02101020/K/MS/CAPE 2017

C A R I B B E A N E X A M I N A T I O N S C O U N C I L

CARIBBEAN ADVANCED PROFICIENCY EXAMINATION®

ACCOUNTING

UNIT 1 - PAPER 02

KEY AND MARK SCHEME – QIG 1

MAY/JUNE 2017

MODULE 1

ACCOUNTING THEORY, RECORDING AND CONTROL SYSTEMS

Question 1.

Specific Objective: 1.1.4

(a) (i) Verifiability – relates to information being communicated in an

unbiased manner [faithfully represent, accurate, true and
fair]. (1) This means that different knowledgeable and
independent observers could reach consensus that the
financial statements can be tested [can be proven] (1).

Prudence – Prudence is the inclusion of a degree of caution in the

exercise of judgments (1) needed in making the estimates
required under conditions of uncertainty, such that assets
or income are not overstated and liabilities or expenses are
not understated. (1) [4 marks]
 (ii) The major characteristics of relevant information are the
following:

Predictive value (1) – information has predictive value when it

can help users to increase the likelihood of evaluating past,
present or future events. (1)

Confirmatory/Feedback value (1) – information with feedback value

enables users to confirm or correct past evaluations. (1)

Timeliness (1) decision-makers need information available in time

to be capable of making informed decisions. (1)

[Although in the framework timeliness is stated as an enhancing

characteristics there are some books used by students which
categorizes timeliness as a characteristic of relevance. The mark
is being awarded for this sitting only]
[4 marks]

Specific Objective: 1.1.6

(b) (i) Principles of internal controls concerning cash management:

• Establishment of responsibility/authority
• Documentation procedures
• Independent internal verification
• Other controls

Any 2 for 1 mark each [2 marks] (ii) All the procedures must be
applied to cash in order for marks to be awarded. Where general procedures
are given, no mark will be awarded.

Establishment of Responsibility/Authority
• Ensure that only persons responsible for cash are allowed to
handle cash
• Ensure that job descriptions for persons handling cash are clear
• Only designated persons, such as the Accountant should be
authorized to sign cheques
Segregation of Duties

• Ensure that the persons recording cash are not the same persons
collecting
• Persons who authorize the writing off of bad debts should not
be responsible for collecting cash
• Persons from different departments should be assigned the duties
of approving an item for payment and making the payment
• Persons who sign cheques should not record those transactions
Documentation procedures

• Payments must be made on the approval of invoices

 • Deposits must be evidenced by deposit slips
• Spoiled cheques should be folded and left in the cheque book
• Pre-numbered cheque leaves should be used
• Issue receipt when cash is received

Physical mechanical and electronic controls

• Cash held in the business should be kept in a vault or locked
safe
• Combination locks can be used
• Keys to safes and vaults should be held by more than one assigned
persons
• Cash registers should be used for over-the-counter sales
• Cash should be transported to the bank by secured vehicles
• Security cameras where cash is being handled
Independent internal verification

• Cash received from cashiers at the end of the day should be

verified by a supervisor
• Lodgments must be verified and compared with receipts collected
from cashier
• Monthly bank reconciliation should be reviewed by the
accountant/supervisor

Question 1. (continued)

Other controls

• Rotate workers so that one persons is not handling cash at all

times
• Ensure that workers handling cash take vacation when due
• Obtain fidelity insurance for employees who handle cash

1 mark each for TWO procedures from each category 2 x 4 =

[8 marks]

(b) (iii) Differences between internal and external auditor

External Auditor Internal Auditor

1. Appointed by board of Employed by management
directors/shareholders
2. Reports to shareholders Reports to the audit subcommittee
or management

3. Scope of work is determined in Scope of work is determined by

accordance with legislation management

4. Must be certified/qualified Does not have to be an accountant

accountant

5. Reports in standard form No standard format for report

6. Not responsible for the prevention Responsible for the prevention

and detection of fraud. and detection of fraud or
or Evaluates the strengths and
Expresses and opinion on the weaknesses of internal controls
financial statement and makes recommendations

7. Appointed annually. Must be Continuous employment

independent from the organization
Or
Contracted for a specific
engagement

Any three comparisons, 2 marks for each comparison 2 x 3 = [6 marks]

Question 1. (continued)

Specific Objective: 1.1.5

(c)
Date Description Dr Cr

12 March Treasury shares/ordinary shares 17 500 (1)

Cash/bank 17 500 (1)

16 June Cash 26 000 (1)

Ordinary shares 20 000 (1)
Share premium 6 000 (1)

25 September Dividends payable 20 000 (1)

Cash/bank 20 000 (1)

31 October Interest payable 5 000 (1)

Cash/bank 5 000 (1)
 Investment/Long-term
15 November Investment/Carib Garage 6 000 (1)
Cash/Bank 6 000 (1)

[11 marks]

Total 35 marks