Reference no: EM133496138
Question: Make a summary of the major internal control procedures and the relevant substantive audit procedure to be put in a table format:
Capital Project Initiation
• An Authorization for Expenditure (AFE) for asset purchases is completed by the project owner or supervisor completely and accurately.
• The accountant obtains the requisite management approval signatures in compliance with company policy.
• Upon approval of the AFE, the accounting department establishes a Project Identification Number (PIN) to be used for accumulation of all costs prior to closing to the PPE account.
• Whenever it is estimated that the final cost will exceed the approved appropriation amount by 10%, a supplemental AFE must be submitted
immediately by the project owner or supervisor. The new request must show the existing appropriate amount, the additional funds requested and the new total. The same authorization procedure and authority level as the original AFE, based on the total project cost, will apply for additional funds.
Capital Project in Progress
• In order to maintain the effectiveness of internal control and communication, the requesting department, purchasing and accounting, shall each ensure that all purchases/expenditures pertaining to specific AFEs are appropriately charged to the correct PIN.
• Purchases in support of the AFE are initiated, authorized, received, charged to the appropriate PIN and paid pursuant to the expenditures policies and procedures.
• A monthly capital expenditure report is prepared by the accounting department based on recorded accounting data. A monthly meeting is also held
to discuss the status of each AFE and any relevant development which may impact costs or the operations. In lieu of capital expenditure reports, a listing of all active approved capital AFEs together with actual charges to date is presented during the weekly staff meetings.
• The project owner monitors the progress of the expenditures spent against the AFE and ensures that all purchase orders for the AFE are paid prior to requesting the accounting department, through the use of an AFE Closing Form to disable the PIN in the accounting system. The AFE Closing Form is the basis for transferring the costs from the project in progress account to the appropriate PPE account, and for starting the computation of depreciation.
Recording of Fixed Asset Additions
• Upon receipt of an AFE Closing Form, the accounting department initiates a journal entry to record the addition to fixed asset account. Such addition is also recorded in the depreciation lapsing schedule for depreciation purposes.
• Review, approvals, and posting of entries shall be in accordance with the policies and procedures on journal entry preparation as described in Financial Close and Reporting.