Introduction to Internal Control And Accounting Systems
When there is business expansion from the smaller level to large level there is need to introduce various function and responsibilities which in order to control and organize the business (Horvat, and Lipičnik, 2016). Business controlled by small business person differs from those who work as CEO of the organization to control their business. Expanded or large firms divide the function and responsibilities among various groups.
They follow hierarchical ways in which authority and the responsibilities are shared. Internal control is related to the accounting system within the organization which is required to control the business operation and prevent the excess use of resources. In order to accomplish the above tasks various procedures, policies and tools are required. Moreover, this is required to perform the responsibilities which allows customer to receive their goods and product within time period.
Internal control for organization are required for building the hierarchical structure in the organization and is used form the integration between the financial policies, procedures and various other components in the organization. Following report contains the details about the A to Z vehicle hire which is small regional car and van hire. Internal report for the following firm is done in order to achieve following targets.
It's used as preventive measures for the irregularities along with difficulties faced by organization. Moreover, in the following case there are errors which needed to be resolved within the time limit. Secondly, it's used to analyse the financial data whether frauds are committed by the employees or not, or ways to control and minimized them.
The internal control helps to ensure the details about employees like they are preforming their tasks and responsibilities within time limit, their behaviour, provision of balances and check, irregularities in the errors are the activities which gets easily attention and are thus reduced. For maintaining such roles and regulation various responsibilities and duties are assigned.
1.1 Purpose, Structure and Organization Of The Accounting Function and Its Relationship With Other Functions Within The Organization.
Internal control and accounting system is required in order to prevent the frauds and other illegal activities related to loss in financial accounts of company (Pongpattrachai, Cragg and Fisher, 2014). Here the business, number of employees, size and trade is being discussed and the relation of accounts department with the other department where they report or their daily basic work. The organization A to Z Vehicle Hire is small regional car and van hire firm.
The accounting system for the A to Z vehicle is focused on the providing the foremost vehicle hire company in that areas. Relation of the accounting system with the Information technology system is totally related to the cash and banking polices. It includes the details like cash flow inside and outside of firm. Business Credit cards, petty cash, bank reconciliation, salaries and wages of the employees and other staff, Good inwards and car hiring policies.
A to Z Vehicle Hire is small regional car and van hiring company. Its combination of the three firms which are AA Milnes Car Hire, Van to Go and Midway Minibuses. The firm, Van to Go was initiated by Mo Khan who was builder by trade. In 2010, he hired 10 Ford transit vans along with 4 lveco flat belt Lorries. His brother Joe, general assistant and is driver for the collection and delivery of vans. Mo was responsible for the administration and banking for the firm. Peter Stoker and Mo become joint venture as Peter was owning the two things which are football team and owning vehicle hire firm. The second part of A to Z was operated by the Alan Milne's which were running the successful business AA Milne's car Hire which was successful. He was having 70 cars which runs in North field. Anna, his wife too supported his business. Anna was supported by two assistants. When they both decided to sell the firm both Mo and peter agreed to purchase the company (Schroeder and Shepardson, 2015).
At last all three combined to join for the business. Company’s mission statement is that it want to be the only vehicle Hire Company in that area. They provide every type of vehicles for their customer in well maintained and with full services along with drivers and proper transactions. The company is independently organized and has a flat structure, they are having the same accounting system. More details are included in the Appendix 1.
The structure of the employees within the organization:
- Chandra Sorah, MAAT – Accounts Manager works at the head office of north field.
- Kate Gloss – Head Accounts Clerk works at the head office of North field.
- Sue li- Wages and Accounts clerk and role is to prepare the wages.
- Mark Ancher- Accounts Clerk works at head office on Northfield.
- Precious Jones- Account Clerk
- Joe Khan- General Office Assistant along with the general assistant at Southdown branch his role is to prepare the statement of financial position for the company.
Moreover, company is having 20 driver, 9 mechanics and 1 cleaner in the firm.
1.2 Various Business Purposes Required For The Financial Information.
Financial information is needed in order to give the details related to the changes in financial position, current state and performance of the organization in order to make the future economic decision.
The following data are generated for the company:
Company is found to have reduced turnover with the decrement from 202-120 million Pound making the loss to the company.
The value of the net asset has decreased in few months due to chandar. 20- 10 million pound.
Employees have are in very tension as no proper ethical concept and support from the other staff is not there.
Statements of profit and loss: this statements are required to understand the details like expense, revenue and costs which occurred in the specific period of time. The details are required so that company can excess their ability and what future strategies needed to be made in order to generate more profit. It can also be referred as income statement, operational statement, or financial results statements.
Statements of Cash Flow
The statements which are related to difference in the balance sheet account and income. They are mostly related to the analysis operating, investing and financing activities. In simple words it's related to the cash flow in and out of the company. Such statements are required for the preparing the balance sheet. The details are required by the accounting personnel, creditors, investors, employees and shareholders to know about the money invested by the company.
Statements of Financial Position
Also known as balance sheet. It's related to the assets, liabilities and change in total money. The statements contains the amount which are mentioned at the final moment of the accounting period.
Assets are calculated as Liabilities + Stakeholders equity
1.3 Organization Overview And Its Relationship With The Stakeholders
The company A to Z vehicle Firm is the joint venture which is run by the three owners. Joe Khan is the General Office Assistant of the company. The company is getting high response as they are having high facilities and great services. Also, they are having less competition in that place. The company is having high business profit and is making great contribution in getting famous. The details required by the stakeholder are the financial information for making the investment.
For this Joe Khan is having the friendly relationship with the other business partners and stakeholders. They all take decision related to the organization in proper and considering all the factors related to the company benefits. Moreover, Joe Khan consults his manager, heat accounts clerk and other members of the company so with the effective and strategic planning they can easily get to the solution. Although they face problems when services are affected by the customer or inappropriate payment of the clients but company is able to manage all such losses. The stakeholder may further include the customer, Suppliers and Banks which are detailed below.
For the customer of A to Z vehicle firm are the people needed the cars or vans for traveling to various places. They purchase the services offered by the company after viewing the services and facilities provided by the firm. The firm is having clear rules and regulation provided to the customer for availing any vehicle. Moreover customer looks for the services, facilities and price and good services of the company. Internal control related to the accounting system are required by the customer sales list along with the credit terms (Hribar Kravet, and Wilson, 2014).
Financial information are required by them in order to check whether they can afford the product being sale and for the import and export. The main suppliers of A to Z vehicle Firms are the Car owner, van owner and other vehicle owners which makes the vehicle. They need the cars or vans which have high capacity, performance and requires less maintenance and less fuel.
Banks are considered as the important stakeholder. A to Z vehicle Firms require them in order to get the loans and other for the easy flow of their transaction like check withdrawal and check made. Moreover, they provide interest to money invested in them. For the chosen company the bank is HDFC bank where all transaction are made.
2.1 Identify External Regulations That Affect Accounting Practise.
It's very important for A to Z vehicle firm to have high quality and standards which provides members to the foundation, users having knowledge of accountancy services along with the regulators which are required to access compliance with effective and efficient practise by members of profession. High standards in regulation can be achieved by compliance. Moreover, international consistency of regulation is required and being supported in the global regulatory convergence of standards (Heise, Strecker and Frank, 2014).
In terms of the accounting profession it includes details like: entry and licensing requirement, which further includes teaching and professional development. Moreover it includes the monitoring the behaviour as well as the performance level of the professional accountants. They must support the basic standards along with ethical standards which is accessed by the professional accountants. Furthermore, they need to take strict disciplinary action against those who fail to meet complete their tasks.
For completing the above task there are various regulatory practises which comprises of quality assurance of individual professional accountants, achieving the obligation of IFAC membership by professional accountancy firms. Also, they need to involve public oversight which is accessed by the external regulators. The above mentioned firm must adopt this regulatory and must apply them in order to prevent any frauds and other ill-legal activities in the accountancy. This may affect in terms of tax, companies act, accountancy data protection etc.
2.2 Types Of Control Which Can Be Put In Place To Ensure Compliance With Statutory Or Organizational Requirements
For the cited company the internal control and making awareness can help the organization in order to ensure the compliance with organizational requirements. Control is required for completing the task before, after and during the process. The control can be can be categorized as Preventive, Concurrent and feedback control. The preventive control is used to focus on the human, material and financial resources in firm. Such controls are required during the selection of new employees. Concurrent control is required for monitoring the performance by employee and their activity in order to meet the required standards (McGowan, Yurova and Chan, 2014). Feedback controls is require in the organization for the reviewing the information and to check whether the performance is meet by the employee.
2.3 Internal Control System Supporting Accounting System
Internal control system are required by the accounting system in order to boost the system process and improve business profitability. It's required due to the following purpose:
It affects the internal control of A to Z vehicle firm accounting system through explicit and implicit ways. In terms if explicit strong environmental control is required while designing and implicit method comprises of following details like monitoring risk and communicate the results with the employees. Furthermore, risk Assessment which comprises of identifying the details of risk which might affect the business objectives of the company. Information and communication in internal control is required to provide the details to every member of the organization.
It contain all the details of employer and management. Moreover, internal control comprises of monitoring which is very necessary in annual check-up for control system. This is also required to reduce the fault in the system. At last internal control consist of control activities which are the specific actions which management and employees take to maintain the internal control. All such things are required in the internal control which provides the support to the accounting system and can prevent the loss of organization.
3.1 Requirements Of Hardware And Software Package For a To z Vehicle Hire Accounting System
A to Z vehicle company requires both hardware and software to keep the proper records of the organization transaction. The company deal with that customer who hire the cars for their requirement and when it is fulfilled then the customer give that vehicle back to the company and according to that hiring period company earn, there should be proper records of the customer that when the customer hire the vehicle and when they give back to company. The software that is required is DBMS (data base management system) and cloud computing in which the customer information like their requirements for the car according to the members seated in the car, keeping the track of the car that where it is travelling (Schuster, 1980). Hardware required for this company is computer where the data is stored and analyses by the software like MS excel.
3.2 Weakness in Accounting System and Ways to Improve.
There are various weakness in the DBMS and various ways to overcome. They are as follows:
A) Increase in data volumes: As all the data are to be stored so there is problem in storing of data and all the information related to the translation are important and to be stored so no data can be deleted. The solution for this is managing data in cloud. There will be access of data from the cloud and all the data are stored easily
B) Data security: All the data related to the transaction are confidential and need proper security. Some information are hidden not to be given access to all employee so there are hackers who stole this information from the data base (Gold, 2015). There should be proper preventive action to be taken so that it can't be stolen.
If the ethical system and sustainability development is followed in the company them the organization can easily achieve their goals and can easily manage the accountancy system in the organization. For such Chandra must be provided training and development which can help him to understand and learn about how to manage the accounting system. Moreover, company must understand other employee’s problem more clearly so that they can create effective work system in the company. Such things must be adopted in the company (Uyar, Gungormus and Kuzey, 2017). At last, head must check the accountancy details and should compare that the bank or other details.
4.2 Recommendations Which Would Have On Users Of The System.
As part of the recommendations, everyone charged with organizational responsibility, namely the management teams, shareholders and stakeholders without forgetting the contribution of external auditors should join hands so that to be able to detect and report unlawful financial gain especially in the contemporary integrated business environment. The internal control procedures, the auditors plus the accounting systems are the people and guidelines to blame for an increasing number of financial scandals witnessed in the corporate world.
They play a big role towards financial frauds simply because they fail to consider necessary measures to revert the situation. Some of the steps that need to put in mind while performing the auditing and accounting functions are adhering to the ethical code of behaviour. The reviewing procedures are often not applied effectively and the level of independence is to large extent ignored thus the emergence of financial frauds.
Report contains the details related to the internal control for accounting system of A to Z Vehicle Company. The reports contains various ways to prevent the accounting system in the company and various aspect to prevent fraud in the system. Internal control is done used as preventive measures for the irregularities along with difficulties faced by organization. Moreover, in the following case there are errors which needed to be resolved within the time limit. Secondly, details are used to analyse of financial data whether frauds are committed by the workers or not, or ways to control and minimized them.
- Horvat, T. and Lipičnik, M., 2016. Internal Audits of Frauds in Accounting Statements of a Construction Company. STRATEGIC MANAGEMENT.
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- Schroeder, J.H. and Shepardson, M.L., 2015. Do SOX 404 Control Audits and Management Assessments Improve Overall Internal Control System Quality?. The Accounting Review.
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