Lecture%203

Lecture%203 - Week 3 Cash and receivable 1 Content Internal...

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1 Week 3 Cash and receivable
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2 Content Internal control Bank reconciliation Accounts receivables Notes receivables
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3 1. Internal control
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4 Internal Control Organizational plan and all related measures that an entity adopts Safeguard assets Encourage adherence to company policies Promote operational efficiency Ensure accurate and reliable accounting records
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5 Components of an effective system Competent, reliable, and ethical personnel Assignment of responsibilities Proper authorization Separation of duties
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6 Audit Examination of company’s financial statements accounting systems, and internal controls, by an outside party Internal auditor - employee of the business External auditor - independent
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7 Limitations of Internal Control Collusion - two or more employees working together to defraud the firm A system of internal control that is too complex can hurt efficiency and control
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8 Bank Accounts as Controls All cash should be deposited into a bank account daily. To draw money from the account, a check is written Three parties to a check: maker – signs the check payee – to whom the check is written bank – on which the check is drawn Remittance advice is an optional attachment that gives the reason for the payment. Monthly bank statements are sent to the account holder and should be reconciled.
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ST ShengFang ( 圣方 ) 000620 • 2005.4: Chairman, Li Tang, flees with 10 Million RMB with a company car. • 2005. 5: A new chairman, Hongqi Li, was appointed
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What happened? 2004: Bribe the auditor with RMB 15,000 to cover up a cost of RMB 23 M and as a result report a net profit. Account record is not complete: incomplete record for board meeting and CEO’s work Incomplete record for guarantee and/or loans loans Incomplete record of litigation Incomplete record for AR/AP Incomplete record for PPE NO announcement for event which is required to be announced Even owe to media and Shenzhen exchange 0.6 M and 2 M
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11 2. Bank reconciliation
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12 the firm is allowed to pay more out of the bank account, by paying out cheque, than its deposit there would be a credit balance in the bank account shown as current liability in the balance sheet Bank overdraft
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13 Bank Reconciliation Two independently maintained records of a business’s cash deposited in a bank e.g. HSBC current account (1) In the books of the company - Bank account (2) Prepared by the bank – The bank statement Differences between the two records generally arise because of timing differences. Reconciliations ensure that the two records agree.
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14 A statement reconciles the differences between the bank balance in the books of the company’s account and the bank statement issued by the bank Bank Reconciliation statement
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