Prizevoit Case

Internal controls are the measures a company takes to do accomplish two primary goals; protect their assets from employee theft, robbery and unauthorized use. Internal controls are also used to increase accuracy of company financial information, reducing the risk of errors (accidental) and irregularities (intentional) (Weygandt, 2009).

1. To have a strong internal control system, a business must have good administrative controls. Administrative controls include: A. B. C. D. the reconciliation of the bank statement. the accuracy of the recording procedures. assessing compliance with company policies. maintenance of accurate inventory records.

Having internal controls is one thing, but how the company evaluates that control is a matter all by itself. Being an independent auditor, it is our job to understand an entity and

There are several limitations which hinder the effectiveness of the internal controls; these limitations can result from lapses in the process and include system omissions, human factors, resource constraints or a lack of system flexibility. Effective internal control implies the organization generates reliable financial reporting and substantially complies with the laws and regulations that

Fraudulent schemes are often ongoing crimes that can last for months or even years before detection. It has been identified that there are three factors that often combine to lead individuals to commit fraud: pressure or an incentive to engage in fraud, a perceived opportunity and the ability to rationalize fraudulent behavior. Because fraudulent activities are usually well planned and intentionally covered up, it is difficult for the auditor to detect these incidents. Although fraud does not happen as often as misuse and error, when it does occur, it negatively impacts organizations as well as the stakeholders. Most fraudulent schemes can be avoided with basic internal controls and effective audits and oversight; however, they remain undetected due to following factors-

Fraudulent activities and embezzlement are more prevalent in organizations than most people think. Because of the multitude of previous scandals, the Sarbanes-Oxley Act has required all publicly traded U.S. companies to have internal auditing and internal controls to check for fraudulent activity and embezzlement. While the Sarbanes-Oxley Act only applies to public businesses, the requirements of it should be applied to all types of businesses, even universities. In the Case of the City University of New York, having internal controls and auditing would have halted the embezzlement occurring there.

Potential for misstatement & fraud: Compliance with the established procedures and controls were found to be ineffective. The fraud reporting process, technically put in place does not serve its intended purpose. The ineffective control environment has created an attitude and tone across the company where errors and inappropriate behavior may be seen as acceptable, thus creating opportunity for concealing fraud and potential misstatements.

Auditors usually use the internal control to assess the adequacy of the accounting system as a basis for preparing the accounts and consider factors that will affect the risk of misstatement. There are five components of internal control such as control environment, risk assessment, controlling activities, information and communication and monitoring

Internal control refers to methods, techniques and measures that are practices by a company to safeguard the assets, enhance reliability of its accounting records, increase efficiency of its operations and making sure everything they do is in line with laws and regulations as ordered by security and

Internal control system of an entity is strictly interrelated to the structure used by management to oversee the activities of the organization. However,

Most importantly company should set up effective internal control. In order to do that the Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides framework on how to design and evaluate internal control. Internal control provides assistance in “overseeing operations, compliance and reporting of transactions, which is essential in achievement of objectives set by the company”. Internal control is made up of five components such as “Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities.” Therefore in order for internal control run effectively and for the company being able to achieve its objectives all five components should be

The framework describes internal control as a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

Effective internal controls protect a company’s assets, maintain compliance, improve operations, prevent fraud, and promote accuracy in financial reporting. In 1992 the

A clear understanding of client’s internal control assists auditor to determine which areas are potential of material misstatements and the related audit procedures to be taken. Auditor has to evaluate management assertions, understand the design and flow of internal control, and perform test of control to

This work aims to understand the importance of the internal control in organizations to achieve the objectives established but first we have to know the definition of internal control that is the process, incurred by the board of directors or the administration and other personal that is designed to provide management with reasonable assurance on the achievement of the effectiveness of operations, the reliability of financial information and compliance with laws