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The document summarizes a case study about Flat Cargo Berhad, an air freight company, and issues found during an audit. The auditors were unable to verify aircraft purchases in 2005. Debtor confirmation letters were returned due to incorrect addresses. Large sales transactions lacked documentation, and a loan was incorrectly recorded as a debtor. Abnormal transactions offset aircraft purchases and debtors' accounts. The auditor will verify documents, update bookkeeping, and ensure separation of debtors and creditors to address short-term issues, while FCB implements efficient systems and procedures for long-term solutions.
The document summarizes a case study about Flat Cargo Berhad, an air freight company, and issues found during an audit. The auditors were unable to verify aircraft purchases in 2005. Debtor confirmation letters were returned due to incorrect addresses. Large sales transactions lacked documentation, and a loan was incorrectly recorded as a debtor. Abnormal transactions offset aircraft purchases and debtors' accounts. The auditor will verify documents, update bookkeeping, and ensure separation of debtors and creditors to address short-term issues, while FCB implements efficient systems and procedures for long-term solutions.
The document summarizes a case study about Flat Cargo Berhad, an air freight company, and issues found during an audit. The auditors were unable to verify aircraft purchases in 2005. Debtor confirmation letters were returned due to incorrect addresses. Large sales transactions lacked documentation, and a loan was incorrectly recorded as a debtor. Abnormal transactions offset aircraft purchases and debtors' accounts. The auditor will verify documents, update bookkeeping, and ensure separation of debtors and creditors to address short-term issues, while FCB implements efficient systems and procedures for long-term solutions.
Chapter 4 : The Bookkeeping Process Group 1: 1. Fatimah Zahrah Zaid : PBS1331373 2. Faeeza Noor Mohd Jaafar : PBS1331339 3. Hajara AbdulKadi : PBS1331402 4. Pushpanathan : PBS 1331405 Flat Cargo Berhad Largest air freight companies Head office located in Selangor 1997 - Started operations with 2 air-crafts 15 Sept 2001 obtained listing in Bursa Malaysia Operating primarily - Air Cargo Carrier Principal activities of FCB subsidiaries Air Freight services Air-craft ground handling services Auditor: Kencana & Associates FCB Wholly Owned Subsidiaries FLAT CARGO GROUP BERHAD FC Spare Sdn Bhd Cargo Management Sdn Bhd FCB (SPV) Ltd Cargo Air Services Sdn Bhd FC Air Ltd As at 2005 FCB secured agreements with well established companies Top Management Team Top Management Team Chief Executive Officer Executive Director Chief Financial Officer Founder of FCB Member since 1997 Chairman of the company audit committee Member of its employee share option scheme committee Board since 1999 Mr. Lim Loon Sim Mr. Ali Bin Ahmad Mr. Kim Boon Chok The List of FCB's Board of Director Chairman / Independent Non-Executive Director Independent Non Executive Director Non Independent Executive Director Non Independent Non Executive Director Dato' Ibrahim Samad Sulaiman bin Ahmad Kamil Chong Kee Kit Lim Loon Sim Ali Bin Ahmad Lee Guan Choi Miri Kim Chen Tan Sri Rahim Bin Fahmi Datuk Abu Bakar Bin Sharif Excerpts 1 2 3 4 5 The auditors were unable to verify the aircrafts claimed to have been purchased by FCB in 2005. The audit team found a non-functional rundown aircraft barely worth RM231 million in a hangar. Several debtors' confirmation letters were returned because the addressees had changed their mailing addresses. A large sum of sales transactions was found with no supporting documents. Most of these transactions involved small clients. A loan received from a Hong Kong based company was found to be incorrectly recorded in the debtors' account. Several abnormal transactions involving the purchase of aircrafts by FCB and offsetting the debtors' accounts were found in FCB's books. Transaction Analysis Methodology 5 QUESTIONS 1. What's going on? 2. What accounts are affected? 3. How are they affected? 4. Does the balance sheet balance? 5. Does my analysis make sense? Transaction Analysis 1. What's going on? Overstating the Assets 2. What accounts are affected and how are they affected? BALANCE SHEET INCOME STATEMENT Assets = Liabilities + Owners Equity Net Income = Revenue Expenses Cash Fixed Assets Inventory Creditors Excerpts 1 The auditors were unable to verify the aircrafts claimed to have been purchased by FCB in 2005. The audit team found a non-functional rundown aircraft barely worth RM231 million in a hangar. Transaction Analysis (Cont.) 3. Does the balance sheet balance? Date Dr. Fixed Assets Cr. Cash Date Dr. Inventory Cr. Creditors xx xx xx xx Transaction Analysis (Cont.) 4. Does my analysis make sense? Documents were not found to support the claims that the purchasing took place Which implied that fraud might have took place Transaction Analysis (Cont.) 1. What's going on? No confirmation on the service/sales taken place 2. What accounts are affected and how are they affected? Excerpts 2 Several debtors' confirmation letters were returned because the addressees had changed their mailing addresses. BALANCE SHEET INCOME STATEMENT Assets = Liabilities + Owners Equity Net Income = Revenue Expenses Account Receivable Sales Transaction Analysis (Cont.) 3. Does the balance sheet balance? 4. Does my analysis make sense? Due to this issue it will have a major impact on accounts receivable. However this will lead to further problem as follows No exact debtor figure available for reference Possibility of bad debt Weak debt servicing ability by company Date Dr. Account Receivable Cr. Sales xx xx BALANCE SHEET INCOME STATEMENT Assets = Liabilities + Owners Equity Net Income = Revenue Expenses Account Bad Receivable Debts Transaction Analysis (Cont.) 1. What's going on? Revenue recognized without proper documentation 2. What accounts are affected and how are they affected? Excerpts 3 A large sum of sales transactions was found with no supporting documents. Most of these transactions involved small clients. BALANCE SHEET INCOME STATEMENT Assets = Liabilities + Owners Equity Net Income = Revenue Expenses Cash Account Receivable Sales Sales Transaction Analysis (Cont.) 3. Does the balance sheet balance? 4. Does my analysis make sense? This problem will mostly affect the revenue. In addition, it could lead to:- Poor book-keeping process Manipulation on the revenue figure (RM 550 million) Manipulation of the shareholders interest in terms of dividend declared Complication on debt collection therefore the possibility of bad debt in future Date Dr. Cash Cr. Sales Date Dr. Account Receivable Cr. Sales xx xx xx xx Transaction Analysis (Cont.) 1. What's going on? Overstating the Debtors Account 2. What accounts are affected and how are they affected? Excerpts 4 A loan received from a Hong Kong based company was found to be incorrectly recorded in the debtors' account. BALANCE SHEET INCOME STATEMENT Assets = Liabilities + Owners Equity Net Income = Revenue Expenses Account Long terms Receivable debt Transaction Analysis (Cont.) 3. Does the balance sheet balance? 4. Does my analysis make sense? The impact on liabilities of the FCB will be decreased whereas assets increase due to the error on double entry process Date Dr. Accounts Receivable Cr. Long Term Debt xx xx BALANCE SHEET INCOME STATEMENT Assets = Liabilities + Owners Equity Net Income = Revenue Expenses Cash Long terms debt Transaction Analysis (Cont.) 1. What's going on? It violates principle of accounting system principle of non-compensation financial info should be shown without expecting any compensation of debt by an asset, revenue by an expense, and same. principles of sincerity - the accounting unit should be a reflection of a companys financial status. principles of consistency - a business should enter all similar items to be followed in exactly the same way which has once been fixed as a method. Excerpts 5 Several abnormal transactions involving the purchase of aircrafts by FCB and offsetting the debtors accounts were found in FCBs books. Transaction Analysis (Cont.) 2. What accounts are affected and how are they affected? Accounts Receivables - decrease Fixed Assets - increase 3. Does my analysis make sense? Abnormal transactions could lead to multiplier faults in the financial statement like Overstated/Understated assets Usage of cash or credit was not determined properly Cutting down the overall debtor amount Fail to determine bad debt Fail to determine the true figure of Debtors Solution SOLUTIONS SHORT TERM LONG TERM AUDITOR FCB Solution Short Term Check the purchase document Internal or production document Verify with the staff Check with the lease company Check the register or licencing company Long Term Update the bookkeeping regularly Excerpts 1 The auditors were unable to verify the aircrafts claimed to have been purchased by FCB in 2005. The audit team found a non-functional rundown aircraft barely worth RM231 million in a hangar. Solution (Cont.) Long Term Create efficient system Verify claim of debtors Create database or updated portfolio Create a debt solely for debt servicing Short Term Investigate the identity of debtor with SSM Supporting document of debt Excerpts 2 Several debtors' confirmation letters were returned because the addressees had changed their mailing addresses. Solution (Cont.) Short Term Ask the engineering department to provide document using courier service Countercheck with custom department Should be able to verify turnover figure Excerpts 3 A large sum of sales transactions was found with no supporting documents. Most of these transactions involved small clients. Solution (Cont.) Short Term Countercheck and verify with loan agreement Correcting the double entry according to MASB Excerpts 4 A loan received from a Hong Kong based company was found to be incorrectly recorded in the debtors' account. Solution (Cont.) Short Term Reconsilation of bookkeeping related to purchase of abnormal transaction Cross checking proof Ensure debtor/creditor confirmation letter Long Term Do not mix with creditors and debtors Excerpts 5 Several abnormal transactions involving the purchase of aircrafts by FCB and offsetting the debtors accounts were found in FCBs books. Conclusion Deligate and segregate duties ISO / Countercheck Transparency
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