BAM7014: Gable Bhd is a construction company. They are now undergoing the annual audit for the year-end of December: Accounting for Managers Case Study, MMU, Malaysia

The auditors have conducted their audit procedures and arranged for a meeting with Gable Bhd’s management team. They raised the following issues

1. The financial statements include cranes disposed of during the year with a carrying amount of RM220,000. Gable has accounted for the proceeds of the disposal in other income amounting to RM670,000 in the statement of profit or loss but has not removed the carrying amount of the disposed of cranes from the statement of financial position. The directors refuse to amend the financial statements in respect of this matter because the buyer of the cranes has not yet collected the cranes which are still on Gable’s premises.
2. Gable uses sub-contractors who are paid a variable daily rate depending on the location and complexity of the construction project. The system used to process the payments to sub-contractors developed a fault during the year and many sub-contractors were paid at incorrect daily rates. The directors estimate that RM340,000 was overpaid and they have recorded a receivable for this amount. At the time of completion of the audit, RM25,000 had been received in respect of this balance. Your firm’s inquiries during the audit revealed that Gable has not had any success in contacting any of the sub-contractors that are still to reimburse the company as they no longer undertake work for Gable. The directors refuse to include an allowance for doubtful debts in respect of the outstanding amount.
   

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3. In April 2022, Gable won a contract to construct the staff dormitory for Bayuair Bhd,, a large commercial airline. The contract runs for two years from 1 May 2022 and requires Gable to construct 400 units of dormitory during the contract period. Under the terms of the contract, Bayuair is required to make four six-monthly payments of RM281,500 and the first payment was made on 1 May 2022. Marmalade had completed 120 units by 31 December 2022.
4. Gable sometimes becomes involved in disputes with clients which could potentially lead to claims for damages by the client. Insurance cover is maintained against the payment of damages in respect of such claims. Where management considers that there is a reasonable basis for a claim against Gable, a provision is made in the financial statements for the uninsured costs in respect of that claim. Because of Whistler’s high volume of claims in previous years, the insurer has reduced the scope of Gable’s insurance cover for new claims arising from work completed during the year ended 31 December 2022
5. The audit exercise has revealed the following internal control deficiencies:
6. On several occasions throughout the year, consultants ordered IT equipment directly from suppliers. Company policy requires all IT equipment to be purchased by the buying department.
7. Whistler does not have any bribery prevention policies in place.