Essay on Internal Control Risks

656 Words Jul 25th, 2013 3 Pages
Internal Control Risks Identified in Apollo Shoes
Assessing control risk is the process of evaluating the design and operating effectiveness of a company’s internal controls as to how it prevents or detects material misstatements in the financial statement assertions of management (Hayes, Dassen, Schilder, & Wallage, 2005). The conclusion reached as a result of assessing control risk is referred to as the assessed level of control risk. When assessing controls the auditor looks for weaknesses in a company’s internal controls for two reasons: to determine the nature and extent of the substantive tests the auditor will perform and to formulate constructive suggestions for improvements (Hayes, Dassen, Schilder, & Wallage, 2005).
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Pre-numbering is meant to prevent both the failure to bill or record sales and the occurrence of duplicate billings and recordings. However, it does not do much good to have pre-numbered documents unless they are properly accounted for. To use this control effectively, a billing clerk should file a copy of all shipping documents in sequential order after each shipment is billed, while another employee should periodically account for all numbers and investigate the reason for any missing documents (Arens, Elder, & Beasley, 2012).
The sales order forms were kept in the sales clerk’s working area where many people passed through during the day. Estimated dollar amounts were prepared by sales clerks and written on the order forms. The sales orders are then hand carried to the credit manager, who is in the treasurer’s department. Typically, the computer automatically prepares the sales invoice after the customer number; quantity, destination of goods shipped, and sales terms are entered (Arens, Elder, & Beasley, 2012). The computer calculates the invoice extensions and total sales amount using the information entered, along with prices in the inventory master file.
The issues specified leave room for fraud and misstatements in sales, accounts receivable and revenue. Therefore, the
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