Internal Control and Accounting Analysis of ABC Essay

Excerpt from Essay :

Internal Control and Accounting Analysis of ABC Limited: Analysis of Weaknesses and Recommendations

The report was prepared to cover the requirements of the AAT ICAS unit. The AAT ICAS refers to an Internal Control and Accounting System where the report serves as investigation of the weakness area of the business control and makes the recommendation to fix this problem. The following report reviews the restaurant business particular in payroll area.

The report reviews the accounting system of ABC Limited and makes recommendations.

The report was carried out via observation. A certain business was chosen; the researcher asked permission of the manager of the business and spent three days, one in each restaurant observing the premises and the workers at their work. The researcher acted as inconspicuous observer. She also interviewed the different workers in an informal manner regarding the tenor and quality of their work. She conducted background research on the history and work of the restaurant, as well as on tasks associated with a restaurant. Finally, she prepared a survey of 10 items, Likert style that questioned accountant and managers on their economical operations and accounting strategies. All workers were informed about the research before being asked to complete questionnaire and results of survey were handed back to manager for approval and confirmation.

Executive Summary

The following report is about ABC Limited a thriving restaurant chain that is located in London and specializes in pan Asian cuisine. There are three restaurants, (Restaurant A, Restaurant B. And Restaurant C), in London. There are around ten staffs in each restaurant. The main head office is on the first floor of Restaurant B. The average turnover for Restaurant A, B and C. are £ 1040000, £780000 and £52000 respectively. Strengths are that the corporation is relatively simple which can engender change in afar easier, less complex way. Weaknesses are that there are grave holes in the internal accounting system. Recommendations for weaknesses include training for staff and for managers as well as certain amendments in internal accounting system.

The company can expect greater profit and reduced seepage of money as well as wastage of time.

1. Introduction:

1.1 Overview of the business

ABC Limited is a restaurant group, which provides delicious pan Asian cuisine to the customers in London. There are three restaurants, (Restaurant A, Restaurant B. And Restaurant C), in London. There are around ten staffs in each restaurant. The main head office is on the first floor of Restaurant B. The average turnover for Restaurant A, B and C. are £ 1040000, £780000 and £52000 respectively.

The internal major stakeholders work for the business directly and are affected by wages and job stability. The director obviously wants the restaurant to profit and become a business success. Workers want the business to be successful too so that then they can receive bonuses and maintain a stable, lucrative job.

The internal major stakeholders are as follow.

1. Director

2. Management

3. Employee

The external major stakeholders are involved with the company but are not employed directly by the company. The customers, for instance, are interested in prices and quality of the product. Suppliers are interested in the success and stability of the company so that they can ensure that they will have a customer in the future. The government is interested in the company's pay taxes and the quality as well as amount of the people that they staff.

The external major stakeholders are as follows.

1. Customers

2. Suppliers

3. Media


5. Companies House

The business relationship is critical to the success of the business because a business can only work with each of these components in place and interconnected. As noted, the business needs management to direct it. It needs customers to sell to and to enable it to continue. A business too needs people to invest in it and enable it to have a start-off particularly in the beginning when the business needs to have enough money to succeed and with which to buy the necessary equipment and hire the necessary people. It needs banks to provide it with loans; but these may be insufficient or banks may be reluctant. Angel investors are, therefore, another solution. These are people who are willing to risk a portion of their money in order to give the business a try.

Suppliers are needed in order to supply the company with the needed resources and goods. So, for instance, ABC Limited being a restaurant group would need suppliers to supply it with food products, dishware, tableware, and so forth at reasonable prices in order that they can conduct their business and satisfy their customers as per their guarantees. The media, meanwhile, helps promote the company. The company, particularly a start-up one needs publicity, particularly if it has to make its niche in an already glutted market. It can rely on the media to give it this publicity and to sustain this publicity. The media can help it attract clients.

Meanwhile the HMRC (i.e. Human Resource Management Consultants) not only helps the company hire its workers and staff (such as waiters / waitresses, cooks, accountants, cashiers etc.) that will staff the restaurants and help conduct its business but this division also ensures that smooth communication exists between staff and management so that each is able to communicate with one another in a feasible and facilitative manner so that the business outcome is achieved.

Finally Companies House, which is the United Kingdom Registrar of Companies, approves of ABC Limited, sees that it fulfills all the requirements of the Registry and includes them on their list of credible and credentialed businesses. Again, the loop continues in that customers, workers, and media acknowledge the business as a government approved enterprise.

In this way, both internal and external divisions are linked and mutually serving and dependent in that both categories fold back on one another and work superbly with one another (or rather they should) so that the objective, vision and mission of ABC Limited is realized and that the business can become a successful venture enterprise.

2. Overview of the Accounting Function under Review

The payroll department will be the department to be reviewed.

The restaurant is headed by Mr. Chan. As a small company limited, ABC Limited has one company accountant, Mr. Lee, who records the payroll, sales ledger, purchases ledger, and petty cash accounts on a daily basis. Although Mr. Lee does not possess accounting qualifications, he does have some basic knowledge of accounts.

ABC Limited asks the DD Accountancy Firm to act as professional accountants for the company in order to audit their firm, to prepare their yearend accounts and financial statements, and to submit their VAT Return and Annual Return. The DD Accountancy Firm is a Chartered Certified Accountancy Firm and providing professional accountancy services to the clients.

All Restaurant Managers of each of the three ABC Limited restaurants have to send a daily sales report to Mr. Lee through email at the end of every night shift. All the invoices received by the suppliers are kept in the file and have to be paid every 10th day of the month. For example, all the invoices for the month of April have to be paid on the 10th of May. Mr. Lee sends all the invoices to DD Accountancy Firm on a quarterly basis in order to submit his VAT Return.

The working hour record sheets for the staffs have been sent to Mr. Lee on Wednesday of every 2 weeks and who then processes the required payroll. Mr. Lee, consequently, reports to the director who checks all the payments. If the director agrees with the conditions of the payment, Mr. Lee prepares the pay packets for the staff and keeps it in his drawer. The staff salaries have been paid by cash.

Within the company, ABC Limited uses two main types of software. These are Microsoft Excel and Microsoft Word 2010. The company use Excel to keep inventory levels up-to-date. Microsoft Word is also used to produce a template for invoices

Mr. Lee and company have access to involuntary invoices. They are limited. He can also create spreadsheets.

3. Financial Statements

The organization produces three types of financial statements:

Firstly, they produce the income statement. The income statement provides information on the operation of the company, which reports on the company's income, expenses, and profits over the year.

Secondly, they produce a statement of financial position. The statement of financial position reports on a company's assets, liabilities, and ownership equity at a given point in time.

Finally, they produce a cash flow statement. The cash flow statement reports on a company's cash flow activities, particularly its operating, investing and financing activities.

The company produces these financial statements to create a set of accounts which can then be used for multiple purposes. For example owners and managers use these financial statements to make important decisions relating to actions to increase profit or reduce the cost of sales. Also HMRC…

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