UNIVERSITY OF JOHANNESBURG
DEPARTMENT OF ACCOUNTANCY
AUDITING 300/BCTA
ASSESSMENT OPPORTUNITY 3
SOLUTION
,QUESTION 1
(a) Based on the capital expenditure system described in Working paper C200,
identify the control weaknesses and controls that can be implemented
using the format below.
Control weakness Control to be implemented
WEAKNESS CONTROL TO BE IMPLEMENTED
1. The acquisition (investment in) fixed 1.1 The company should appoint a Fixed
assets is not planned. (1) Asset Committee consisting of senior
1.1 There is no evaluation of whether experienced management which will
the items purchased by the five be responsible for
Sectional Accountants are 1.1.1 evaluating the need for the
required. (1) purchase of capital
1.2 Any member of the section can expenditure. (1)
request equipment without 1.1.2 and evaluating how capital
providing proper motivation. (1) expenditure will be
1.3 This is going to result in money financed. (1)
being wasted on equipment which 1.2 All requests for fixed assets from
is not required or not suitable for sections and individuals within a
the needs of the section must be fully motivated.
company. (1) (1)
1.4 It also provides an opportunity for 1.3 The Fixed Asset Committee should be
misappropriation of equipment by responsible for preparing an annual
employees. (1)
capital expenditure budget (see
below). (1)
WEAKNESS CONTROL TO BE IMPLEMENTED
, 2. The budgeting process is totally 2.1 place
A proper budgeting for capital
ineffective. (1) 2.1.1
expenditure system should be put in
2.1 Simply increasing the prior year
budget by an index has resulted each section should carefully
in sections being allocated money evaluate their actual capital
which they do not require and expenditure needs (and
which will be wasted. (1) planned disposals) for the
2.2 This weakness is compounded upcoming year. The budget
by the fact that sections are 2.1.2 should not be based on
“punished” for not spending their adjusted prior year figures. (1)
allocation by having their budgets the sectional budgets should
reduced. (1) be submitted to the Fixed Asset
2.3 This is evidenced by the fact that Committee for their approval
the sections rush to spend their which should only be given
allocations before the financial after careful consideration of
year-end resulting in many items * the motivation for the
of equipment lying about expenditure (1) *
unopened/unused. (1) alternatives (1)
* the overall budget for the
business and other
sections (1)
* company cash flows
(1)
2.1.3 should an item which appears
in the budget not be required, it
should not be purchased. (1)
2.1.4 there should be ongoing
comparison of actual capital
expenditure to budgeted
expenditure. (1)
WEAKNESS CONTROL TO BE IMPLEMENTED
DEPARTMENT OF ACCOUNTANCY
AUDITING 300/BCTA
ASSESSMENT OPPORTUNITY 3
SOLUTION
,QUESTION 1
(a) Based on the capital expenditure system described in Working paper C200,
identify the control weaknesses and controls that can be implemented
using the format below.
Control weakness Control to be implemented
WEAKNESS CONTROL TO BE IMPLEMENTED
1. The acquisition (investment in) fixed 1.1 The company should appoint a Fixed
assets is not planned. (1) Asset Committee consisting of senior
1.1 There is no evaluation of whether experienced management which will
the items purchased by the five be responsible for
Sectional Accountants are 1.1.1 evaluating the need for the
required. (1) purchase of capital
1.2 Any member of the section can expenditure. (1)
request equipment without 1.1.2 and evaluating how capital
providing proper motivation. (1) expenditure will be
1.3 This is going to result in money financed. (1)
being wasted on equipment which 1.2 All requests for fixed assets from
is not required or not suitable for sections and individuals within a
the needs of the section must be fully motivated.
company. (1) (1)
1.4 It also provides an opportunity for 1.3 The Fixed Asset Committee should be
misappropriation of equipment by responsible for preparing an annual
employees. (1)
capital expenditure budget (see
below). (1)
WEAKNESS CONTROL TO BE IMPLEMENTED
, 2. The budgeting process is totally 2.1 place
A proper budgeting for capital
ineffective. (1) 2.1.1
expenditure system should be put in
2.1 Simply increasing the prior year
budget by an index has resulted each section should carefully
in sections being allocated money evaluate their actual capital
which they do not require and expenditure needs (and
which will be wasted. (1) planned disposals) for the
2.2 This weakness is compounded upcoming year. The budget
by the fact that sections are 2.1.2 should not be based on
“punished” for not spending their adjusted prior year figures. (1)
allocation by having their budgets the sectional budgets should
reduced. (1) be submitted to the Fixed Asset
2.3 This is evidenced by the fact that Committee for their approval
the sections rush to spend their which should only be given
allocations before the financial after careful consideration of
year-end resulting in many items * the motivation for the
of equipment lying about expenditure (1) *
unopened/unused. (1) alternatives (1)
* the overall budget for the
business and other
sections (1)
* company cash flows
(1)
2.1.3 should an item which appears
in the budget not be required, it
should not be purchased. (1)
2.1.4 there should be ongoing
comparison of actual capital
expenditure to budgeted
expenditure. (1)
WEAKNESS CONTROL TO BE IMPLEMENTED
