uperior Co. manufactures automobile parts for sale to the major U.S. automakers. Superior’s internal audit staff is to review the internal controls over machinery and equipment and make recommendations for improvements when appropriate. The internal auditors obtained the following information during the assignment: Requests for purchase of machinery and equipment are normally initiated by the supervisor in need of the asset. The supervisor discusses the proposed acquisition with the plant manager. A purchase requisition is submitted to the purchasing department when the plan manager is satisfied that the request is reasonable and that there is a remaining balance in the plant’s share of the total corporate budget for capital acquisitions. Upon receiving a purchase requisition for machinery or equipment, the purchasing department manager looks through the records for an appropriate supplier. A formal purchase order is then completed and mailed. When the machine or equipment is received, it is immediately sent to the user department for installation. This allows the economic benefits from the acquisition to be realized at the earliest possible date. The property, plant, and equipment ledger control accounts are supported by computerized depreciation lapse schedules organized by year of acquisition. These lapse schedules are used to compute depreciation as a unit for all assets of a given type that are acquired in the same year. Standard rates, depreciation methods, and salvage values are used for each major type of fixed assets. These rates, methods, and salvage values were set 10 years ago during the company’s initial year of operation. When machinery or equipment is retired, the plant manager notifies the accounting department so that the appropriate entries can be made in the accounting records. There has been no reconciliation since the company began operations between the accounting records and the machinery and equipment on hand. Required: Identify the internal control deficiencies and recommended improvements that the internal audit staff of Superior Co. should include in its report regarding the internal controls over fixed assets. Use the following format in preparing your answer:

uperior Co. manufactures automobile parts for sale to the major U.S. automakers. Superior’s internal audit staff is to review the internal controls over machinery and equipment and make recommendations for improvements when appropriate. The internal auditors obtained the following information during the assignment: Requests for purchase of machinery and equipment are normally initiated by the supervisor in need of the asset. The supervisor discusses the proposed acquisition with the plant manager. A purchase requisition is submitted to the purchasing department when the plan manager is satisfied that the request is reasonable and that there is a remaining balance in the plant’s share of the total corporate budget for capital acquisitions. Upon receiving a purchase requisition for machinery or equipment, the purchasing department manager looks through the records for an appropriate supplier. A formal purchase order is then completed and mailed. When the machine or equipment is received, it is immediately sent to the user department for installation. This allows the economic benefits from the acquisition to be realized at the earliest possible date. The property, plant, and equipment ledger control accounts are supported by computerized depreciation lapse schedules organized by year of acquisition. These lapse schedules are used to compute depreciation as a unit for all assets of a given type that are acquired in the same year. Standard rates, depreciation methods, and salvage values are used for each major type of fixed assets. These rates, methods, and salvage values were set 10 years ago during the company’s initial year of operation. When machinery or equipment is retired, the plant manager notifies the accounting department so that the appropriate entries can be made in the accounting records. There has been no reconciliation since the company began operations between the accounting records and the machinery and equipment on hand. Required: Identify the internal control deficiencies and recommended improvements that the internal audit staff of Superior Co. should include in its report regarding the internal controls over fixed assets. Use the following format in preparing your answer:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Superior Co. manufactures automobile parts for sale to the major U.S. automakers. Superior’s internal audit staff is to review the internal controls over machinery and equipment and make recommendations for improvements when appropriate. The internal auditors obtained the following information during the assignment:

Requests for purchase of machinery and equipment are normally initiated by the supervisor in need of the asset. The supervisor discusses the proposed acquisition with the plant manager. A purchase requisition is submitted to the purchasing department when the plan manager is satisfied that the request is reasonable and that there is a remaining balance in the plant’s share of the total corporate budget for capital acquisitions.
Upon receiving a purchase requisition for machinery or equipment, the purchasing department manager looks through the records for an appropriate supplier. A formal purchase order is then completed and mailed. When the machine or equipment is received, it is immediately sent to the user department for installation. This allows the economic benefits from the acquisition to be realized at the earliest possible date.
The property, plant, and equipment ledger control accounts are supported by computerized depreciation lapse schedules organized by year of acquisition. These lapse schedules are used to compute depreciation as a unit for all assets of a given type that are acquired in the same year. Standard rates, depreciation methods, and salvage values are used for each major type of fixed assets. These rates, methods, and salvage values were set 10 years ago during the company’s initial year of operation.
When machinery or equipment is retired, the plant manager notifies the accounting department so that the appropriate entries can be made in the accounting records.
There has been no reconciliation since the company began operations between the accounting records and the machinery and equipment on hand.

Required:

Identify the internal control deficiencies and recommended improvements that the internal audit staff of Superior Co. should include in its report regarding the internal controls over fixed assets. Use the following format in preparing your answer:

Deficiences	Recommendations
1.	1.

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