Internal Control Framework Case study: Southern Packing Ltd

Southern Packing Ltd is owned by the Francis family, with John and Jacob owning 40% of the company each and other family members owning the remaining 20%. The Board of directors consists of three directors: Jacob, John and the familys lawyer, Helen Clarkeson.

The board of directors meet once a year to approve the annual financial statements and approve any significant changes planned for the coming year. The board of directors discussion of planned changes is very general in nature and the details of any planned change are left to Jacob to determine. Jacob is the CEO of the firm and makes all decisions regarding the internal control system. The board of directors believes having one person design and oversee the internal control system means a consistent approach is taken to controls.

Every six months Jacob reviews the issues that have arisen in the internal control system and identifies from the problems encountered any controls that need improvement or updating. This involves reviewing the firms written policies and procedure manual and updating this for any change made. Jacob discusses with the relevant staff member the concerns and explains any changes that will be made to improve the control system.

As part of this process Jacob meets with each full-time staff member every six months to discuss their control responsibilities and authorisations. Jacob ensures staff understand the controls they are responsible for and that they are performing controls correctly. Any concerns Jacob has with the performance of each staff member and their compliance with internal controls is discussed and, if necessary, a plan is made to ensure improvements in the staff members performance occurs.

Customers (fruit growers) and suppliers are regularly informed of the firms requirements concerning internal controls. Jacob selects all full-time staff himself and, as he believes he is a good judge of character, he considers the risk of fraud is minimal in the firm. Because of this, Jacob has decided the firm does not need to carry out any form of auditing or external review of the internal control system as the costs involved would outweigh the benefits gained.

Task:

Using the information you have on the SPL case, use the COSO framework to evaluate SPLs internal control system. In your evaluation you must:

1. Evaluate whether you found the COSO framework a useful tool in your evaluation of SPLs internal control system. Ensure you explain three reasons why you found the framework useful or not.