The Article is related to Accounting, Internal Control & Test of Controls applied at Stockland Company . The Stockland company is related to specialized entities dealing in real estate and property development across Australia. The company was found in the year 1952 by two businessmen namely Ervin Graf and Albert Sheinberg. The mission and vision of both these entrepreneurs were not to maximize the shareholder’s wealth but also contribute to the infrastructure development in the cities of Australia along with providing state of the art living facilities to the citizens. After 5 years, the Stock land Company diversified its activities to commercial sectors by building commercial projects in the area of Sydney. Its portfolio consists of management of more than 40 commercial centers, 60 residential and development projects, 12 industrial centers, and several retirement villages. Mr. Mark Steinert and Mr. Tom Pockett are serving as Managing Directors and Chairman of Board committee members of Stockland.
a- Accounting for current asset
Current assets are those assets that can be utilized and sold under normal business operations within the current year. It includes cash, cash equivalents, account receivables, securities, prepaid assets, and liquid financial assets (Irman and Purwati, 2020) According to the financial statement of Stockland, the following are the items report under current asset in balance sheets.
1- Receivable
It is the amount which is due to a company for goods/services delivered to customers and the amount is not paid yet. At Stockland, Account receivable are acknowledged originally at fair value and later on measured at a cost that is amortized in nature. This amortized cost was calculated at the method by deducting any allowance under the credit loss framework from the amortized cost. According to Australian Accounting Standard Board 9 (AASB), unsecured loans under intergroup account receivable will be paid in 2023 (White et al,1998).
2- Inventories
At Stockland, AASB 102 deals with the Inventories and measured at lower of cost and net realized value (NRV). Net realized value is considered as expected amount realized from the sale of inventory in day to day business activities (Wang, X., 2019). Inventories that are under work in process for final production will be considered as work in progress items.
3- Other Financial Asset
Financial assets are dealt with AASB standard 9 for financial instruments. The purpose of this standard is to current applicable and helpful information to users of financial statements for their assessment, timing, and uncertainty of a cash future in the future of financial assets or organization. Its initial measurement is booked under-investment at subsidiaries, associates, and interest in joint ventures. Further, these items are considered as held for sales and meet the criteria of AASB 9 (Thai et al, 2019)
- Subsidiary investment
- Associate investments
- Interest in joint ventures
- Lesser Rights
b- Internal Control
Internal Controls are processes for ensuring the organization achieves effectiveness in operations, reporting, and necessary compliance with regulations laws and procedures (Erdoğan, M., 2019). The following are the details of the controls implemented.
1- Control over Receivable
Following were the control which will be implemented for balances of account receivable.
- Any default in history should be strictly monitored
- Credit risk analysis shall be performed
- 12-month credit losses due to impairment provision shall be reviewed
2- Control Over Inventory Valuation
Following controls were implemented over inventory valuation
AASB 102 shall not apply to financial instruments, agricultural activities, and commodity brokers.
- Inventories only include goods purchased to resale and held for trading activities only.
- Inventory valuation includes conversion cost and cost incurred for bringing the same to usable conditions.
- Borrowing costs do not include while measuring inventory valuation.
- A consistent method of inventory shall be adopted across the organization. i.e Last-In-First out, First-in-first-out, and weighted average.
- Items such as biological assets, construction contract work in process and financial asset are not treated under this standard
3- Controls over financial assets
Following controls were implemented over the measurement of financial assets
- Financial assets must be quoted with active price with immediate access to sell the asset.
- The fair value of the asset shall be determined based on mid-market rates for settlement of offsetting risk.
- In case of an unbelievable price, the last transaction carried out in the market shall be considered as a basis to determine fair value.
- Any directly related cost shall be considered for the acquisition of an asset
- Fair value techniques such as discounted cash flow, option pricing model, and other pricing models shall be used.
- Any deferred cost related to an asset shall be considered by discounting present value at discounted rates.
- Investment in the subsidiary is considered at fair value at the date of the transaction.
C- Test of Controls
Test of control is a procedure used to test the controls implement against the procedure applied to ensure, prevent, and detect material misstatement in the policy and procedures. The severity of the test depends upon the auditor’s judgment related to the need for the test to be applied for said purpose (Blokdijk, J.H., 2004). The following are the test of controls.
Assertions | Control Objective | Controls | Test of Controls |
Occurrence and existence | Recording of credit sales | · Authorization process · Duties segregation · Authorization and sales order | · Review policy and procedures. · Sample checking of the job description for segregation’ · Delegation of sales authority |
Completeness | All sales order transaction recorded | · Goods delivery notes and sale order shall be matched · Renumber of GDN and Sales order · Independent reconciliation and description checking | · Physical examination of invoices and documents · Review of procedure place for documents · Control procedure review
|
Right and obligation | Items which are sales, same shall be recorded | Checking of description item of Good delivery notes and supplier invoices | Counter checking of the item mentioned in the description of the documents for verify owners details |
Accuracy and classification | Proper recording of sales items in the accounting system | · Mathematical accuracy · Charts of accounts · Reconciliations process | · Sample review of an invoice for reconciliation sales s · Mathematical accuracy through sample review by performing calculation of totaling of invoices. · General ledger and sales ledger review of accuracy purpose. |
Cut-off | Recoding items only related to the mentioned period | Recording of goods received or consigned at the same time without any delay. | · Checking of data on the voucher with the date of entries carried out. · Comparison of date of the general ledger with sales ledger. |
Assertions | Control Objective | Controls | Test of Controls |
Occurrence and existence | Authorization and recording | · Documents liken good delivery notes and receivable notes shall be pre-number. · Inventory reconciliation · Segregation of duties | · Review Documentation in use. · Sample checked of reconciliation · Evaluation of proper segregation |
Completeness | Recording of sales and sales inventory | · Availability of procedure held at third party consignment · Physical checking of inventory | · Rechecking inventory for consignment. · Independent reconciliation carried out |
Right and obligation | Recording to items belonging to the company only | Segregated inventory at each and third party place | Physical checking of invoices of inventory where consignment owners detail written for independent evidence. |
Accuracy and classification | To check whether inventory mentioned at the balance sheet is accurate | Physical checking of inventory | Comparison of inventory with pervious year with proper rises or rises in inventory. |
Cut-off | Sales d book related to the relevant accounting year | Dispatched documents, inwards reports and reconciliation form general ledger is carried for | Though sample review, and work through the process for confirmation. |
Presentation and disclosure | Proper classification of inventory at the balance sheet and any required disclosures | · Invoice approved by the finance director. · Material order and production data form for goods | · Availability of process or inventory classification. · Working paper evidence for cut off review. |
3- Test of control over financial assets.
Assertions | Control Objective | Controls | Test of Controls |
Occurrence and existence | Authorization and recording of assets. | Approval from Chief investment officer or head of portfolio management | Checking of samples of approval and authorization of higher management. |
Completeness, Accuracy, and classification | Recording of financial assets based on criteria specified in · Subsidiary investment · Associate investments · Interest in joint ventures · Lesser Rights Calculation based accuracy of financial assets | The initial and subsequent measure shall be carried out by the criteria laid down by AASB 9 | Recording of transaction carried out on the basis · Active market rates · Recent transaction rates · Valuation techniques · Fair value hedges · Interest rates derivatives |
Right and obligation | Noting of a portion of financial asset belong to an organization only | Financial agreements carried out by parties. Terms and conditions | Review the documents related to a legal obligation and binding related to rights and obligations related to financial assets |
Cut-off | Only noting of a portion of financial asset fall under the cut off period | Carried out calculation only for the specific period and match with the reported amount. | Check the basis on which calculation of financial assets has been carried out. |
Presentation and disclosure | Any disclosure related to ownership or clarification shall be included in notes of disclosures. | Segregated disclosures have been mentioned at the financial statement | Segregation such as fair value hedging, CCIRs through profit and loss, interest rate derivations shall be checked for detailed understandings. |
Conclusion
During the above discussion at Stockland’s current assets of financial statements, we have discussed, receivables inventory, and financial assets under current assets segments. For details understanding, we have studied the financial statement of Stockland and found the different standards of Australian accounting standards are implemented at the organization for initial and subsequent measurement. Each standard has different criteria for recognization followed by certain controls which is the part of standards. A further test of control is being assessed based on different assertions which included occurrences, existences, completeness, accuracy, classification, rights, cut-off, and disclosure requirements.