Grade 12 Internal auditor’s report on procedures and internal controls in a public company Guide

Grade 12 Internal auditor’s report on procedures and internal controls in a public company (Guide): Task A Answer Guide:

Accounting Grade 12: Internal Auditor’s Report on Procedures and Internal Controls

This guide is designed to help you with your Accounting Grade 12 subject revisions, tests, exams, and assignments. Specifically, it focuses on the Grade 12 Internal Auditor’s report on procedures and internal controls in a public company.

Scenario

You have been appointed as the internal auditor of Exotic Clothing Ltd, a new public company that is about to be established. The company will buy all stock on credit, sell for cash, and allow customers to buy on credit as well. It is expected to have approximately 1,000 shareholders. The CEO has asked you to prepare a report on specific procedures that should be implemented in the company.

The company currently has four employees in the Accounting department:

• Tom will manage fixed assets.
• Maisy will control trading stock.
• Bheki will handle debtors (accounts receivable).
• Shamila will oversee cash resources.

Your Report Should Include the Following

1. Procedures to Establish the Company

• Draft and file the company’s Memorandum of Incorporation.
• Register the company with the Companies and Intellectual Property Commission (CIPC).
• Open a corporate bank account.
• Obtain necessary licenses and permits.
• Set up a financial management system.

1. Records for Each Shareholder

• Maintain a shareholder register with details such as name, contact information, and number of shares held.
• Keep records of shareholder agreements and transactions.
• Ensure records are updated regularly to reflect any changes.
• Reason: Accurate records ensure proper communication with shareholders, compliance with legal requirements, and transparency in ownership.

1. Procedures for Good Internal Control

• Fixed Assets:
  • Implement a fixed asset register to track asset acquisition, depreciation, and disposal.
  • Conduct regular physical verification of assets.
  • Ensure proper authorization and documentation for all asset transactions.
• Trading Stock:
  • Establish an inventory management system to track stock levels and movements.
  • Perform regular stock counts and reconcile with inventory records.
  • Implement controls to prevent theft and loss, such as security measures and restricted access to stock areas.
• Accounts Receivable (Debtors):
  • Maintain detailed records of all credit sales and outstanding balances.
  • Set up credit policies and perform credit checks on new customers.
  • Monitor receivables regularly and follow up on overdue accounts.
• Cash Collected:
  • Implement procedures for handling cash receipts and deposits.
  • Conduct regular cash reconciliations and audits.
  • Ensure segregation of duties to prevent fraud and errors, with different employees handling cash collection, recording, and banking.

These steps and procedures will help ensure that Exotic Clothing Ltd has strong internal controls and operates efficiently and transparently.

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