Solved: Superior Co manufactures automobile parts for

sale to the major

Superior Co. manufactures automobile parts for sale to the major U.S. automakers. Superior's
internal audit staff is to review the internal controls over machinery and equipment and make
recommendations for improvements when appropriate. The internal auditors obtained the
following information during the assignment:
• Requests for purchase of machinery and equipment are normally initiated by the supervisor in
need of the asset. The supervisor discusses the proposed acquisition with the plant manager. A
purchase requisition is submitted to the purchasing department when the plant manager is
satisfied that the request is reasonable and that there is a remaining balance in the plant's share
of the total corporate budget for capital acquisitions.
• Upon receiving a purchase requisition for machinery or equipment, the purchasing department
manager looks through the records for an appropriate supplier. A formal purchase order is then
completed and mailed. When the machine or equipment is received, it is immediately sent to the
user department for installation. This allows the economic benefits from the acquisition to be
realized at the earliest possible date.
• The property, plant, and equipment ledger control accounts are supported by computerized
depreciation lapse schedules organized by year of acquisition. These lapse schedules are used
to compute depreciation as a unit for all assets of a given type that are acquired in the same
year. Standard rates, depreciation methods, and salvage values are used for each major type of
fixed assets. These rates, methods, and salvage values were set 10 years ago during the
company's initial year of operation.
• When machinery or equipment is retired, the plant manager notifies the accounting
department so that the appropriate entries can be made in the accounting records.
• There has been no reconciliation since the company began operations between the
accounting records and the machinery and equipment on hand.

Required
Identify the internal control deficiencies and recommend improvements that the internal audit
staff of Superior Co. should include in its report regarding the internal controls over fixed assets.
Use the following format in preparing your answer:*
Deficiencies Recommendations
1. 1.

ANSWER
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