are bonuses that are dependent on financial result
regularly reviewed by senior management?
 Is the turnover of staff relatively low?
 Is there a mechanism in place for the evaluation of
management performance?








Internal audit function
 If an internal audit department exists:
 Is it independent of all other departments?
 Does it report directly to top management?



Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 28

Audit committees
 Is there an audit committee?
 Does the board of directors meet regularly?
 Does the audit committee interact with the external
auditors?



Internal Control Structure - Risk Assessment Process
Control Yes No
Changes in operating environment
 Are there procedures in place for identifying risks
associated with changes in regulations?
 Is there a likelihood of a risk occurring?
 Are there actions in place to manage the risks?



New or revamped information systems
 Are there procedures in place for identifying risks
associated with the introduction of a new information
system?
 Is there a likelihood of a risk occurring?
 Are there actions in place to manage the risks?
 Does the new system have built-in controls?
 Are all systems software modifications appropriately
authorised, approved, tested and documented?
 Have the internal control procedures been amended to
cover the new system requirements?
 Have applications systems’ development maintenance
controls been designed to provide reasonable
assurance that CIS systems are developed and
maintained in an authorised and efficient manner?







Rapid growth
 Have the internal control procedures been amended to
cover the expansion in the entity’s business?
 Has the appropriate segregation of duties been
maintained after the expansion in the entity’s business?


New technology
 Are there procedures in place for identifying risks
associated with the introduction of new technology?
 Is there a likelihood of risk occurring?
 Are there actions in place to manage the risks?
 Does the new technology have built-in controls?
 Have the new controls been incorporated into the
current policies and procedures?



New business models, products or activities
 Are there procedures in place for identifying risks
associated with the introduction of new models,
products or activities?
 Is there a likelihood of a risk occurring?
 Are there actions in place to manage the risks?
 Have the internal control procedures been amended to
cover introduction of new modules, products or
activities?
 Has the appropriate segregation of duties been
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 29

maintained after the introduction of new activities?
Corporate restructuring Yes No
 Has the appropriate segregation of duties been
maintained after the restructuring?

Expand foreign operations
 Have the appropriate measures been taken to cover the
risks associated with foreign exchange transactions?
New accounting pronouncements
 Have the appropriate measures been taken to
incorporate the adoption of new accounting principles?
 Do staff maintain their technical expertise through
continuing professional development?


Internal Control Structure – Information Systems
Control Yes No
Identify and record all valid transactions
 Is there a clearly identifiable audit trail within the
organisation?
 Are there set procedures to record valid transactions?
 Are there mechanisms in place to identify and reject
invalid transactions?
 Are all non-standard adjustments and material
adjustments authorised and approved before they can
be processed?
 Are there systems and procedures in place to detect
errors before, during and after processing?
 Do specific authorisation procedures exist where
transactions can only be examined on an individual
basis? For example:
 Are bad debts written off only after authorisation by
senior management?
 Specific authorisation is usually associated with
high dollar values such as purchases of capital
equipment or those areas where management
would like to keep direct control because of some
perceived risk.








Classify, summarise and report information on a
timely basis
 Are all transactions classified, summarised and
reported on a regular basis?
 Do documents and records provide an adequate base
for a transaction trail?
 Where appropriate, are documents pre-numbered?
 Are non-current assets recorded in a non-current assets
register and periodically reconciled with the control
account?



Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 30

Measure the value of transactions in a manner that
permits recording their proper monetary value in the
financial report
Yes No
 Are all transactions properly valued?

Allocate information into the appropriate accounting
period
 Are there set procedures to ensure that transactions are
allocated to the appropriate accounting period?

Present transactions and related disclosures in the
financial report
 Are there set procedures to ensure that all valid
transactions and related disclosures are included in the
financial report?

Internal Control Structure—Control Activities
Control Yes No
Performance reviews
 Are internal controls regularly reviewed to determine if
they are operating as intended?
 Are internal controls modified as appropriate for
changes in conditions?
 Are independent checks carried out on the following
account balances?
— bank
— accounts receivable
— inventory
— non-current assets
— accounts payable







Information processing
 Has the access to data and programs been restricted to
authorised personnel?
 Are computer systems only used by authorised
personnel for authorised purposes?


Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 31

Physical controls Yes No
 Is there restricted access to the premises?
 Is access to sensitive areas protected by security
devices?
 Is there restricted access to an organisation’s documents
and records?
 Is access to software and systems documentation
restricted to authorised personnel?
 Have transaction entries into the computer been
appropriately authorised?





Segregation of duties
 Where possible, have policies been put into place that
separate accounting and operating functions?
 Is there separate accounting and custody functions?
 Is there separate authority and custody functions?
 Is there separate accounting functions?
 Are there separate functions within the CIS department?
 Is there appropriate segregation of incompatible functions
such as programming and computer operations?






Independent internal check
 Is the work of one employee reviewed by another?

Internal Control Structure - Monitoring of Controls
Control Yes No
Assessing the design and operation of controls on a
timely basis
 Does the organisation monitor the reliability of financial
records by comparing the results budgets and other
internal data?
 Does management review whether the bank
reconciliations are being prepared on a timely basis?


Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 32

Monitoring of an entity’s controls by internal auditors Yes No
 Do the internal auditors provide information about the
functioning of internal control?
 Do they communicate details about the strengths and
weaknesses and recommendations for improving internal
controls?
 Can the internal audit department communicate freely
with the external audit end the audit committee?
 Is it responsible for monitoring an organisation’s security?
 Are reports furnished to senior management?
 Does the audit committee interact with the internal
auditors?





Use of information from outside parties
 Is information from outside parties supported with internal
data?
 Is confidential and sensitive information restricted to those
individuals who need it?
 Does the entity have procedures in place for dealing with
complaints from customers?
 Does management consider communications relating to
internal control from external auditors when evaluating
policies and procedures?




Q 49B. The second step is to compile a report outlining your findings and
recommendations.
For all YES answers, fully explain how your organisation meets their
obligation.
For all NO answers, provide a detailed recommendation on what
processes would need to be put in place
If you determine that certain points or controls do not apply to your
business, ensure you provide a reasonable explanation using the ‘if not,
why not’ approach.
Hint: The report headings should align with the headings in the above
checklist.
 Is there a mechanism in place to communicate the ethical values of the
organisation to staff?
The ethical values of the business are communicated with the help of
organizational chart which is prepared by the management.
 Does the organisation have a formal code of conduct?
Yes, the organizational chart provides a formal code of conduct for the
business.
 Are there measures in place for dealing with breaches of the code of
conduct?
The actions which can be taken depends on the level of breaches on code
of conduct. The measures are attraction of penalty, and other actions as
well.
 Are there penalties in place for breaches of ethical behaviour?
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 33

There is a penalty in place for any brach of ethical conduct in an
organization.
 Are there adequate human resource policies and practices for hiring
competent staff?
The management of the company has a selected criteria which is followed
by the organization for recruitment of staff members.
 Is there a mechanism in place for the evaluation of employees’
performance?
The performance of the employee is evaluated on a yearly basis at the
time of their appraisal and the criteria is performance and discipline in the
business.
 Is there a mechanism in place rewarding outstanding performance?
The mechanism which is followed to recognize outstanding performance is
by rewards and recognition certificate.
 Does the board of directors meet regularly
The board does not meet regularly and meet twice in a month or two.
 Is there documentary evidence of codes of practice for those charges
with governance?
Board and those charged with Governance follows organizational chart for
degerming the code of practice of the business.
 Is there a mix of executive and independent non-executive directors?
There are 3 mom-executive directors and 4 executive directors.
 Does the organisation have an audit committee?
There is no need for a audit committee in such a business.
 Is top management strongly committed to a system of internal control?
The internal control of the business is set up to meet the requirement of
the business.
 Are important management and operating decisions dominated by one
or two individuals?
The decisions are taken after getting consent and suggestion from
everyone in the business.
 Are all employees made aware that all forms of fraudulent acts against
the organisation will result in criminal investigations?
The code of ethics and organizational charts makes the employee aware of
the fraudulent activities of the business.
 Is there an accounting manual that documents the organisation’s
accounting policies, control and authorisation procedures?
No there is no accounting manual of this sort in the business and the
practice which is followed is a generally accepted one.
 Is there an organisational chart that clearly highlights lines of
responsibility and authority?
Yes, there is a organizational chart in the business.
 Are there mechanisms for ensuring staff are properly trained?
The business has an efficient hiring system.
 Are levels of authority and responsibility documented by way of written
policy and more generally through the entity’s organisational chart?
The organizational chart contains all the written policy of the business.
Do employee job descriptions clearly document the authority level of each
employee?
Yes, the employee contract contains all information relating to employee
job description.
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 34

 Are effective procedures in place to monitor results?
The monitoring principles is closely followed by the management of the
company.
 Are there adequate human resource policies and practices for hiring
competent staff?
The human resources policies are formulated by the business to meet the
necessary skill requirement in the business.
 Are there standard procedures for recruitment?
Yes, there is standard policy for recruitment
 Do new staff complete an induction program?
The new staff of the business is required to undertake a induction
program.
 Are new staff adequately trained?
The new staff are trained on two phases, initial training phase and on job
training phase.
 Are staff appraised, promoted and compensated in accordance with
specific guidelines?
Part J – Internal Controls in the Workplace
Note: The following question is an alternative to Q48.
Do not complete this section if you have an employer. You will need to
complete Part H (above) if you have an employer.
Q 50 Assume that you have been hired as the Compliance Officer for ABC
Pty Ltd, a company who imports furniture from various destinations within
South East Asia.
The company is quite large and has separate business units dealing with
matters relating to Human Resources, Office Administration, IT, Accounts,
and Learning and Development. As such, there are a number of Senior
Managers and a CEO.
Using the checklist above, develop a procedure document covering all
aspects of compliance and governance.
The procedure document needs to contain detail outlining your
recommendations including:
 a valid justification for your recommendations, and
 a brief outline of any applicable procedures
Hint: The headings for the procedure document should align with the
headings in the above checklist.
Type your answer here
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 35

Part P – Practical Skills Demonstration Assessment
College qualifications are “vocational” qualifications, meaning that you must be able to demonstrate that you can apply the skills and
knowledge you have learned in a realistic workplace context. Add examples of how you have done this to the table below. Contact your College
Student Adviser if you have difficulty doing this.
Vandana Prasad (ENT)
Workplace Examples of Organisational Policies are met.
The policies of the organization are met effectively such as code of conduct of the employees, professional behaviour in the business, work
time balance in office hours. The management also follows generally accepted reporting framework for meeting the reporting requirements
of the business.
Workplace Examples of Internal Controls are reviewed and developed
The workplace examples which can be provided in respect of internal control is the corporate governance require the employees to follow
the business ethics and also ensure that the process which is set out by the management is followed towards achieving the goals of the
business.
Workplace Examples of compliance with internal controls procedures
Any movement of stocks or expenses which are to be incurred by the management of the company needs to be done with the approval of
the management so that appropriate control can be maintain. Only a few employees have access to database and records and this
established in order to ensure that there is a security of the data.
SUBMIT ASSESSMENT on Webclass after completing and saving this update.
Trainees ALSO complete and SUBMIT the following pages.
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 36

Supervisor Workplace Confirmation of
Competence:
Students Name: Vandana Prasad (ENT)
Supervisors Name:
Employer: N/A
Unit/s FNSACC506 Implement and maintain internal control procedures
 I verify that the participant has implemented our organisational procedures in
the workplace.
 I confirm that the employee has demonstrated competence in the workplace.
 I have signed off that unit on the Training Plan.
X Supervisor’s
Signature: / /
Once signed by your supervisor - scan and upload section P to
Webclass under SUBMIT ASSESSMENT.
This section will be merged with your earlier submission of your
assessment activities.
Assessment: Internal Controls v2-17 Vandana Prasad © ACCM College 37
sign