Chapter 7 Reading Notes : Internal Control

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Chapter 7 Reading Notes: Internal Control: • Fraud is the act of deception in which a business including employees or management use to receive personal gain. • Fraud occurs based on three aspects and they are based off the fraud triangle. - They include pressure, rationalization and opportunity - Reducing these three key aspects of fraud will reduce the act of fraud in a business • Pressure: - Pressure entails financial pressure, where someone is financially unstable - A financial statement fraud could come directly from management level where they deceive the numbers of revenue and expenses to satisfy the open market expectation or wallstreet - Background checks and employee screening is necessary to reduce this key factor of fraud…show more content…
Establishing authority and responsibility: - Establishing a subdivision management level establishes boundaries of responsibility in turn this will establish boundaries for employees - This structure establishes planning directing and controlling the company cooperation - Provides the backbone for each function for each persona and what responsibility they uphold for each task - Supervisors are a great way for detection control and preventative control it sets the boundary between employee and management. Employees are always evaluated by their supervisors. Supervisors are a great element when work needs to be revised, thus detection is an important for this aspect of authority and responsibility 2. Implement segregation of duties: - Segregation of duties makes sure that employees don’t take on too many responsibilities - There are three main functions: the authorization function, the recording function, and the custody function, thus only one employee should be assigned to one of these functions - Separating duties is a preventative control aspect in which it prevents fraud from being planned out by a group of employees 3. Hire competent personnel - A company must hire competent people who are fit for the job, thus they must have an educational background, training or experience. These types of screening lead to another formal training provided by the company. This training allows the new employees to be

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