92.1 12 marker Flashcards
Trade payables inventory payroll insurance
Trade payable days at 31 October 20X0 were 48.4 days. Hortication is expected to pay suppliers
within 30 days of the invoice date under the terms of sale.
Trade payables are paid, on average, 18 days after the required period.
Late payment increases the risk of damaging supplier relationships.
The company will not benefit from early settlement discounts and may incur interest charges.
Suppliers may impose tighter credit terms or refuse to supply goods.
This could result in stockouts causing disruption and threatening the viability of the business.
Recommendations
A designated individual should be responsible for tracking the due dates of payment.
This will enable payments to be made on time and allow the company to take advantage of
early payment discounts when cash flow allows.
If cash flow is a problem, management should formally negotiate extended credit terms.
When receiving deliveries of inventories, warehouse staff manually complete a goods received
note (GRN) after checking the quantity and type of goods to the supplier’s delivery note. The
goods are also checked for quality. However, no other checks are performed. Each day, GRNs
are sent by mail (ie, in the post) to the accounts department at Hortication’s head office located
100 miles away. The accounts department updates the inventory and accounting records on
receipt of the GRNs.
Goods delivered by suppliers are not checked to a purchase order.
Goods received notes are sent to head office by post.
The quantity and type of goods delivered may not have been those ordered.
Goods received notes could be lost/delayed resulting in:
* outdated inventory records
* ill-informed management decisions
* difficulties in matching the purchase invoice with the goods received note.
Recommendations
Copies of outstanding purchase orders should be available in the warehouse.
Goods received should be matched with the order for correct type and quantity of goods.
Goods received notes should be sequentially numbered and the sequence subsequently
checked for completeness.
Introduce an integrated computerised system which lists outstanding orders to be checked by
warehouse personnel on receipt of inventories.
ICAEW 2022 December 2020 exam questions 549
Sequentially numbered goods received records to be generated automatically and inventory
records updated immediately.
The payroll manager has been on sick leave since August 20X0. The human resources manager
has taken on his duties until a temporary member of staff with payroll experience can be
recruited.
There is lack of cover for critical staff during periods of absence.
The roles of payroll manager and HR manager are currently being performed by one
individual (lack of segregation of duties) who may be inexperienced in payroll processing.
The lack of segregation of duties between the HR and payroll functions may result in the
misappropriation of funds through the setting up of ghost employees on the payroll or
inflating pay rates.
A lack of experience may result in payroll errors resulting in under/overpayment of employees
and under/overpayments to the tax authorities.
A member of staff should be trained to perform the role of payroll manager to ensure that
there is cover during periods of absence.
Payroll should not be performed by HR personnel – it should be processed by a separate
department.
External support should be brought in immediately to undertake the payroll manager’s role
until they return.
On 20 October 20X0, a customer sustained a head injury at one of Hortication’s stores, when a
shop fitting collapsed on him. On 2 November 20X0, Hortication received a letter from the
customer’s solicitor stating that the customer was taking legal action against it, claiming
£250,000 for injuries sustained and loss of future earnings.
The directors have not provided for or disclosed this claim in the financial statements for the year
ended 31 October 20X0 as they intend to fight it. Further audit work identified that Hortication’s
public liability insurance policy expired on 30 September 20X0. Due to an oversight, the
insurance policy was not renewed.
Hortication’s draft financial statements for the year ended 31 October 20X0 show profit before
tax of £2.4 million and total assets of £12.3 million.
The business-critical process of renewing the public liability insurance policy was not
performed.
There is a possibility that health and safety procedures are inadequate.
The lack of insurance exposes the business to liabilities which it will have to fund from its own
resources.
This could affect its ability to continue as a going concern.
The faulty shop fittings may not be an isolated incident and could lead to further accidents and
claims from customers.
The company may be subject to an investigation by the health and safety regulator which may
lead to fines.
There may be adverse publicity following any investigations or legal claims which will have
reputational repercussions.
Recommendations
Insurance policies should be set up for automatic renewal unless there is manual intervention
to prevent renewal.
Renewal reminders should be an annual standing item on board meeting agendas in the
month before renewal.
A designated individual should be responsible for health and safety issues and ensure that
premises are regularly inspected followed by formal reporting to the board of directors.
