the role of profit in a free market economy

The earning of profit is a necessary element in the operation of a free enterprise economy. It enhances the efficiency of a free market system in the following ways: • Normal profit is a cost of production; it is the cost of the entrepreneurship factor of production. It is the minimum amount that the entrepreneur

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A Company wishes to change from an old computerized system to a new computer based accounting system. Explain how and why both systems should run parallel prior to the change over to the new system

How and why both systems should run parallel prior to the change over to the new system. How The client should continue to process the information using the old system while at the same time implement the new system. The output from the new system should be compared with the output from the new system.

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Explain the importance of having proper systems documentation

Importance of system documentation. i. Provides a basis for management to review the system prior to authorisation ii. Staff training on the use of system. iii. Implements smooth personnel changes and avoiding the problem that key employees may take with them all knowledge about the way the system works. iv. Revising existing systems and programs

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You are carrying out the audit of ACB Computers limited for the year ended 31 December 2003. The company assembles microcomputers purchased from the Far East and sells them to retailers, and to individuals and other businesses. In the current year, there has been a recession and strong competition, which has resulted in a fall in sales and the profits. This has led to a trading loss and the company is experiencing going concern problems. Required; c) State the parties who may successfully sue you as auditor for negligence, and consider the arguments you could include in your defense when: The financial statements of ACB Computers Limited for the year ended 31 December 2003 do not mention any going concern problems and your audit report on these financial statements was unqualified and The company fails on 15 February 2004

Since ACB Computers Limited has failed within a year and the auditor had given an unqualified report, certain parties may be able to successfully sue him for negligence. The decision in the Caparo case is that only the company and the shareholders as a body can bring a claim for negligence against the auditor. It

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Briefly explain the meaning of the term “control procedures”

You are required to briefly explain the meaning of the term “control procedures”. Control procedures are the detailed policies and procedures established by management within the control environment. Control procedures put together constitute an internal control system. For example the requirement that all purchase orders must be authorised by a senior responsible company official is

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You are the manager responsible for the audit of ABC Company, which has a turnover of KShs 750 million. The company has been audited by your firm for a number of years and this is the second year you have been responsible as manager for the audit. However, owing to your responsibilities for other audits you are only intending to make periodic visits to the company during the course of the audit and you will not be involved in any of the detailed audit work. Required; State the matters you would consider in planning the audit, prior to the commencement of the detailed audit work

Matters to consider when planning the audit In planning the audit the auditor will need to consider the following: 1. Understanding the accounting and internal control systems The auditor‘s cumulative knowledge of the accounting and in ternal control systems and the relative emphasis expected to be placed on tests of control and substantive procedures. 2.

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In the context of a computer based accounting system, explain the meaning of the following terms: Application controls and General controls

Application controls These are control procedures over the accounting system designed to provide reasonable assurance that all transactions are authorised, recorded and processed completely, accurately on timely basis. Application controls may be manual or programmed and are include • Controls over input • Controls over processing • Controls over output • Controls over master files

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The company has been audited by your firm for a number of years and this is the second year you have been responsible as manager for the audit. However, owing to your responsibilities for other audits you are only intending to make periodic visits to the company during the course of the audit and you will not be involved in any of the detailed audit work. Required Describe the way in which you would control the audit from the commencement of the work by the audit staff to the review stage by the partner immediately prior to him signing the audit report

b) Ways to control the audit 1. Scoping of the work and delegation First I would determine the scope of the work to be carried out and our client‘s expectation. Basing on this I will identify the staff that I will require to carry out the work. In doing this I will need to consider,

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The purchase accounting department receive the purchase invoice, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a microcomputer. The main sundry creditors and accruals at the year-end include: a) Wages accruals and PAYE; b) VAT; c) Interest on loans overdrafts, telephone and electricity. Most employees‘ wages are paid weekly in arrears. You are required to describe in detail the audit work you will carry out to; Ensure that sundry creditors and accruals are correctly stated

I will perform the following work in checking sundry creditors and accruals I will assess the level of accruals and the system of control. If the company‘s system of determining accruals is good, I will perform less work than if the controls are weak;  I will compare this year‘s accruals with the previous year. I

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