Your are a Staff Auditor work for AMAC CPA firm. You are a Staff Auditor working on the Central Chicago Company The Audit Manager has asked you to review the AMAC Narrative (see the following Blue-Font Narrative Outline) of Client's Fixed Asset Process that was prepared by another auditor and: Identify 5 Internal Control Strengths and list them in the schedule below Also, indicate why this is an Internal Control Strength EXAMPLE OF ANSWER: 1. INTERNAL CONTROL STRENGTH: Central Chicago has an annual capital budgeting process where all capital expenditures are pre-approved prior to the beginning of the fiscal year. a. EXPLANATION: All the departments' heads are actively participated in the annual budget process. This ensures the collect of proper PPE information is passed along to the Capital Committee and all dept. heads understand their PPE budget allocations. NARRATIVE: The following memo is the result of discussions with the Central Chicago's Accountant, Budget/Financial Analyst, to obtain an understanding of the process as it relates to Facilities Management and related controls. Initiation of acquisition Receipt of assets Entrance into the fixed asset system Processing of payment recording of transactions Monthly review and reconciliation INITIATION OF ASSET ACQUISITION Central Chicago Company has an annual capital budgeting process where all capital expenditures are preapproved prior to beginning of the fiscal year, and is a part of Central Chicago's overall 5-year strategic projection. The budgeting process begins in the first week of February, and begins with a meeting of finance with departmental leaders. At the meeting, Arlene (Finance Dept. personnel) communicates to the leaders the total funds that have been allotted to fixed assets. Dollars are allocated first to the IT department, then to the affiliates, and the balance of the allocation to the company based on net revenue. In addition to the budgeted amounts allocated, there is another allocation, which is included in the budget, for contingency spending. The contingency spending amounts are allocated to cover any unplanned emergency capital expenditure that may arise. The Senior VP of the departments will fill out a budget form itemizing planned expenditures for the upcoming fiscal year. This form is submitted to Arlene (Finance Dept.) via email for final approval and inclusion in the annual budget by the third week in February. Non-budgeted capital expenditures requires that an item of equal value in the budget be substituted for the purchase, and executive approval obtained, or the funds may be taken from the contingency budget. Items costing $100,000 or greater require an ROI analysis. Although individual items may not meet ROI threshold, joint expenditures must meet established budgetary targets. The dollar threshold for classify a purchase as a capital expenditure is any item costing $1,000 or more with a useful life of two or more years. All capital expenditure items require that an approved purchase requisition along with a PO, signed by the requesting departments Senior VP, be submitted to the finance department. VP Finance signs all requisitions before they are processed. Once a month Arlene performs a reconciliation between capital expenditures and the departments' budget, ensuring that expenditures are made as budgeted, or there is necessary substitution of the purchased item with a budgeted item. Capital expenditure related to computer related hardware and software must have approval from the IT Dept., and purchases related to equipment with electrical applications and building renovations require approval from the Plant Operation Department. Your are a Staff Auditor work for AMAC CPA firm. You are a Staff Auditor working on the Central Chicago Company The Audit Manager has asked you to review the AMAC Narrative (see the following Blue-Font Narrative Outline) of Client's Fixed Asset Process that was prepared by another auditor and: Identify 5 Internal Control Strengths and list them in the schedule below Also, indicate why this is an Internal Control Strength EXAMPLE OF ANSWER: 1. INTERNAL CONTROL STRENGTH: Central Chicago has an annual capital budgeting process where all capital expenditures are pre-approved prior to the beginning of the fiscal year. a. EXPLANATION: All the departments' heads are actively participated in the annual budget process. This ensures the collect of proper PPE information is passed along to the Capital Committee and all dept. heads understand their PPE budget allocations. NARRATIVE: The following memo is the result of discussions with the Central Chicago's Accountant, Budget/Financial Analyst, to obtain an understanding of the process as it relates to Facilities Management and related controls. Initiation of acquisition Receipt of assets Entrance into the fixed asset system Processing of payment recording of transactions Monthly review and reconciliation INITIATION OF ASSET ACQUISITION Central Chicago Company has an annual capital budgeting process where all capital expenditures are preapproved prior to beginning of the fiscal year, and is a part of Central Chicago's overall 5-year strategic projection. The budgeting process begins in the first week of February, and begins with a meeting of finance with departmental leaders. At the meeting, Arlene (Finance Dept. personnel) communicates to the leaders the total funds that have been allotted to fixed assets. Dollars are allocated first to the IT department, then to the affiliates, and the balance of the allocation to the company based on net revenue. In addition to the budgeted amounts allocated, there is another allocation, which is included in the budget, for contingency spending. The contingency spending amounts are allocated to cover any unplanned emergency capital expenditure that may arise. The Senior VP of the departments will fill out a budget form itemizing planned expenditures for the upcoming fiscal year. This form is submitted to Arlene (Finance Dept.) via email for final approval and inclusion in the annual budget by the third week in February. Non-budgeted capital expenditures requires that an item of equal value in the budget be substituted for the purchase, and executive approval obtained, or the funds may be taken from the contingency budget. Items costing $100,000 or greater require an ROI analysis. Although individual items may not meet ROI threshold, joint expenditures must meet established budgetary targets. The dollar threshold for classify a purchase as a capital expenditure is any item costing $1,000 or more with a useful life of two or more years. All capital expenditure items require that an approved purchase requisition along with a PO, signed by the requesting departments Senior VP, be submitted to the finance department. VP Finance signs all requisitions before they are processed. Once a month Arlene performs a reconciliation between capital expenditures and the departments' budget, ensuring that expenditures are made as budgeted, or there is necessary substitution of the purchased item with a budgeted item. Capital expenditure related to computer related hardware and software must have approval from the IT Dept., and purchases related to equipment with electrical applications and building renovations require approval from the Plant Operation Department