Eastern Cape's city of Ggeberha is home to Eastern

Shore (Pty) Ltd which is a large transportation company. You have been

appointed as the new internal auditor and you have been tasked with evaluating

the company’s accounting systems relating to the Finance and Investment cycle. During

your evaluation the following came to your attention:

Each sectional accountant is responsible for capital

expenditure for their own section. Every year, budget allocations are raised in

accordance with the consumer price index by the financial director. If a

certain section does not spend their budget in the financial year then that

section’s budget is reduced for the following year. Therefore, all sectional

accountants make sure that they use the full budget so it does not get reduced

in the following year.

Each sectional accountant is responsible for capital

expenditure for their own section and can authorise it at their discretion. Every

year, budget allocations are raised in accordance with the consumer price index

by the financial director. If a certain section does not spend their budget in the

financial year then that section’s budget is reduced for the following year.

Therefore, all sectional accountants make sure that they use the full budget so

it does not get reduced in the following year.

Identify the weakness

in the system of investing in

capital equipment based on the purchase of capital equipment purchased just

before year-end.