Table of content

1.0 Introduction.................................................................................................2

2.0 Findings........................................................................................................3

2.1 Explain the purpose and use of the different accounting records and discuss whether

it is possible for AC Décor to keep all the transaction record online.......................................3

2.2 The importance and meaning of the fundamental accounting concepts applicable in

the scenario...............................................................................................................................6

2.3 The factors which might influence the nature and structure of accounting systems of

AC Décor...................................................................................................................................8

2.4 The relevant component of business risk, details of the possible effect or implication

of such weakness/risks and recommendations for improvement...............................................9

2.5 The duties, status and the liability of external auditors..............................................13

2.6 The relationship between the internal and external auditors and comments on Mr.

Lam expression on the external auditors................................................................................16

3.0 Conclusion..................................................................................................18

4.0 Reference....................................................................................................19

1

1.0 Introduction

AC Décor is a company that manufactures furniture and sells to wholesalers and

corporate customers. AC Decor has a strong brand name and record high turnover for several

years. In year 2008, the company has achieved annual turnover of USD2 million. AC Décor

plans to expand the business and in the process of acquiring financing from Agro bank.

Mr. Lam, the operating manager, indicates that all the operation such as the company

requisition, purchase system, good received, invoice receipts and payments system are done on

manual basis and all records were kept in hard copy. However the company plans to install the

computerized accounting system to improve the operation. The introduction of the

computerized accounting system is hoped to reduce the amount of paperwork.

As an internal auditor of AC Décor, in this report, the purpose and use of different

accounting records as well as the possibility for company to keep all the transaction record

online will be discussed to deal with the problem that AC Décor is facing. The important and

meaning of the fundamental accounting concepts will also be explained. In the report, I will

assess the factors which might influence the nature and structure of accounting systems of AC

Décor. Moreover, the relevant components of business risk, details of possible effect of such

risks are going to be identified. In the third part, the duties, status and the liability of external

auditors and the relationship between internal and external auditors will be described.

2

2.0 Findings

2.1 Explain the purpose and use of the different accounting records and discuss

whether it is possible for AC Décor to keep all the transaction record online.

Purpose and use of different accounting records

In any company, especially, AC Décor, there are many kinds of accounting records that

involve sales or purchase, receiving or paying money, owning or being owed many.

The cash book is a day book which is used to keep cumulative record for money

received and money paid out by AC Décor. The money which is paid into or out of the

company’s bank account is also recorded in the cash book. According to Edexcel HNC/HND

Business (2004), there are also receipts and payments made by bank transfer, standing order,

direct debit, bank interest and charges. The receipts of cash are recorded in one part of the cash

book and another part is used to record the payment.

Sales day book is used to keep a list of all invoices sent out to customers each day.

From the information in the sales day book, the AC Décor managers can analyze the

company’s sales. In addition, this analysis is useful business information for the AC Décor

managers to device how they will run the company. On the other hand, the ‘sales ledger folio’

in sales day book is a reference to the sales ledger.

Beside that, the accountants have to open a purchase day book to keep and analyze all

the invoices received. Like the sales day book, the ‘purchase ledger folio’ is a reference to the

purchase ledger.

In accordance with Edexcel HNC/HND Business (2004), “the nominal ledger or general

ledger is a file, binder or some other device which contains all the separate accounts of a

business”. It means that nominal ledger is an accounting record which summarizes the financial

affairs of the company. The general ledger includes the details of assets, liabilities and capital,

income and expenditure, profit and loss. It involves a great number of different accounts which

have its own name, code or purpose. Through the nominal ledger, AC Décor managers can

measure the flow of income and expenditure into assets and liabilities accurately. From that, the

profitability will be calculated and monitored.

It is known that the sales day book keeps a time order record of invoices sent out by the

AC Décor to credit customer. However, with sales day book, a customer may appear in

3

different places. That will be difficult to control whether customers owe company’s money or

not. In the sales ledger, we also see the chronological record of invoices. In addition, the

information of how much money each individual credit customer owes and what this total debt

consists of are also recorded in the sales ledger. In this, each customer is given a separate

reference or code number. Due to the records of the amounts paid by customer in the sales

ledger, it is easy to identify the money owed to AC Décor. It's a useful business-planning tool

to enable company to monitor and chase slow payers and find out which customers are most

profitable. All customers who owe company’s money should remain on the ledger until they

pay their debt completely.

Purchase ledger keeps the record of how much company owes each supplier. Each

individual supplier has separate account in the purchase ledger. In overall, the purchase ledger

records all purchases made by the AC Décor. By using purchase ledger, company can control

the business’s outgoings and how much company owes at that time. Moreover, with purchase

ledger, the most regular supplier and the amount that company has spent with each will be

identified and recorded. Therefore, any creditors should remain on the purchase ledger system

until payment is made.

As we see that the roles of sales ledger and purchase ledger are quite similar. The only

different is that sales ledger records the invoice sent out; while, purchase ledger deals with

invoices received. The purpose of both of them is also similar because sales ledger comprises

the personal accounts for credit customers, and purchase ledger comprises the personal

accounts for creditors.

Comment for AC Décor on possibility of keeping records online.

According to Mr. Lam, the operating manager of AC Décor, all the operation such as

the company requisition, purchase system, good received, invoice receipts and payments

system are done on manual basis and all records were kept in hard copy. However the company

plans to install the computerized accounting system to improve the operation. The introduction

of the computerized accounting system is hoped to reduce the amount of paperwork. It is

considered that installing computerized accounting system will have many advantages as well

as disadvantages.

Compared with the manual record, the computerize record will reduce the volume of

work for the accountants. With the computerized accounting system, a large amount of data can

4

be processed and handled quickly and the result is more accurate then the manual accounting

system. Hence, the error which easily to face in manual system will be reduced. In addition, if

an entry in one of the ledgers is put in, it will automatically updates to the others. The

computerized accounting system also automatic produce documents and reports as well as

extract the required data from relevant files. Due to the speed of processing, when the data has

been input, the computerized system will analyze very rapidly to bring out useful information

to the manager of AC Décor. Therefore, the reporting and decision making will be improved.

With the faster response time, we can save time to do other work.

However, when installing computerized accounting system, AC Décor may face some

problems. Firstly, company needs to spend time and cost to install the system and training

personnel. Moreover, just some people have the authority to assess the system and data files

such as the managers, the accountants, and internal auditors of AC Décor. Thus, a system of

coding and checking needs to be developed. Each person will have different code to assess the

system, and different people have separate authority or rights in using the computerized

accounting system. Beside that, it is hard to find out where and how the mistakes have been

made in the system. It is also necessary to check the system regularly due to the existence of

viruses, hackers…Using computerized accounting system increases highly possible risks of

loosing information. Thus, with important information or transaction, the AC Décor

accountants should print it out and keep in hard copy.

Therefore, AC Décor should install the computerized accounting system. However,

company still needs to record and keep the hard copy in anticipation of failed system or power

failure.

5

2.2 The importance and meaning of the fundamental accounting concepts applicable

in the scenario

In order to prepare accounts for AC Décor Company, the accountants have to follow

four fundamental accounting concepts such as going concern, prudence, accruals and

consistency; and four additional concepts: separate valuation, materiality, money measurement

and entity.

Todd, P. (2000) indicated that, “The going concern concept simply means that the

Financial Statements have been prepared on the assumption that the company will remain in

operational existence for the foreseeable future”. That means there is no intention to close

down AC Décor Company and cut the scale of operations. Therefore, accountants of AC Décor

need to prepare financial statements such as Profit and Loss Account and the Balance Sheet for

the next accounting period which means next twelve months or 6 months.

According to Edexcel HNC/HND Business (2004), the prudence concept has been seen

to mean that in selecting between alternative procedures, or alternative valuations, the one

selected should be the one which gives the most cautious presentation of the AC Décor

financial position. Thus, provision should be made for all known expenses and losses but it

should not be too high or too low. Based on that, the accountants of AC Décor need to choose

the one that results in a lower profit, a lower asset value and a higher liability value, whenever

there are alternative procedures or values.

The accruals concept states that revenue earned must be matched against the

expenditure incurred in earning it (Edexcel HNC/HND Business, 2004). The purpose of this

concept is to make sure that all revenues and costs are recorded in the appropriate statement at

the appropriate time. For example, the cost of goods sold relevant to the sales need to be

recorded accurately and in full in the income statement of AC Décor. Based on Sift Media

(2002), costs concerning a future period must be carried forward as a prepayment for that

period and not charged in the current profit statement. For example, payments of AC Décor

made in advance such as the prepayment of rent would be treated in this way.

As regard the consistency concept, there must be a consistent application of accounting

policies, both within an accounting period and from one period to the next. The consistency

concept requires that in preparing accounts consistency should be observed in two respects:

6

similar items in a set of account must be treated in similar way. In addition, for similar items,

the same treatment should be applied form one accounting period to another in order to

compare between two periods. However, with the development of accounting practices, the

accounting policies will be adopted and AC Décor is required to disclose fact and explain the

impact of any change.

In accordance with Edexcel HNC/HND Business (2004), the separate valuation

principle states that, in deciding the amount of an asset or liability in the balance sheet, each

component item of asset or liability must be valued separately. The separate valuations must be

aggregated to arrive at the total figures.

Besides, the materiality concept is an important issue toward internal auditors of AC

Décor. It indicates that a significant or important or particular matter in the context of financial

statements influences the decisions made by financial users. There is no absolutely

measurement of materiality. In common, to determine material items, a convenient rule of

thumb will be applied; for example, material items are those with a value greater than 5% of the

profit disclosed by the accounts.

In the money measurement concept, the AC Décor accountants can only do with the

items that can be qualified in monetary value. Thus, things like workforce skill, morale, AC

Décor brand recognition, quality of management…can not be accounted for. In fact, the assets

that can not be qualified in monetary terms are not less important than the one which can be

expressed in monetary terms.

The entity concept is an important term toward AC Décor. On the other hand, the entity

concept applies for not only limited company but also proprietorship or partnership. The

concept states that accounts are kept for entities and not the people who own or run the

company (Money Instructor, 2005). Therefore, AC Décor is an independent entity and does not

be affected by the management of AC Décor.

7

2.3 The factors which might influence the nature and structure of accounting systems

of AC Décor

The nature and structure of AC Décor accounting system is influenced by both the

company’s size and structure.

AC Décor operated in Hanoi with 30 employees and overseeing by Mr. Lam as

Operating Manager. Thus, the business size of company is quite small and simple. With the

small size, the accountants do not have a larger number of work as well as the amount of

transactions. It means that the number of accounts and records is small. Thus, AC Décor only

needs a simple accounting system to control accounting activities. When AC Décor expands the

business, the size will be bigger. At that timer, a bigger and more complex accounting system

will be required.

According to the scenario, we see that, AC Décor has purchase department, buying

department, and also accounting department, hence the structure of AC Décor is functional

structure. Each department is responsible for different functions, but they relate and support the

others. As respect to AC Décor, each department is controlled and managed by a supervisor,

then; the supervisor is controlled directly by the manager, Mr. Lam. Therefore, the hierarchy of

authority in AC Décor is also simple. That means company has a flat structure.

Beside that, inside the company, there are three main types of authority that the

department may have: line authority, staff authority and functional authority (Edexcel

HNC/HND Business, 2004). Line authority is the authority a manager has over the subordinate.

Staff authority is the authority that one department may have in giving specialist advice to

another department. The functional authority is the authority of a manager or department to

direct, design and control activities or procedures of another department. Based on that, the

accounting department of AC Décor may have the line and staff authority.

In overall, we see that, due to the influences of the small business size, the functional

and flat organizational structure, the accounting system of AC Décor will be simple.

8

2.4 The relevant component of business risk, details of the possible effect or

implication of such weakness/risks and recommendations for improvement

In accordance with Edexcel HNC/HND Business (2004), there are three types of risks:

operational risk, financial risk and compliance risk. Operational risk is the chances of errors or

mistakes being made within the operations of the company. For instance, if there is no

department controls the requirement of purchasing fixed assets, amount of fixed assets that

company does not require may be purchased. Financial risk covers all the risk of incorrect

payment which are made or not all due receipts being collected. The compliance risk is the

overall risk that company will not comply with the entire legal requirement laid out in the

Companies Act.

Based on that, we will identify the relevant risks of AC Décor in the scenario. The

purchase process and procedure are analyzed for this problem. Through the purchase procedure

in the scenario, there are three main phases: issuing purchase requisition form, checking goods

and recording and payment.

As respect to the first step, the issuing purchase requisition form, the procedure is

described in the below chart.

Head storekeeper

Retained

Buying Department

Two-part purchase

requisition form

9

According to the scenario, purchases are normally requisitioned by the head storekeeper

who fills out a two-part purchase requisition form. Through the chart, one part of the purchase

requisition is sent to the buying department and one part is retained by the storekeeper. The

head storekeeper may make mistakes of filling the purchase requisition form; thus, the amount

or type of good purchasing may be wrong. However, with two parts purchase requisition form,

the buying department may check again the information of the purchase requisition. Therefore,

this operational risk will be avoided.

When head storekeeper is absent, purchase requisitioned form are filled by the

respective department and one copy is left on the storekeeper desk for filing purposes. In the

case that the copy of purchase requisitioned form loose, the operational risk may happen. In

addition, the respective department may forget to fill the copy form or notice the head

storekeeper about the existence of purchase requisitioned form; thus, the head storekeeper will

not know about the purchase. In order to avoid that risk, the respective department needs to

make another copy of purchase requisitioned form and send it to the head storekeeper when

he/she comes back. The head storekeeper will compare it with another copy that he received

and the fact. He should sign a document to confirm that he received the purchase requisitioned

form.

Occasionally, when the goods are required urgently, Supervisors in Production

department did the ordering themselves over the phone and fills up the purchase requisition

form when the goods or invoices arrived. In this situation, the operational risk will occur if the

Respective Department

Head storekeeper desk

Buying Department

Two-part purchase

Authorized by Mr. Lam

Purchase Department

A two-part pre-numbered purchase order

Suppliers

(Head storekeeper is absent)

10

production department did not fill the purchase requisition form or forget to notice the head

storekeeper. In such circumstance, when the risk happens, it will be difficult to find out. Thus,

right after production department did the ordering themselves over the phone, they have to fill a

two-part purchase requisition form; one is kept for themselves, one is sent to the head

storekeeper. On the other way, after they did the ordering, they can ask the head storekeeper to

fill the purchase requisition form and sent one copy for them. AC Décor should provide a

multipart document including all the requirements for purchasing procedure and sent the copy

to relevant departments or people. Hence, a person will have the responsibility to examine the

performance of those departments. It is also a segregation of duties to the work of head

storekeeper.

The purchase department raises a two part pre-numbered purchase order; this is

authorized by Mr. Lam. One copy is sent to the supplier, the second is filed in the buying

department. With this method, both supplier and AC Décor can check and control, thus, it will

avoid the risk.

The second stage is good checking. Goods are received by the head storekeeper who

checks the quantity of goods, against the purchase requisition form. Therefore, the head

storekeeper can control whether the number of goods they received equal to the goods that they

ordered.

On the occasion that purchase requisition form is not being issued, Supervisor from

Production Department is called to verify the order and filled up the requisition form on the

spot. With this action, the control all the purchase requisition form in order to compare with

the fact.

Providing that the quality is acceptable the storekeeper signed the delivery order and

stapled one copy with the purchase requisition for filing. This is a good step of AC Décor to

control the goods received. In addition, it also reduces the risk that company may face. The

stock received then delivered to the respective department that requested it.

The below chart shows the process of recording and payment of AC Décor to the

suppliers.

11

Purchase invoices are received by the accounts department payable clerk enters the

details in the purchase daybook before filing the invoice an unpaid invoice file. From that, the

clerk can verify the paid invoices and unpaid invoices. Thus, financial risks of missing

invoices, or confusing paid and unpaid invoice are avoided.

Totals from the purchase daybook are posted to the nominal ledger monthly and details

are posted to the purchase ledger weekly. A list of purchase ledger balances in produced

monthly by the payable clerk. With these steps, AC Décor can reduce the compliance risks. It is

easily for company to give their analysis or decision of financial position.

Payments to the supplier are made at the end of the month from the unpaid files. Clerk

will remove the unpaid invoices and stamp them PAID and write the check accordingly. The

cheques and invoices are passed on to the accountant and the operating manager for signing.

All the steps are performed carefully; hence, the financial risks are prevented. In the case that

the clerk colludes with the suppliers, possible frauds can be overcharging on purchase invoices.

Thus, the AC Décor management should watch out for unusual discounts or commissions being

given or taken. In addition, no attempts have been made to reconcile the unpaid invoice with

the purchase order from purchase department. Thus, some unpaid invoices will not be passed to

the managers or the information in the invoice may not be the same as the purchase order and

Purchase invoice

Account department payable clerk

Purchase day book

Nominal Ledger

Monthly

Purchase Ledger Unpaid invoices file

Remove unpaid invoices and stamp them PAID (end of month)

Accountant and the operating manager for signing

No reconciliation

Weekly

12

the real stock. Therefore, the reconciliation of the unpaid invoice with the purchase order from

purchase department needs to be taken at the end of each month.

According to the scenario, statement from supplier were received on monthly basis and

filed in the respective supplier files. If supplier complaints any particular invoices have not

been paid, clerk will check in the unpaid invoices files. If found missing, clerk will request

supplier to issue new invoice and make payment accordingly. The clerk lists all cheques raised

and passes this list to cash book clerk who enters the details into the cash book weekly and

posts the details to the purchase and nominal ledgers monthly. This procedure of AC Décor is

quite good and can avoid the possible risks.

2.5 The duties, status and the liability of external auditors

The duties and status/rights of external auditors are set and referenced from ss 235 and

237 of the Company Act 1985.

Duties of external auditors

According to the Company Act 1985, the duties of auditors are to report on truth and

fair view of every balance sheet and profit and loss account laid before the company general

meeting. The auditors have to report their opinion on whether the statements have been

prepared in accordance with the relevant legislation and whether they give a true and fair view

of the profit or loss for the year and state of affairs at the year end.

Beside that, the auditors have duty to form an opinion on certain other matters and to

report any reservations (Spenford IT Ltd, 2006). There are some factors that the external

auditors must consider. Firstly, the auditors need to see whether the company has kept proper

accounting records and the accounts agree with the accounting records and returns or not. In

addition, all the information and explanations that the auditor considers necessary for the

purposes of the audit have been obtained and they have had access at all time to the company’s

books, accounts and vouchers.

The detail of directors’ salary, compensation and other benefits has to be shown

correctly in the financial statement as well as the particulars of loans and other transactions in

favor of directors. Moreover, the information which is given in the directors’ report should be

appropriate with the accounts. If any of six above factors is not true, the external auditors have

the duties to report. Therefore, the auditor is required to apply ‘reasonable skill and care’ in

13

conducting the audit. In accordance with Spenford IT Ltd (2006), the auditor has a limited duty

to review the other information issued alongside the audited financial statements.

Status of the external auditors

Based on the Companies Act 1985, the external auditors have six main status/rights

(Edexcel HNC/HND Business, 2004). The external auditors have the right to access at all times

to the books, accounts and vouchers of the company. They also can require from company’s

staff the information and explanations which they think necessary for the performance of their

duties.

The external auditor has the right “attendance at/notices of general meetings”. Thus,

they can attend any general meetings of the company. Moreover, they may receive all notices

of and communications relating to the meetings as any member of the company. Followed the

Companies Act 1985, the auditors have the right to speak at the general meetings which they

attend on any part of the business that concerns them as auditors. In addition, they have the

rights in relation to written solution. That means they can receive a copy of any written

resolution proposed. The external auditors can give notice in writing to require a general

meeting be held for the purpose of laying the accounts and reports before the company.

Liabilities of the external auditors

The external auditors are liable under both law of contract and law of tort. Under law of

contract, both express and implied terms affect upon external auditors.

According to Edexcel HNC/HND Business (2004), as usual, the express terms of the

audit contract can not over-ride the Company Act by limiting the company auditors’ statutory

duties or imposing restrictions upon the statutory rights which are designed to assist them with

discharging the duties. However, if the auditors and company agree that the auditors’

responsibilities should be extended beyond the term set by the Companies Act, express term

will be significant. In these situations, the auditors have high risk to be judged on the content of

the report that they issued. Therefore, they should ensure that their report is clear and the

impact of any limitations that there have been upon their extent and scope of work.

As regard to implied terms, they are unstated but the law will impart into the contract.

There are three factors that should be concerned: the auditors have a duty to exercise reasonable

care; the auditors have duty to carry out the work required with the reasonable expediency and

the auditors have a right to reasonable remuneration (Edexcel HNC/HND Business, 2004).

14

The auditors’ duty of care is set under the Supply of Goods Act 1982. Thus, the external

auditors should use accepted auditing techniques and act honestly and carefully. It is considered

that if auditors form an opinion carefully, they must give due consideration to all relevant

matters. However, if the opinion is not reasonably competent, the auditors may be held

negligent.

According to Millichamp, A. H. (2002), negligence is “some act or omission which

occurs because the person concerned (an external auditor) fail to exercise that degree of

reasonable skill and care which is reasonably to be expected in the circumstance of the case”.

There are three matters must be proved: ‘duty of care’ which states there existed a duty of care

enforceable at law; ‘negligence’ that means the auditors were negligent in the performance of

that duty; and ‘damage’ – the client has suffered some monetary loss as a direct consequence of

the negligence on the part of the auditors.

The external auditors may be liable for negligence not only in the contract but also in

tort, in the circumstance that a person to whom he/she owed duty of care has suffered loss as a

result of his/her negligence. In common, the external auditors owe the duty of care to his/her

own client; for instance, the case of Caparo Industries plc v Dickman & others 1990, Hedley

Byrne & Co Ltd v. Heller & Partners 1963. However, the decisions of the courts appeared to

expand the classes of case in which a person professing some special skill (as the external

auditor) may be liable for negligence to someone other than his/her own client.

15

2.6 The relationship between the internal and external auditors and comments on Mr.

Lam expression on the external auditors.

In the scenario, Mr. Lam has advises that Agro Bank will engage external auditors to

audit the company before making decision on AC Décor loan application. He said “We need to

get everything in order before the external auditor comes and poke their nose into everything”.

Therefore, understanding the relationship between the internal and external auditors is very

important.

In accordance with Millichamp, A. H. (2002), the internal and external auditors has

some common interests. Both internal and external auditors focus on evaluating the

effectiveness of the internal control and continuous effective operation of the system. They

also interested in adequate management information flow, asset safeguarding and adequate

accounting system. Moreover, they both need to ensure the compliance with statutory and

regulatory requirement.

Besides, there are some important different between the nature of internal and external

auditors. The external auditors are independent toward AC Décor, while the internal are

determined by the company management. The internal auditors are answerable only the

management; whereas, the responsibility of external auditors is fixed by the statue. In addition,

the external auditor is responsible to the shareholders or even to the wider public. As respect to

internal auditors, they report to the AC Décor management; however, the external auditors will

report their work to the members, shareholders. The external auditors concentrate on expressing

the truth and fairness of the accounts; while, internal auditors have a large number of activities

including the appraisal of the internal control system and the management information system.

Because, Mr. Lam has said that he wanted to get everything in order before the Agro

Bank external auditors came. Thus, we need to consider the relationship between internal and

external auditors or in which occasion; the external auditor from Agro Bank would coordinate

with the internal auditors of AC Décor. The Agro Bank external auditors may require some

periodic meetings with the AC Décor internal auditors to plan the overall audit ensure to ensure

adequate coverage. Some other meetings will be hold for discussing matters of mutual interests

which are mentioned above. Internal and external auditors will together access to audit program

16

and working papers, exchange the audits report and management letters and develop the audit

techniques, methods and terminology (Edexcel HNC/HND Business, 2004).

On the other hand, due to the importance of the internal control system and the common

objectives of internal and external auditors, the external auditors may rely on the work of the

internal auditors. The Agro Bank external auditors can use the work of AC Décor internal

auditors in two ways: by taking into account the work done by the internal auditors; and by

agreeing with management that internal audit will render direct assistance to the external

auditors (Millichamp, A. H., 2002).

However, to place and rely on the work of AC Décor internal auditors, the Agro Bank

external auditors have to assess the internal auditor and his work. Firstly, the external auditors

need to ensure that the internal auditor whom they place reliance must be independent and be

able to communicate freely with the external. They also evaluate whether the scope and

objectives of the internal audit function areas such as accounting systems and internal control

or financial and operation information to manager, are useful for them. The work of the AC

Décor internal auditor should be done in a professional manner to be useful for the Agro Bank

external auditors. In addition, the external auditor must assess if membership of a professional

body with its competence and ethical implications is desirable (Millichamp, A. H., 2002). The

internal auditor needs to provide high standard report and the internal audit department should

be useful to the external auditors. If AC Décor internal audit department achieves the entire

requirement, the Agro Bank external auditors will use the work of internal auditors.

Because Mr. Lam wants the Agro Bank external auditors has a good view of AC Décor

before they make the decision of company’s loan application; a carefully preparation is

necessary. In addition, Mr. Lam wants to get everything in order before the Agro Bank external

auditors come. Thus, all the business risks need to be correct quickly and opportunely. Besides,

the internal auditors and accountants should ensure that all the transactions, records are

prepared in right format. Internal auditor department can reach all the above requirements in

order to make the external auditors rely on internal auditor’s work. Thus, the external auditors

will not ‘poke their nose into everything’. When the internal auditors and accountants finish the

preparation, they should report to Mr. Lam before the Agro Bank external auditors come.

17

3.0 Conclusion

To deal with the problem that AC Décor is facing, the purpose and use of different

accounting records as well as the possibility for company to keep all the transaction record

online were mentioned. The important and meaning of the fundamental accounting concepts

were explained. In the report, I assessed the factors which might influence the nature and

structure of accounting systems of AC Décor. Moreover, the relevant components of business

risk, details of possible effect of such risks were identified. In the third part, the duties, status

and the liability of external auditors and the relationship between internal and external auditors

were described.

18

4.0 Reference

1. BPP Professional Education (2004) Financial Reporting Supporting Foundation

Degrees, Great Britain: BPP Professional Education.

2. BPP Professional Education (2004) Financial System and Auditing Supporting

Foundation Degrees, Great Britain: BPP Professional Education.

3. Millichamp, A. H. (2002) Auditing, London: Continuum Publisher.

4. Todd, P. (2000), Understanding the fundamental concepts [online] ACCA, Available

from: http://www.accaglobal.com/students/publications/finance_matters/archive/

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