4-1 Assignment ACC201
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4-1 Assignment: Internal Controls
Alisity Abernathy
Southern New Hampshire University
ACC-201-Q4022 Financial Accounting
Dr. Bryce Barton
March 31, 2024
2
Internal controls are essential in company environments because they set up protocols and safeguards for assets, guarantee accuracy in financial reporting, and identify and stop theft and fraud (Warren & Jones, 2019). Businesses are susceptible to some risks, such as inventory shrinkage and misappropriation, if internal controls are inadequate (Warren & Jones, 2019). In this case, the lack of internal controls raises the possibility that inventory loss would go unreported or unrecognized, which will eventually affect the company's cash flow and operational effectiveness (Warren & Jones, 2019). Errors, manipulation, or illegal access to inventory are made possible by the absence of controls such as inventory tracking systems or segregation of roles, which can result in imprecise financial reporting and compromised decision-making (Warren & Jones, 2019).
The owner of the business should put in place many internal measures to reduce the chance of inventory loss and guarantee prompt identification. First, you may prevent theft and unauthorized access by putting in place physical controls including limiting access to the warehouse area, locking up inventory storage facilities, and keeping a record of inventory movements (Warren & Jones, 2019). Furthermore, segregation of jobs, in which distinct staff members are in charge of receiving, documenting, and keeping an eye on inventory, can aid in preventing collusion and guaranteeing accountability (Warren & Jones, 2019). Moreover, regular
inventory counts and reconciliations—ideally carried out by an impartial third party—can aid in quickly detecting inconsistencies (Warren & Jones, 2019). Using an inventory control system with real-time monitoring features, like barcode scanning or RFID technology, can give quick alerts when inventory levels differ from anticipated numbers, allowing the owner to be informed immediately if something is missing (Warren & Jones, 2019).
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Related Questions
Exercise 6-3 (Algo) Internal control strengths and weaknesses LO C1
Determine whether each procedure described below is an internal control strength or weakness; then identify the internal control principle violated or followed for each procedure.
An employee cannot approve their own request for purchases of inventory.
Several salesclerks share the same cash drawer.
Employees that handle easily transferable assets such as cash are bonded.
The company devotes resources towards keeping accurate accounting records for machinery.
The company saves money by having employees involved in operations perform the only review of internal controls.
arrow_forward
Discussion Questions on Fraud Prevention from Chapter 4 Fraud Examination 4th Edition
1. How do organizations create a culture of honesty, openness, and assistance?
2. What are different ways in which companies can eliminate opportunities for fraud?
3. What is the purpose of adopting a code of ethics throughout a company?
arrow_forward
QUESTION 22
Match the term on the left with the appropriate definition or description on the left.
A. A requirement of the Sarbanes-Oxley Act
B. A group of measures intended to reduce or detect fraud
C. A framework for assessing the risk of fraud
D. The set of accounting rules that publicly traded companies must follow
v Fraud triangle
v Audited financial statements
v Internal controls
v Segregation of duties
E. One specific measure taken to reduce the opportunity for fraud
F. A licensing requirement for auditors of public firms
v Cerified Public Accountant
v GAAP
arrow_forward
Question #66: Lamar LLC is in the process of updating its revenues and receivables systems with the implementation of new accounting software. James Loden, Inc. is an independent information technology consultant who is assisting Tamar with the project. James has developed the following checklist containing internal control points that the company should consider in this new implementation:
Is the sales department separate from the credit office and the IT department?
Are all collections from customers received in the form of checks?
Is it appropriate to program the system for general authorization of certain sales, within given limits?
Are product quantities monitored regularly?
Required: In a two (2) page response, describe the control purpose for each point presented in the case.
arrow_forward
Question 1
(i) Which of the following will NOT be a likely ground to blow the whistle?A. When there are serious breaches of company rules and regulationsB. When somebody feels personally aggrievedC. When there are threats to human safetyD. When there are serious concerns about a possible fraud
(ii) Which of the following is not an example of internal control risk?A. Risks of errors or fraud in accounting systems and accounting and finance activities.B. Risks that important laws and regulations will not be complied with properly.C. Risks that arise in the business environment and markets in which the company operatesD. The risk of losses resulting from inadequate or failed internal processes, people and systems or external events.
(iii) Which of the following is NOT a statutory duty of a director?A. Duty to disclose any money received in connection of a transfer of company property.B. Duty to exercise due diligence in their work C. Duty to contribute an appropriate sum of money to the…
arrow_forward
Please answer all 3 subparts
Question 1
(i) Which of the following is not an example of internal control risk?A. Risks of errors or fraud in accounting systems and accounting and finance activities.B. Risks that important laws and regulations will not be complied with properly.C. Risks that arise in the business environment and markets in which the company operatesD. The risk of losses resulting from inadequate or failed internal processes, people and systems or external events.
(ii) Which of the following is NOT a statutory duty of a director?A. Duty to disclose any money received in connection of a transfer of company property.B. Duty to exercise due diligence in their work C. Duty to contribute an appropriate sum of money to the board on joining the companyD. Duty to keep proper accounting records and make such records available for inspection.
(iii) Which of the following would be the best way for a shareholder (not being an institutional shareholder) to become involved in the…
arrow_forward
stifying
M5-2 Identifying Internal Controls over Financial Reportingen/gp/
Fox Erasing has a system of internal control with the following procedures. Match the procedure to
the corresponding internal control principle.
Indoo raso Procedure
1--
ME 2 Identifina
SAUNTOSON an
1. The treasurer signs checks.
Internal Control Principle
A. Establish responsibility
2B. Segregate duties
volume C. Restrict access
2. The treasurer is not allowed to make bank
deposits.
dags
orly savion
3. The company's checks are prenumbered.
D. Document procedures
4. Unused checks are stored in the vault.ancien en proides B. Independently verify
olar997 daga
5. A bank reconciliation is prepared each month.
geland
Fraud, Inter
CHAPTER 5
antal Drinciples Anlied by a Morchandicar
L
arrow_forward
!
Required information
Chapter 04 Problem 4-31 LO 4-6, 4-9
[The following information applies to the questions displayed below.]
Management fraud (e.g., fraudulent financial reporting) is a relatively rare event. However, when it does occur, the frauds
(e.g., Enron and WorldCom) can have a significant effect on shareholders, employees, and other parties. The PCAOB's AS
2401, Consideration of Fraud in a Financial Statement Audit, provides the relevant guidance for auditors.
Chapter 04 Problem 4-31 Part c LO 4-6, 4-9
c. Select the items that are most likely to be objectives of the "brainstorming" meeting that is held among the engagement team
members:
Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct
answer and double click the box with the question mark to empty the box for a wrong answer.
?Share insights about the entity and its environment and the entity's business risks.
? Provide an opportunity for the team…
arrow_forward
Required information
Chapter 04 Problem 4-31 LO 4-6, 4-9
[The following information applies to the questions displayed below.]
Management fraud (e.g., fraudulent financial reporting) is a relatively rare event. However, when it does occur, the frauds
(e.g., Enron and World Com) can have a significant effect on shareholders, employees, and other parties. The PCAOB's AS
2401, Consideration of Fraud in a Financial Statement Audit, provides the relevant guidance for auditors.
Chapter 04 Problem 4-31 Part b LO 4-6, 4-9
b. Select the three conditions that are generally present when fraud occurs:
Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct
answer and double click the box with the question mark to empty the box for a wrong answer.
Management or other employees have an incentive or are under pressure that provides a reason to commit fraud.
Circumstances exist that provide an opportunity for a fraud to be carried…
arrow_forward
Question 5
Explain why each of the following combinations of tasks should or should not be separated to achieve adequate internal control.
Approval of bad debt write-offs and the reconciliation of the accounts receivablesubsidiary ledger and the general ledger control account.
Distribution of payroll checks to employees and approval of employee time cards. c. Posting of amounts from both the cash receipts and the cash disbursements journals to the general ledger.
Writing checks to vendors and posting to the cash account.
Recording cash receipts in the journal and preparing the bank reconciliation
arrow_forward
Match definitions with vocabulary terms) Use theseterms to complete the statements that follow. You can use a term more than once or not at all.Bank reconciliation Firewall Misappropriation of assetsCash equivalents Fraud triangle Outstanding checkController Fraudulent financial reporting PhishingDeposits in transit Imprest system Remittance adviceFidelity bond Internal control Treasurerl. An insurance policy that reimburses a company for any losses due to employee theft isa/an .__________________________
arrow_forward
Required information
Chapter 04 Problem 4-31 LO 4-6, 4-9
[The following information applies to the questions displayed below.]
Management fraud (e.g., fraudulent financial reporting) is a relatively rare event. However, when it does occur, the frauds
(e.g., Enron and WorldCom) can have a significant effect on shareholders, employees, and other parties. The PCAOB's AS
2401, Consideration of Fraud in a Financial Statement Audit, provides the relevant guidance for auditors.
Chapter 04 Problem 4-31 Part b LO 4-6, 4-9
b. Select the three conditions that are generally present when fraud occurs:
Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct
answer and double click the box with the question mark to empty the box for a wrong answer.
Management or other employees have an incentive or are under pressure that provides a reason to commit fraud.
Circumstances exist that provide an opportunity for a fraud to be carried…
arrow_forward
ESB. ACCOUNTING CONNECTION Careful scrutiny of accounting records and financial
statements can lead to the discovery of fraud or embezzlement. Each of the situations
that follow may indicate a breakdown in internal control. Indicate the nature of the pos-
sible fraud or embezzlement in each of these situations.
1. Wages expense for a branch office was 30 percent higher in 2014 than in 2013, even
though the office was authorized to employ only the same four employees and raises
were only 5 percent in 2014.
2. Sales returns and allowances increased from 5 percent to 20 percent of sales in the
first two months of 2014, after record sales in 2013 resulted in large bonuses for
the sales staff.
3. Gross margin decreased from 40 percent of net sales in 2013 to 20 percent in 2014,
even though there was no change in pricing. Ending inventory was 50 percent less
at the end of 2014 than it was at the beginning of the year. There is no immediate
explanation for the decrease in inventory.
4. A…
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How can fraud be prevented in the making use of accounting information systems? How do ethics
and internal control play key roles in reporting misstated financial statements? (Accounting
Information System Tenth Edition by James Hall chapter 3)
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Related Questions
- Exercise 6-3 (Algo) Internal control strengths and weaknesses LO C1 Determine whether each procedure described below is an internal control strength or weakness; then identify the internal control principle violated or followed for each procedure. An employee cannot approve their own request for purchases of inventory. Several salesclerks share the same cash drawer. Employees that handle easily transferable assets such as cash are bonded. The company devotes resources towards keeping accurate accounting records for machinery. The company saves money by having employees involved in operations perform the only review of internal controls.arrow_forwardDiscussion Questions on Fraud Prevention from Chapter 4 Fraud Examination 4th Edition 1. How do organizations create a culture of honesty, openness, and assistance? 2. What are different ways in which companies can eliminate opportunities for fraud? 3. What is the purpose of adopting a code of ethics throughout a company?arrow_forwardQUESTION 22 Match the term on the left with the appropriate definition or description on the left. A. A requirement of the Sarbanes-Oxley Act B. A group of measures intended to reduce or detect fraud C. A framework for assessing the risk of fraud D. The set of accounting rules that publicly traded companies must follow v Fraud triangle v Audited financial statements v Internal controls v Segregation of duties E. One specific measure taken to reduce the opportunity for fraud F. A licensing requirement for auditors of public firms v Cerified Public Accountant v GAAParrow_forward
- Question #66: Lamar LLC is in the process of updating its revenues and receivables systems with the implementation of new accounting software. James Loden, Inc. is an independent information technology consultant who is assisting Tamar with the project. James has developed the following checklist containing internal control points that the company should consider in this new implementation: Is the sales department separate from the credit office and the IT department? Are all collections from customers received in the form of checks? Is it appropriate to program the system for general authorization of certain sales, within given limits? Are product quantities monitored regularly? Required: In a two (2) page response, describe the control purpose for each point presented in the case.arrow_forwardQuestion 1 (i) Which of the following will NOT be a likely ground to blow the whistle?A. When there are serious breaches of company rules and regulationsB. When somebody feels personally aggrievedC. When there are threats to human safetyD. When there are serious concerns about a possible fraud (ii) Which of the following is not an example of internal control risk?A. Risks of errors or fraud in accounting systems and accounting and finance activities.B. Risks that important laws and regulations will not be complied with properly.C. Risks that arise in the business environment and markets in which the company operatesD. The risk of losses resulting from inadequate or failed internal processes, people and systems or external events. (iii) Which of the following is NOT a statutory duty of a director?A. Duty to disclose any money received in connection of a transfer of company property.B. Duty to exercise due diligence in their work C. Duty to contribute an appropriate sum of money to the…arrow_forwardPlease answer all 3 subparts Question 1 (i) Which of the following is not an example of internal control risk?A. Risks of errors or fraud in accounting systems and accounting and finance activities.B. Risks that important laws and regulations will not be complied with properly.C. Risks that arise in the business environment and markets in which the company operatesD. The risk of losses resulting from inadequate or failed internal processes, people and systems or external events. (ii) Which of the following is NOT a statutory duty of a director?A. Duty to disclose any money received in connection of a transfer of company property.B. Duty to exercise due diligence in their work C. Duty to contribute an appropriate sum of money to the board on joining the companyD. Duty to keep proper accounting records and make such records available for inspection. (iii) Which of the following would be the best way for a shareholder (not being an institutional shareholder) to become involved in the…arrow_forward
- stifying M5-2 Identifying Internal Controls over Financial Reportingen/gp/ Fox Erasing has a system of internal control with the following procedures. Match the procedure to the corresponding internal control principle. Indoo raso Procedure 1-- ME 2 Identifina SAUNTOSON an 1. The treasurer signs checks. Internal Control Principle A. Establish responsibility 2B. Segregate duties volume C. Restrict access 2. The treasurer is not allowed to make bank deposits. dags orly savion 3. The company's checks are prenumbered. D. Document procedures 4. Unused checks are stored in the vault.ancien en proides B. Independently verify olar997 daga 5. A bank reconciliation is prepared each month. geland Fraud, Inter CHAPTER 5 antal Drinciples Anlied by a Morchandicar Larrow_forward! Required information Chapter 04 Problem 4-31 LO 4-6, 4-9 [The following information applies to the questions displayed below.] Management fraud (e.g., fraudulent financial reporting) is a relatively rare event. However, when it does occur, the frauds (e.g., Enron and WorldCom) can have a significant effect on shareholders, employees, and other parties. The PCAOB's AS 2401, Consideration of Fraud in a Financial Statement Audit, provides the relevant guidance for auditors. Chapter 04 Problem 4-31 Part c LO 4-6, 4-9 c. Select the items that are most likely to be objectives of the "brainstorming" meeting that is held among the engagement team members: Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. ?Share insights about the entity and its environment and the entity's business risks. ? Provide an opportunity for the team…arrow_forwardRequired information Chapter 04 Problem 4-31 LO 4-6, 4-9 [The following information applies to the questions displayed below.] Management fraud (e.g., fraudulent financial reporting) is a relatively rare event. However, when it does occur, the frauds (e.g., Enron and World Com) can have a significant effect on shareholders, employees, and other parties. The PCAOB's AS 2401, Consideration of Fraud in a Financial Statement Audit, provides the relevant guidance for auditors. Chapter 04 Problem 4-31 Part b LO 4-6, 4-9 b. Select the three conditions that are generally present when fraud occurs: Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Management or other employees have an incentive or are under pressure that provides a reason to commit fraud. Circumstances exist that provide an opportunity for a fraud to be carried…arrow_forward
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