Question 1 KBY is a small-sized furniture manufacturing company in Malaysia. You are the senior accountant for KBY and have been called into a meeting to discuss two issues. On the first issue, KBY is deciding whether to give each of their department managers a company credit card. The credit cards are meant for their managers to purchase non-inventory purchases for their departments. These purchases include office supplies and travel expenses. KBY is also thinking of setting the credit card limit to RM 1,500 per transaction and RM 20,000 per month. Purchases above that limit would require the formal requisition process. In the formal requisition process, the managers would complete a purchase requisition form, which is then submitted to their supervisor for verification and approval. Then, the form would be routed to the purchasing department. The purchasing department would get at least three quotations from the various vendors in the vendor approved list. Once all the quotations are in the purchasing department would then select the vendor based on price and track record in delivery and quality. This whole process might take 1-2 months before payments are made to the suppliers. The internal auditor remarked that he is uncomfortable with company credit cards being given to managers because of the potential for misuse and fraud. He suggested that the same formal requisition process be applied to the credit card purchases. The managers would still be required to fill in a requisition form and submit it to the purchasing department. Once the purchasing department has approved the purchase, the manager can then use the company credit card for that purchase transaction. On the second issue, there was a discussion in the meeting regarding the purchasing manager who has started his own business, ABC Company. ABC Company has just recently supplied raw materials to KBY. The purchasing manager defended his company by stating that ABC Company products has been independently audited and rated highly by AQF (Asia Quality Focus Question 1 (cont'd) Required: (a) should the formal requisition process also be applied to the credit card? Justify your answer. (10 marks) (b) Recommend and explain the three (3) internal controls that should be applied to the company credit cards besides (i.e. in addition to) the credit limit on the cards. (9 marks) (c) Recommend and explain whether KBY should continue to buy from ABC Company. (11 marks) An Question 1 KBY is a small-sized furniture manufacturing company in Malaysia. You are the senior accountant for KBY and have been called into a meeting to discuss two issues. On the first issue, KBY is deciding whether to give each of their department managers a company credit card. The credit cards are meant for their managers to purchase non-inventory purchases for their departments. These purchases include office supplies and travel expenses. KBY is also thinking of setting the credit card limit to RM 1,500 per transaction and RM 20,000 per month. Purchases above that limit would require the formal requisition process. In the formal requisition process, the managers would complete a purchase requisition form, which is then submitted to their supervisor for verification and approval. Then, the form would be routed to the purchasing department. The purchasing department would get at least three quotations from the various vendors in the vendor approved list. Once all the quotations are in the purchasing department would then select the vendor based on price and track record in delivery and quality. This whole process might take 1-2 months before payments are made to the suppliers. The internal auditor remarked that he is uncomfortable with company credit cards being given to managers because of the potential for misuse and fraud. He suggested that the same formal requisition process be applied to the credit card purchases. The managers would still be required to fill in a requisition form and submit it to the purchasing department. Once the purchasing department has approved the purchase, the manager can then use the company credit card for that purchase transaction. On the second issue, there was a discussion in the meeting regarding the purchasing manager who has started his own business, ABC Company. ABC Company has just recently supplied raw materials to KBY. The purchasing manager defended his company by stating that ABC Company products has been independently audited and rated highly by AQF (Asia Quality Focus Question 1 (cont'd) Required: (a) should the formal requisition process also be applied to the credit card? Justify your answer. (10 marks) (b) Recommend and explain the three (3) internal controls that should be applied to the company credit cards besides (i.e. in addition to) the credit limit on the cards. (9 marks) (c) Recommend and explain whether KBY should continue to buy from ABC Company. (11 marks) An
