Running head: ACCOUNTING ACCOUNTING 2 Internal control and accounting systems Course Lecturer Institution City, State Date of submission Content page and report outline Title page Terms of reference Executive summary Methodology 1.0 Introduction 2.0 Analysis and evaluation of current system 2.1 Reviewing and evaluating accounting system 2.2 Conduct an ethical evaluation of the accounting systems 2.3 Conduct a sustainability evaluation of the accounting systems 3.0 Identifying weaknesses and making recommendations for improvement 4.0 Cost-Benefit analysis References Appendices I. Appendix 1: Cost-Benefit analysis II. Appendix 1: Organization Chart III. Appendix 1: SWOT Analysis Terms of reference The terms of reference of this document is to examine the current responsibilities of the internal control procedures versus the accounting systems as an obligation to detect and report the ever dynamic financial frauds that continue to dominate the integrated and contemporary commercial world. This document covers the academic demands of level four ISYS as a unit in accordance with the AAT accounting qualifications. In extension, the report critically reviews the Chic Paints limited especially its degree of commitment towards sustainability and equally highlights any possible issues are ethical in nature and prevails in the current commercial world. Finally, this report examines the matters surrounding the standards that are eminent in the Chic paints limited as well as the accounting practices thereby suggesting recommendations to assist arrest the situation. Executive summary This report addresses various internal control guidelines in light of the accounting systems that Chic Paints ltd organization uses especially when preparing its financial statements. In the first section, the document presents an analysis of the role taken by the accounting department within the Chic Paints ltd organization. Here, matters surrounding the accounting systems such as structure, organization and procedures regarding the accounting systems, the various functions of the financial statement as well as the external relationship and business environment are vividly developed. In the proceeding section, the use and the significance of the internal control in regard to external regulations is discussed. This part also shades more light on the possible causes, common kinds of financial frauds, techniques of detecting financial misstatements as well as the inherent impacts to the organization. Conversely, the essence of devising control types that dictate company compliance with the organizational together with regulatory requirements in support of the systems of accounting, are explored. Section three opens out the discussion of Chic Paints ltd's accounting systems in addition to its possible areas of emphasis and improvement. A critical review, evaluation and assessment of systems of record keeping, risk areas and operating methods for sp ...

1. Running head: ACCOUNTING
ACCOUNTING
2
Internal control and accounting systems
Course
Lecturer
Institution
City, State
Date of submission
Content page and report outline
Title page
Terms of reference
Executive summary
Methodology
1.0
Introduction
2.0
Analysis and evaluation of current system

2. 2.1
Reviewing and evaluating accounting system
2.2
Conduct an ethical evaluation of the accounting systems
2.3
Conduct a sustainability evaluation of the accounting systems
3.0
Identifying weaknesses and making recommendations for
improvement
4.0
Cost-Benefit analysis
References
Appendices
I. Appendix 1: Cost-Benefit analysis
II. Appendix 1: Organization Chart
III. Appendix 1: SWOT Analysis
Terms of reference
The terms of reference of this document is to examine the
current responsibilities of the internal control procedures versus
the accounting systems as an obligation to detect and report the
ever dynamic financial frauds that continue to dominate the
integrated and contemporary commercial world. This document
covers the academic demands of level four ISYS as a unit in
accordance with the AAT accounting qualifications. In
extension, the report critically reviews the Chic Paints limited
especially its degree of commitment towards sustainability and
equally highlights any possible issues are ethical in nature and
prevails in the current commercial world. Finally, this report

3. examines the matters surrounding the standards that are eminent
in the Chic paints limited as well as the accounting practices
thereby suggesting recommendations to assist arrest the
situation.
Executive summary
This report addresses various internal control guidelines in light
of the accounting systems that Chic Paints ltd organization uses
especially when preparing its financial statements. In the first
section, the document presents an analysis of the role taken by
the accounting department within the Chic Paints ltd
organization. Here, matters surrounding the accounting systems
such as structure, organization and procedures regarding the
accounting systems, the various functions of the financial
statement as well as the external relationship and business
environment are vividly developed. In the proceeding section,
the use and the significance of the internal control in regard to
external regulations is discussed. This part also shades more
light on the possible causes, common kinds of financial frauds,
techniques of detecting financial misstatements as well as the
inherent impacts to the organization. Conversely, the essence of
devising control types that dictate company compliance with the
organizational together with regulatory requirements in support
of the systems of accounting, are explored.
Section three opens out the discussion of Chic Paints ltd's
accounting systems in addition to its possible areas of emphasis
and improvement. A critical review, evaluation and assessment
of systems of record keeping, risk areas and operating methods
for speed, reliability on top of cost effectiveness, forms a
culmination of this part. The evaluation of ethical principles
against the accounting systems adopted by the enterprise was
covered in the fourth section. In the same mind, the
identification of possible breaches relating to professional
ethics dominated this part. The concept of sustainability is
paramount to any given business entity and has a close link with

4. the systems of accounting. The fifth section, therefore,
explained this term at length where sustainable principles were
evaluated against the accounting systems.
Lastly, this report expounded on the need to improve the
systems of accounting by making recommendations concerning
ethical issues and sustainability. Nevertheless, the effects
resulting from accounting systems changes upon users were also
mentioned.
Methodology
The report has extensively made use of several related research
studies that are sourced from online websites, journal articles
together with books in order to map them into the accounting
systems at Chic Paints Limited. Some of the analysis data were
sourced indirectly from the available publications of the
company's periodic statements and documents in order to aid in
compiling this report. In the same way, the report identifies the
technical standards in line with possible breaches of such
professional ethics to ascertain the suitability of the ethical
principles and procedures applicable in Chic Paints Limited.
1.0. Introduction
The concept of internal control is important in any organization
that its responsibility is to provide goods and services to its
loyal consumers. The availability of the internal control within
any organization is considered as a success in advance, thus, it
forms an integral component of the firm's business, financial
policies as well as procedures. In the case of Chic Paints ltd
Company, the internal control sought to achieve the following
benefits: One is that internal control measures prevent
irregularities together with errors from happening. In case the
errors actually do occur, they would be realized and detected in
time. Secondly, the internal control ensures that financial frauds
committed by the employees of Chic Paints ltd enterprise, are

5. internalized and minimized thereby resolving them. Eventually,
the control ensures that employees are protected through clear
demarcation of responsibilities and tasks, provision of balances
and checks, and above all, possible misappropriation,
irregularities in addition to errors get special attention hence
reduced. In order to effectively achieve these roles, the
management is depicted as having the upper-hand through
various segregation of duties and its membership. More
information concerning the formation, membership and
respective roles can be referred from appendix 5.
2.0.
Analysis and evaluation of current system
2. 1. Reviewing and evaluating accounting system
2. 1. 1. Record keeping
According to (Kenneth, 2012), the main use of financial
statements is to make information available concerning the
financial position, notable changes regarding the financial
position and the progress or performance of a company. These
information is intended to address various needs of the financial
statements users in line with their economic decision making
process.
Many organizations and their respective management teams at
least get comforted when financial statements reveal strengths
as declared by auditors’ procedures. However, when all these
functions are performed; there are many scandals that emerge
especially in the changing commercial world where everybody
is busy serving his or her personal interests. From the records of
Chic Paints ltd enterprise, there seemed to be some weaknesses
in the internal control systems that led to serious misstatements
of cash balances. (ojo, 2006) observed that in the light of all
these financial frauds, the gap or problem seems to lie within
the reviewing process and curtailed level of independence that
are also universal requirements, which dictates the outcome of
the auditors’ report. Therefore, these areas ought to be sealed to

6. internalize these frauds.
2. 1. 2. Internal systems of control
In Chic Paints ltd Company, the accounting systems used is the
management and inventory accounting systems. Usually, firms
utilize both computerized and manual accounting systems that
help in recording transactions sealed. (Kenneth, 2012) wrote
that Managerial Accounting systems where managers are
provided with the plan, managerial skills as well as control
mechanisms in order to operate the firm in an efficient manner.
Inventory accounting systems that provide solutions relating to
tracking and planning about the inventory associated activities
together with inventory levels.
The mandate of an internal control system is to safeguard the
information generated in the financial statements since it shows
the organization’s financial position at a particular period of
time as well as the report communicated to the shareholders or
clients by auditors. The control systems provides guidelines
relating to the details such as the assets the company owns or
liabilities owed by the firm are correctly recorded as indicated
in the balance sheet, or the amount of losses and economic
returns (profits) assessed in a more accountable method.
2. 1. 3. Fraud
The Chic Paints ltd financial frauds are eminent especially in
the current corporate world where cash handling exercise is
sensitive in all aspects that include the organization’s staff.
Most of the scandals themselves revealed the obscurity inherent
in Chic Paints ltd's computerized corporate management that
constantly partner with micro control procedures where
employees play a big corruption role as noted by (Kenneth,
2012). This has made the role of external auditors to diminish
thus ineffective in the detecting and communicating the
financial frauds done.

7. From the Chic Paints ltd case, the frauds showed the importance
of carrying out a critical review of the financial records and not
just a superficial investigation for the purpose of sealing these
financial loopholes. The essence of the primary review in
addition to the systems of internal control becomes the
responsibility of the auditors in which source documents or
records are verified first hence easy identification and reporting
of possible material misstatement.
2. 1. 4. Working methods/practices
In a critical review of the financial records of Chic Paints ltd, it
was found that the enterprise used QuickBooks accounting
packages where cash embezzlement dominated. In fact, all
invoices paid were indeed coded and entered into an operating
expense account. The financial fraud happened as a result of
continued reclassification of the line-cost by terming them to be
capital expenditures as supported by (Intal & Linh, 2002. The
internal control systems proved too weak since the management
accounting systems that utilized cost accounting systems were
manipulated for personal gains. The working practices that were
being used in the organization were unworthy. They failed the
reliability test in that the same worker was subsequently used to
make order, perform verification, and input data into the
computer and many other assigned responsibilities. In the same
way, the internal procedures overworked the employees thus
undermined the necessities of speed; however, they were cost
effective.
2. 1. 5. Training
Training was taken as an important package because it
contributed directly to the productivity of Chic Paints ltd firm.
Employees gained a lot of skills concerning new and the
existing codes of ethics that fosters respect from the leaders to
the employees. Through these business ethics, the company
complies with the nation’s rules and regulations or promotes the
corporation's social accountability and responsibility as
proposed by (ojo, 2006).

8. In case, there were notable modifications in order to provide the
required remedies, the newly modified codes of ethics
pertaining to the respective managers and employees are
required to be reluctant. Gradually as they are trained and
informed about new aspects of the codes of ethics, they start
appreciating the virtues in these ethics as they will improve the
image of Chic Paints ltd Corporation as well as fostering the
norm of integrity and accountability.
2. 1. 6. An evaluation of the accounting system’s professional
ethics
Standards of integrity, professional competence, confidentiality,
professional behavior, honesty as well as objectivity are
measures that every Chic Paints ltd member should make
reference to when carrying out the transactions. Decisions
where each member of the organization has conflict of interest
should be avoided as well distancing themselves from having
any conflict especially to the contracts awarded by the
corporation. (Intal & Linh, 2002) opined that on top of not
accepting third party's favors for their own benefits, the
members are not supposed to compete with the organization by
taking outside positions that undermine the company.
Eventually, all members are compelled to do their respective
tasks as spelled out in the corporation's job responsibility.
2. 1. 7. An evaluation of sustainability within the accounting
system
The concept of sustainability is noble to the future success of
any organization that exists for the purpose of doing business.
Chic Paints ltd enterprise ensures that there is business
sustainability that emanate from goodwill by emphasizing on
codes of employees, management and above all, the board of
directors' codes. Primarily, the workers' codes of ethics provide
the required guidance thereby improving the good relationship
of the employees with the Chic Paints ltd Corporation, the
public and the employees themselves. In situations where there
is violation of employees' code of ethics and emergence of
conflict of interest between the employees, the employees' code

9. of ethics provide solution procedures. For example, all
employees of Chic Paints ltd Company are required to desist
from having any financial interests in the company's contracts.
By observing this obligation, the principle of atmost good faith
has been fulfilled. Upon realizing that an employee has a
financial stake, he or she is required to reveal it by putting it in
writing. This code of ethics is applied when suppliers are
awarded tenders.
Chic Paints ltd's management code of ethics ensures that the
corporation is governed in an effective manner as well as
maintaining social responsibility apart from preserving the
environment. The environment and health safety concerns are a
good example of the management code of ethics in the Chic
Paints ltd firm. The emphasizes that it should be the bottom line
and every worker's top priority. The corporation uses it to
ensure the environment is conserved thus reducing the impacts
of global warming. In addition, this code of ethics is referred to
whenever the corporation produces new construction materials
to determine their environmental effects. Therefore, Chic Paints
ltd Corporation continuously makes use of this code of ethics by
conducting research targeting construction components and their
immediate impact upon the environment. This ensures that the
construction and infrastructure products are friendly to the
environment.
In reference to the Directors Code of Ethics, directors are
guided by this code of ethics to provide solutions of ethical
issues, find ways of reporting unethical acts thus instilling the
discipline of accountability and honesty. In this case, the
directors are supposed to shun from issuing decisions that they
themselves have conflict of interest hence running the
organization efficiently. Such conflicts are required to be shared
with members of board of directors during important meetings.
2. 2. Conduct an ethical evaluation of the accounting systems
Being a global or multinational construction materials

10. manufacturer company, Chic Paints ltd makes use of the
following business ethical systems as well as codes of ethics to
ensure seamless relationship among the employees, management
and board of directors or executive members:
First, Chic Paints ltd Company utilizes relativistic ethical
system that is also applicable as an ethical standard. Under
ethical relativism, the company has a strong believe that social
norms forms the basis of wrong and right by adhering to the
following codes of ethics: One is transparency where
information is easily accessed especially areas touching the
public. To be accountable to the public, the organization should
present an easy to understand and clear accessible state
information. It should be in a position to justify and explain the
peer review committee's decisions. Two is the issue of
observing integrity in all financial and management affairs. All
employees, management and members of the board of directors
act with integrity and show no undue influence or diligence
from third parties that would lead to possible scandals within
the organization.
Secondly, Chic Paints ltd Company has also been known to
employ an end-driven ethical system. Fundamentally, this
system of code of ethics outline that there should be no conflict
of interest between Chic Paints ltd company and all workers
employed in this company especially financial competition. The
workforce uses this ethical system to avoid necessary clash that
may emerge between the employees and the activities or
operations of the company thus instilling the mind of
accountability and transparency.
Third, Chic Paints ltd Company follows a duty-driven system of
ethics. The system is anchored on justness, moral duty and the
concept of responsibility to ascertain whether the behavior was
ethical or unethical. With this focus, the organization is morally
responsible and accountable in conserving the environment

11. since it feels that it has contributed to its destruction in some
capacities. Nevertheless, the Chic Paints ltd Company’s
employees are also accountable as pertaining to their duties to
ensure maximum returns to stockholders because of their huge
capital investment in the construction and infrastructure
industry.
Lastly, the sense of entitlement as an ethical system is
emphasized in Chic Paints ltd Company. Under this system of
ethics, every member that holds a position or delegated
responsibility to the company is welcomed to give his or her
views or input concerning some decisions made thus fostering
interpersonal relationship.
2. 3. Conduct a sustainability evaluation of the accounting
systems
As mentioned above, the term sustainability runs across the
board since it is the engine to the success of any business
organization. Given that businesses are becoming complex in
terms of managerial skills in addition to the current dynamic
business world, the adoption and wide usage of Chic Paints ltd's
business ethics has increased productivity and promoted
teamwork at the job place. It has assisted in aligning every
worker's conduct to fit the ethical values as a priority. Likewise,
the code of ethics has set solution mechanisms to help the
corporation during the times of financial turmoil as claimed by
(Intal & Linh, 2002). Apart from helping the growth of workers
hence equipping them with skills to solve different dilemmas,
the codes of ethics have made the company to avoid lawsuits
since they have learnt the importance of following the rule of
law. Finally, the Chic Paints ltd's codes of ethics have created a
framework through which the corporation ensures effective
strategic planning as well as quality and diversity management
as depicted in appendix 3 at the back of this report.
3.0. Identifying weaknesses and making recommendations for
improvement

12. As part of the recommendations, everyone charged with
organizational responsibility, namely the management teams,
shareholders and stakeholders without forgetting the
contribution of external auditors should join hands so that to be
able to detect and report unlawful financial gain especially in
the contemporary integrated business environment. The internal
control procedures, the auditors plus the accounting systems are
the people and guidelines to blame for an increasing number of
financial scandals witnessed in the corporate world. They play a
big role towards financial frauds simply because they fail to
consider necessary measures to revert the situation. Some of the
steps that need to put in mind while performing the auditing and
accounting functions are adhering to the ethical code of
behavior. The reviewing procedures are often not applied
effectively and the level of independence is to large extent
ignored thus the emergence of financial frauds.
Shareholders or the owners to the organization contract with
auditors objectively to examine and give reflected opinions on
the progress of the organization in various departments such as
risk management, commission of frauds, and employees. At the
same time, provide the way forward as contained in the
auditors’ report. The companies’ owners usually prefer to use
external auditors since they show a high independence,
especially when compared to the internal auditors.
The report also found that the financial frauds continue to
increase day by day thus raising many questions about the exact
role of the internal control, accounting systems as well as the
auditors in today’s financial matters.
There is a big gap within the reviewing process that has been
persistently polluted by compromising such principles as
integrity, independence, consistency among others. Also a
regular revision of some existing internal control together with

13. accounting systems or policies in order to accommodate current
complex financial dealings.
In order to perfect the profession of accounting and auditing,
many researches should be emphasized especially relating to the
current commercial business world. It seems that many
management teams have captured the internal controls where
almost every account in terms of material information is kept
secret. Therefore, these areas of internal control should be
researched and every stakeholder including auditors made to be
aware of them in order to be able to detect and report any fraud
committed.
Another area of research is where there are unusual transactions
within the organizations. These areas often fail to be audited
thus misstatement of financial frauds like in the case of Chic
Paints ltd firm.
The last researchable area is where policies as well as the laid
down procedures are highly valued especially policies linking
the revenue recognition. Normally, organizations tend to mess
with policies and internal control procedures that are essential
in recording journal entries together with making financial
adjustments.
4.0.
Cost-Benefit analysis
The Benefit-Cost analysis is an important technique that
indicates the economic viability of an investment. From
appendix 4, the Net Present Value over the period of the first
five years is equal to $ 15, 533. 16. Therefore, Chic Paints ltd
company is viable hence the need of going concern. According
to (Intal & Linh, 2002) the major objectives of this method
include: First, it is applied in the assessment of the merits of a
particular undertaking. Secondly, it makes comparison between

14. projects of the same industry effective. In this context, Chic
Paints ltd's Benefit-Cost analysis made it possible since it was
utilized in the business decision assessment, used in public
investment examinations for worthiness in extension to efficient
natural resources usage or environmental conditions alteration
with the aim of improving social welfare.
References
Intal, T & Linh, T, D 2002, Financial Statement Fraud
Recognition of Revenue and the Auditor’s Responsibility for
Detecting Financial Statement Fraud, Retrieved from:
https://gupea.ub.gu.se/bitstream/2077/2347/1/gbs_thesis_2002_
53.pdf
Kenneth, E, O 2012, Audit committee and Integrity of Financial
Statements: A Preventive Mechanism for Corporate Failure.
Redeemer's University, Mowe Ogun State, Retrieved from:
http://www.ajbmr.com/articlepdf/aus-28-08i8n2a5.pdf
Ojo, M 2006, Eliminating the Audit Expectations Gap: Myth or
Reality? Published in: Journal of Forensic Accounting Volume
VIII, Numbers 1 & 2 January - December 2007.Retrieved from:
http://mpra.ub.uni-muenchen.de/232/
Appendices
Appendix 1:Benefits and costs for Chic Paints ltd investment
Year
Benefits $
Costs
$
()B-C)
$
PVIF10%, n.

15. NPV
1
10, 000
7, 000
3, 000
0. 9091
2, 727. 27
2
11, 500
7, 500
4, 000
0. 8264
3, 305. 79
3
11, 000
7, 000
4, 000
0. 7513
3, 005. 26
4
12, 600
8, 000
4, 600
0. 6830
3, 141. 86
5
13, 000
7, 600
5, 400
0. 6209
3, 352. 98
Total NPV = $ 15, 533. 16.
Appendix 2.Chic Paints ltd Organization Chart
Appendix 3: Chic Paints ltd SWOT Analysis

16. Parent Company
Chic Paints ltd company
Category
Paint Industry
Sector
Industrial products and chemicals
Tagline/ Slogan
Paint your imagination
Areas of Emphasis
Innovation, Performance, Customer First, Ethical Practice and
Valuing People.
Strategic planning
Segment
upper class and Middle Class segment
Target Group
Professionals, Home owners as well as Industry Users
Positioning
Fulfill and satisfy your imagination of colors
SWOT Analysis
Strength
1.Green-Horizon an initiative taken towards reducing waste and
conserving natural resources; launching eco-friendly and energy
efficient products
2. Chic Paints ltd has excellent brand perception and brand
awareness amongst its potential customers.
3. It provides with high quality products and has very high
market space both in terms of visibility and sales.
4. The Company has international presence: it has
manufacturing facilities abroad.
5. Chic Paints ltd is a lone supplier of protective coatings to
Nuclear Power Plants.

17. 6. Its industrial and automotive coating is used by the best
automobile companies like Mercedes.
Weakness
1. Dependence on decorative segment where competition is
intense
2. High levels of lead found leading to negative publicity
3. Limited liquidity options
Opportunity
1. New Product launches and innovation with changing trends
2. Strong growth Potential owing to urbanization
3. Business diversification
4. product diversification
Threats
1. New entrants in the industry and local companies.
2. Fluctuations in raw material prices
3. Stiff competition