Question 1
The
management of Tesco Hypermarkets has implemented internal controls to ensure
the safety of its patrons/customers as well as to monitor its inventory
movement. What are the limitations of internal controls that may occur within
the hypermarket in the course of its daily operations? (A minimum of five discussion points are
expected). (10 marks)
Limitation of internal controls
Internal
controls are steps that are taken within a certain company to ensure a more
reliable and accurate financial reports. These steps are also taken to meet
operational and profitability targets and transmit management policies
throughout the organization. Internal controls can also ensure that the
financial reports and information follows the laws and regulations of
accounting. To be practical, internal controls are steps that controls activity
that caused the inaccuracy of financial reports such as stealing that will
cause a decrease amount of inventory without notice. Internal controls can be
taken to limit those activities but not fully suppressing those activities.
This happen because internal controls has its limitations. Therefore we
have to identify the limitations and take necessary
Surveillance Cameras
Throughout
our visit to Tesco, we noticed surveillance cameras being installed at many
places around the compound. Although Tesco has some remarkable internal
controls, it still has weaknesses which can be exploited. Among the internal
controls implemented are the surveillance cameras. These surveillance cameras
are costly to maintain and they require good care. It has blind spots which are
exploitable. Other than that, it consumes quite an amount of electricity to
operate. If one of the surveillance cameras were to spoil it will have a long
downtime therefore exposing Tesco to potential theft. When the camera
surveillance camera is down the particular area will be vulnerable to theft and
the thief can escape easily.
Security Guard
At
the entrance to the hypermarket there are security guards stationed. The
security guards are stationed at the entrance to monitor customers and to
apprehend any suspicious persons from leaving the hypermarket. This internal
control is well thought of. Regardless of the internal control implemented,
there are still limitations using this method. Nowadays, security guards are
hired without going through proper training or having proper qualifications.
Some security guards are too old to carry out their job. For example, if a
young adult thieves were to be caught red handed by a security guard who is old
and frail the thief would get away easily without any challenge.
Sensors
Tesco
is facing flaw in other methods. Tesco tried to come out with a solution to
compensate for the flaws of other internal controls by coming out with more
internal controls. Tesco implemented sensor tags to ensure to the customers pay
for the products that they choose without stealing them. Sensor tags were
placed on all items. Sensor tags are clipped onto item so that it will serve as
a sensor to make sure the product is bought leaving the store. Customers who
know how to undo the tag or the tag someone came out, they can get pass the
security gate sensors without triggering the alarm. Using sensor tags could be
a convenient way to identify stolen goods but tags are hard to be placed on
smaller items as the size is not really minute. Items without tags can be
stolen and kept in a bag and brought out by the thief without triggering the
sensor at the exit.
Barcodes
Other
than the sensor tag, we noticed something on our visit is that every item sold
in Tesco has a barcode on the packaging. These barcodes are used to identify
goods and display their price and the cashier. Barcodes are also good for
providing a faster and more efficient entry or exit of goods when restocking or
selling goods. Barcodes are good and convenient but it has limitations too.
Barcode systems are computer based. If the file or the barcode becomes
corrupted or damaged,
problems will arise. Goods will have
to be manually typed into the system and this will be very time consuming and
troublesome.
Company
Guidelines and Policies
Staffs are employed to serve the
customers. They have guidelines and policies to abide by. Supermarket operators
should make known to all staff according to the company policy that any misuse
or misappropriation of company assets and resources will not be tolerated. The
staff and suppliers should be issued with clear guidelines on the handling of
stocks, covering the procedures for ordering stock, acceptance of food/goods,
distribution to chain stores, and disposal of surplus or expired stock. The
levels of authority for various store control functions should be specified.
Although the internal control is strict but there can be corruption within and
the system will be misused.
Disposal of stocks
Senior
staffs of supermarkets should be tightly control the disposal of stock items so
that the substandard of food items or goods and those that have reached the
expiry date will not be sold to members of the public to ensure the safety of
the customers. The supermarket should have a clear policy prohibiting staff from
putting up such stocks. The disposal of stock items should follow established
policies and procedures, including inspection, approval and suspension of
disposal. If a “total dumping policy” is adopted a particular staff member should
be assigned to make sure that all written-off items are destroyed and disposed
of as waste. Disposal records should be kept and certified by the staff
responsible. If a staff decides to hide the items and collaborate with the
other workers they can get away with it.
Independent stock check
Stock
checks could help detect and deter malpractice in stores management. An independent
checker or team could be assigned to conduct periodic stocktaking exercises
whilst the warehouse supervisor should make regular surprise stock checks. An
effective stocktaking mechanism should include the following safeguards. The frequency,
scope and sample size of the checks should be predetermined. A master inventory
record of all stock items should be compiled to facilitate stock checks. Procedures
should be established to handle discrepancies identified in stock checks, including
investigation and reporting to the appropriate authority. Staff at the
appropriate level should be designated to approve any amendment of stores records
as a result of the stock checks. If the workers decide to come out with a fake
stock count amount then stock will be easily stolen.
Question 2
Understands
that their success comes from being responsible and earning the trust of the
customers, suppliers and stakeholders. Imagine that you are part of the senior
management team of Tesco. As a responsible corporate citizen, suggest five ways
through which Tesco helps the community in which it operates. (10 marks)
There are five ways
which Tesco Malaysia is giving to back to the Malaysian society. Tesco Malaysia
has contributed a fair amount to the community although it does not bring them
much profit. The examples of these good deeds can be referred to from the
official website of Tesco Malaysia (www.tesco.com.my).
1. Tesco has been
helping children with Leukemia. Amongst the many contributions Tesco Malaysia
have made to the society is that they actively support local communities by
helping children with Leukemia. Over the past few years, Tesco Malaysia has
launched a fundraising project to raise an amount of RM1 Million with a goal of
achieving it within three years to support the cost of the treatments which the
parents of these children have to bear. This is to combat the Leukemia disease
which is faced by children and its death rate is increasing immensely.
2. Tesco Malaysia is
also an environmentally friendly company and has been putting effort into
caring for the environment. One of the major problems plaguing the environment
nowadays is global warming and greenhouse effect which are harmful to the
people’s health. Tesco is an eco-friendly company as they look into
environmental issues and then try to resolve them. Tesco Malaysia has been
giving back to the environment by planting trees (As of June 2013 Tesco had
planted 30,660 trees in Malaysia), this effort has been proven to improve the
quality of the air.
3. Tesco Malaysia
provides nutrition labeling on its goods sold for the well-being of their
customers. Tesco hypermarkets are one of the pioneers in initiating such act as
it not only benefits the consumers much by giving them an insight of what they
are consuming, it also gives them the right to know what the food has in it.
This is done by providing information regarding the food’s nutritional value
towards their health. By doing this, consumers gain by being able to avoid any
food that they may be allergic to. In addition, the calories stated on the food
containers benefit the consumers who are having a strict diet and trying to
control their calorie intake.
4. Tesco Malaysia has been supporting local
suppliers since its inception and this continuing support of local suppliers
has helped the country’s growing economy. This action is certainly in line with
the government’s call to promote and buy more from local suppliers.
5. Tesco Malaysia has
also created more job opportunities as it continues to expand its operations in
Malaysia by opening more outlets across the country. This has certainly allowed
more Malaysians to have a job to feed the family and in return, lowered the
employment rate in Malaysia thereby creating a more balanced economy.
Question 3
Being a
limited company, Tesco is required to publish annual financial statements.
Describe any five accounting
concepts that have been established to guide the preparation of financial
statements to ensure the objectivity and consistency of financial information. (5 marks)
Historical Concept
Historical concept is used by Tesco Malaysia to
record the price of its bought inventory. Tesco Malaysia always records their
inventories at their buying price/cost price. Tesco Malaysia records almost all
of the assets that are bought and recorded in this concept for an easier
comparison to be made when needed.
Dual Aspect Concept
To record the inflow and outflow of cash to the
business Tesco Malaysia uses the Dual Aspect Concept. Every transaction is
recorded in debit and credit. The transaction amount increased in of a portion
in assets and expenses are in debit and decreases are in liabilities, equity
and income. A portion of transaction for the increase in income, liabilities
and the decrease in assets and expenses are credit. For example, when consumers
purchase things from Tesco Malaysia, Tesco Malaysia will credit the purchases
while cash would be debited.
Money Measurement Concept
Widely known to the accounting world, Tesco
Malaysia accounts applies the money measurement concept to record its account
balance and transaction which is recording every transaction that had been made
in monetary term, whether it’s buying from the suppliers or selling it to the
consumers. Tesco records all of the event or transaction made in monetary
terms.
Materiality
Considering that Tesco is a huge company, it has
opened up a number of branches throughout the nation. Any lost or damage of
minor goods such as pen, plastic chair or a battery will be brushed aside
without any worries. However, if the value of the goods lost or damaged is
highly priced like a television or fridge this will be investigated by the
management and security personals as this is considered as a major event.
Accrual concept
Payments that are yet to be received or paid of a
transaction are recorded by using the accrual concept. This concept is used by
Tesco Malaysia to record accrued or prepaid transaction. Prepayments are being
recorded as an advanced payment which the actual transaction has yet to occur.
For example, If Tesco Malaysia was to have overpay a small portion of
electricity bill at the end of its accounting period. An asset is recorded in
records of prepayment in Statement of Financial Position. On the other hand,
transactions that have taken place but payment wasn't made are accrued
payments. For example, Tesco has not paid for a portion of expenses at the end
of the financial year. Accrued payments are recorded as liability in Statement
of Financial Position.
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