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CURRENT PROCESS:

Daniel Jefferson oversees the whole fixed asset system with asset acquisition, asset maintenance and asset
disposal within his responsibility. He is also in charge of posting fixed asset related entries in the general
ledger.

Issues:

1. In charge of everything from acquisition to disposal


2. Average maintenance bill increased by 15%

RISK ANALYSIS

Inherent Risk - Low

Generally, the inherent risk is low since fixed assets are high-valued and transactions are not frequent enough
that the management can easily spot any material changes.

Control Risk – High

The control risk is high because there is segregation of duties. Transaction authorization is not separate from
transaction processing as evidenced in

(1) asset acquisition where Mr Jefferson decides the supplier of the fixed asset
(2) asset maintenance where Mr Jefferson decides the repair services provider for the fixed asset

IMPLICATIONS:

(1) There could be phantom assets that could be recorded by the company without the user
department ever requesting it.
(2) Maintenance of assets could easily be manipulated by Jefferson. This would allow him to
purchase more fixed assets earlier than its expected useful life while asset disposition under
him would hasten the process since verification from upper management is not required.
Independence is also compromised. With Jessica managing a repair shop business, Daniel could simply ignore
other suppliers.

IMPLICATIONS:

They could collude to increase prices for repair services benefitting both of them in the process.

Authorization is lacking with respect to acquisition and disposal of assets.

IMPLICATIONS:

It would be easy for Jefferson to buy such assets without considering the financial condition of the
company and disrupt cash flow in the long run.

The lack of control in acquisition with respect to user department requests would also make it easier
for him to buy without the respective departments even needing it.
RECOMMENDATIONS:

1. Delegate responsibility for selecting suppliers and repair services providers. They could be delegated
to Purchase requisition personnel.
2. Delegate responsibility for posting for fixed asset related entries general ledger. The general
accountant could post the entries so that the company could easily monitor changes.
3. Wait and see after the current system is being implemented so that the management could assess
fairly whether or not continuing the current arrangement is more cost-effective with the better control
measures set up.