Reference no: EM132603234

Question - Ruby Bhd. produces kitchen units from its factory premises, and prepares annual financial statements ending 31 December. Its board comprises of four directors, there being a managing director and director of sales, production and finance and administration. The company employs one buyer who reports directly to the managing director. Ruby Bhd. exercises the following controls over the acquisition of tangible non-current assets:

1. In October the directors and the buyer will meet to discuss the tangible non-current asset requirements of each functional area. At the end of the meeting an agreed list of acquisitions is approved and a copy is retained by all attendees.

2. The buyer is then required to contact potential suppliers of the approved acquisitions to obtain confirmation of availability and the lowest price for inclusion in the company's tangible non- current assets expenditure budget for the forthcoming year.

3. In December the directors and the buyer will meet again to formalise and approve the tangible non-current asset expenditure budget. Following the meeting, a schedule is produced detailing approved acquisitions by category, expected month of purchase and budgeted cost as obtained by the buyer. The schedule then forms the basis of the tangible non-current assets expenditure budget of Ruby Bhd. for the forthcoming year.

4. Throughout the next year, on a monthly basis, without prior consultation the buyer places orders with suppliers ensuring that assets are acquired in the month as budgeted. As part of his remuneration package, the buyer is entitled to bonus payments equating to 10% of any savings he can negotiate on budgeted costs. Consequently assets may not necessarily be purchased from the suppliers contacted by the buyer during budgeting process.

5. The buyer normally places orders to purchase via a simple e-mail. However, where required by suppliers he provides orders by way of a letter, which he signs.

6. Having placed an order, the buyer calculates his bonus entitlement and forwards a copy of the calculation together with a copy of the order documentation to the managing director. The managing director reviews this against his copy of the budget, prior to authorising as appropriate and forwarding to the accounts department for payment of the bonus as part of the buyer's monthly salary. Each presenter is required to:

(i) Identify TWO (2) deficiencies in the system (according to the note 3&4).

(ii) Describe the implication(s) of each deficiency identified (according to the note 3&4).

(iii) Recommend improvement(s) to address each deficiency (according to the note 3&4).