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    Company Controls for Raptor Manufacturing

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    Your client, Raptor Manufacturing, is a large public company that manufactures afterburning
    turbofan engines for F-22 fighter jets. Many components that are used in the production
    process are purchased from nonrelated vendors. Since management can reasonably estimate
    how many engines will be produced per year, the company has drafted and preapproved a
    purchase budget based on their expectations. In addition, the company prepared an
    approved vendor list from which purchases should be made. All purchase requisition forms
    must be completed and signed by a production manager.
    After conducting a walkthrough with management, you have identified the following
    processes related to purchases and cash disbursements:
    ? Purchasing Department: When the purchasing department receives a purchase requisition
    form, a purchasing agent conducts the following procedures. First, the purchasing
    agent looks for the proper signature on the purchase requisition. If properly approved,
    then the purchasing agent selects a vendor from the approved vendor list and contacts
    that vendor to check for availability and pricing. Once the vendor and price have been
    determined, it is time to place the order. Before the order can be placed, the purchasing
    agent must determine whether the purchase is part of the preapproved purchase budget.
    If the total purchase price is below $20,000 and the vendor is on the approved vendor
    list, then the purchasing agent can place the order. If the total purchase price is above
    $20,000 or the vendor is not on the approved vendor list, then the purchase must be
    approved by the department head.When an order is placed, a purchase order is prepared
    and sent to the receiving department, accounts payable, and purchasing department
    head, and is filed in the nonreceived orders file.When the receiving report is received,
    the purchase order is transferred to the received orders file. If a purchase order is in the
    nonreceived orders file for more than 45 days, the purchasing agent reviews and investigates
    the status of the order.
    ? Receiving Department: In advance of receiving an order, the receiving department is given
    a copy of the purchase order.When the order is received, a receiving clerk fills out a receiving
    report recording the date, the contents of the order, and any variance from the purchase
    order. A copy of the receiving report is then forwarded to the purchasing
    department, accounts payable, and receiving department head, and is filed in the received
    orders file.
    ? Accounts Payable: The purchase order and receiving report are kept in an unpaid file until
    the invoice is received. Upon receipt of the invoice, the accounts payable clerk matches
    the invoice with the receiving report and purchase order. Once the invoice amount is verified,
    the clerk records the transaction and files the invoice in the approved but unpaid
    file. Every Thursday, a different accounts payable clerk prepares checks for all the invoices
    in the approved but unpaid file and subsequently files the invoices in the paid invoices
    file. The checks are then sent to the treasurer for signature.
    ? Treasurer: Unsigned checks are received every Friday from accounts payable. For checks less
    than $20,000 and for a vendor on the approved vendor list, the cashier uses a signature plate
    to sign the checks. For checks greater than $20,000 or for a vendor not on the approved vendor
    list, the check is manually signed by the treasurer.
    Identify and list the company controls in place related to purchase transactions
    and cash disbursements.
    (a) For each control identified:
    ? state the purpose of the control.
    ? state which management assertion(s) are related to the control.
    ? list the procedures and documents needed to test the control.
    (b)What are some additional controls that could be implemented to improve Raptor
    Manufacturing's control environment pertaining to its purchases and cash disbursements
    cycle?
    C, Which of the controls identified above could be audited using a
    dual purpose test. How would this change the procedures and documents needed?

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    Solution Preview

    Company Controls:

    The controls for cash disbursement involve the manual procedures and the built-in systems. The company controls that are related to the cash disbursement are the physical controls and the period closing controls. The physical control is whereby the treasurer uses a signature plate to sign the checks for a vendor on the approved list after receiving the unsigned checks. The treasurer also signs the check manually incase a vendor is not on the manual list and for checks that are greater than $20000. The periodic closing controls help identify irregularities and errors that might have occurred in the accounts payable. This involves keeping the receiving order and the purchase order in a file for the unpaid until the invoice has been received. The invoice is then matched with the purchase order and the receiving report by the accounts payable clerk. There is also the verification of the amount of invoice and the recording of the files and the transactions in the approved by the clerk. Checks are then prepared by a different accounts payable for all the invoices in the approved. The invoices are then filed in the file for the paid invoices (Potter, 2007).

    The controls for the purchase transactions are the financial transaction controls. This involves identification of the proper signature on the purchase requisition by the purchasing agent and the selection of a vendor from the vendor list to check for pricing and availability. ...

    Solution Summary

    Company controls for raptor manufacturing is examined.

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