Reference no: EM132316207

Question

Rider Co. makes automobile parts for sale to major automobile manufacturers in the United States. The following information is available regarding internal controls over machinery and equipment:

When a departmental supervisor needs a new item of machinery or equipment, he or she must initiate a purchase request. The acquisition proposal must be presented to the plant manager. If the plant manager agrees with the need, he must review the corporate budget allocation for his plant to determine the availability of funds to cover the acquisition.

If the allocation is sufficient, the departmental supervisor is notified of the approval and a purchase requisition is prepared and forwarded to the purchasing department.

Upon receipt of a purchase requisition for machinery and equipment, the purchasing department researches the company records in order to locate an appropriate vendor. A purchase order is then completed and mailed to the vendor.

As soon as new machinery or equipment is received from the vendor, it is immediately sent to the department for installation. Bellott's policy is to place new assets into service as soon as possible so that the company may immediately begin to realize the economic benefits from the acquisition.

The property accounting department is responsible for maintaining property, plant, and equipment ledger control accounts. The ledger is supported by lapsing schedules that are used to compute depreciation. These lapsing schedules are organized by year of acquisition so that depreciation computations can be prepared in units that combine all assets of the same type that were acquired the same year. Standard depreciation methods, rates, and salvage values were determined ten years ago and have been used consistently since that time.

When machinery or equipment is retired or replaced, the plant manager notifies the property accounting department so that the proper adjustments can be made to the ledger and lapsing schedules. No regular reconciliation between the physical assets on hand and the accounting records has been performed.

Required:

Identify any internal control weaknesses and suggest improvements to strengthen the internal controls over machinery and equipment at Rider.