Elite Ltd

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ELITE LTD

Elite Limited

Case Study - Elite Limited

As an external auditor I had to look into all possible lapses that may have stressed out the company's record keeping system. CFO briefed me about the same accounting system in use for the last fifteen years. This very but single detail charges my antenna to detect shortcomings.

Part 1: Describe the weaknesses in the purchasing system, the possible consequences of the weaknesses and recommend improvements to the system

Lack of authentic and tangible record keeping:

The Company does not have their in-house record keeping that can show all their purchases and in the end may it match with the invoices received from buyers. Eisen (2003, p. 97) states that general account ledger shows the value of subsidiary accounts payable ledger. It controls a balance which matches subsidiary ledger's aggregate balance. The processing and records at Elite Ltd. shows a missing connection between the company orders and their approval and buyers' claims. They do not file any kind of detail to ensure that if ever some confusion occurs so they can cross check with their own records. Most alarming is the fact that company repay the balances to the buyers when they have misplaced the required invoices!

No account payable ledger:

Account payable ledger facilitates to pick a control over company's expenditures and payables. There has to be a control through a system to cross-check the accounts at any time (James, 2010, p.52, 526). Each transaction ideally updates perpetual inventory system in such a system balances for inventory and cost of goods sold. These require comprehensive record keeping because the system has to keep the latest record of ending inventory and cost of goods sold at any point in time. Has a proper inventory system but they do not follow it in its true sense. Besides, a system for inventory (most probably any software), physical counting of items gives a complete scenario. The company may want to assess their potential and alter some procedures so a comprehensive list helps you take crucial decisions.

Elite's processing mishandles the potential of perpetual inventory system. Yet company should go for physical counting of the inventory as well, at least once a year, to double check. It would help to catch errors because of waste or breakage or theft (Jay, et.al, 2011, p. 264).

Perpetual inventory demands a continuous update of transaction after transaction. All purchases and sales have to be recorded in inventory card the moment they occur. A transaction has to be recorded on-time, so the auditors must analyse and evaluate the transaction and categorise it accordingly (Jay, et.al, 2011, p. 265). Perpetual inventory needs entering and maintaining more data than periodic, yet, it gives a clear snap shot of inventory.

Consequences of the weaknessesNo update of the system:

The tools and revised versions of some existing software come into the market that makes the transactions much easier. The Elite Ltd. has not updated their accounting system for the last fifteen years. Malfunctioning in the system together with old, out-dated accounting tools ...
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