A friend of yours, Reg Park, recently purchased all the shares in Crazytimes ( Ptv ) Ltd
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Question:
A friend of yours, Reg Park, recently purchased all the shares in Crazytimes Ptv Ltd a wholesale
company that sells all kinds of goods for outdoor pursuits, for example skateboarding, BMX
kayaking etc. The company sells only on credit. Debtors pay only by EFT. The previous owners,
who were also the directors, spent more time engaged in outdoor pursuits than in looking after
the business, choosing to leave the running of the business in the hands of various 'managers'
and other employees. The goods that the company sells are popular so the business has survived
this ownership neglect and your friend an entrepreneur sees potential in the company. He
asked you to have a look at the accounting system and internal controls that you do only to find
that, despite the design, and the documentation of the system being sound, the control
awareness and proper operation of control activities by employees are poor. The cycle has been
broken down into the usual functions for a revenue and receipts cycle and all functions are
staffed adequately. On reporting to Reg Park, his response was: OK as I am the sole director and
will not be involved much in the business, I want you to explain four things to me Firstly, if we
assume that the staff are honest but careless or as you say, not very control aware, what could
go wrong in the revenue and receipts cycle, and, secondly if some of the staff are dishonest,
including the managers, how could they be stealing from or defrauding the company? I would
also like you to explain to me what is meant by toxic combinations and, lastly, please provide
me with examples of sound controls over the debtors master file and over amendments of the
master file.
YOU ARE REQUIRED TO:
Respond to Reg Park by:
a Explaining what could go wrong in the revenue and receipts cycle, assuming that the stuff are
honest but careless and not very control aware;
b Explaining how dishonest employees including managers could be stealing from defrauding
the company in this cycle;
c Explaining briefly, what is meant by 'toxic combinations.?
Related Book For
Financial Accounting Tools for Business Decision Making
ISBN: 978-0470239803
5th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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