HerbaMed Ltd is a South African company that specializes in the development, production, and distribution of herbal-based pharmaceuticals. The company has implemented various policies, actions, and procedures as part of its internal control system: 1. HerbaMed Ltd mandates annual ethics training for all employees, followed by the signing of a code of conduct. This code, formulated by the board, is detailed in workshops led by senior management. Allegations of code violations are thoroughly investigated by an ethics committee. 2. To safeguard proprietary information, research personnel at HerbaMed Ltd are prohibited from taking any form of portable electronic devices out of the research facilities. The enforcement of this policy is ensured by the use of advanced security checkpoints at all research facility exits. 3. A dedicated project accountant at HerbaMed Ltd tracks and documents the costs associated with various research endeavors using advanced accounting software, ensuring accurate and timely financial reporting 4. Regular meetings between the head of finance and the head of research are held to review and discuss any significant variances between actual and projected research expenditures, promoting financial accountability and transparency. 5. The finance and sales heads conduct monthly reviews of accounts receivable, focusing on adherence to the 30-day payment terms. Accounts exceeding 120 days without payment are flagged for review and potential write-off, subject to the finance head's approval. 6. Bi-monthly, a board-level committee convenes to evaluate emerging trends in the herbal pharmaceutical market, regulatory changes, and overall industry dynamics, ensuring strategic alignment and compliance. 7. HerbaMed Ltd stores its finished products in a specialized, climate-controlled storage facility to maintain proc integrity and shelf life. 8. A customer feedback hotline managed by the marketing team collects and analyzes consumer complaints and suggestions regarding HerbaMed Ltd's products, offering insights into potential areas for improvement. 9. Access to the inventory database is strictly controlled; the warehouse supervisor has limited, read-only access, while inventory staff have no direct access to these records, minimizing the risk of inventory mismanagem You are required to: a) List the components of a system of internal control. b) Identify the component(s) of the system of internal control to which each of the above points (1-9) relates Give reasons for your choice. If you have chosen 'control activity, state which type(s) of control is being implemented, for example segregation of duties. c) List the limitations of control and for each limitation, explain how it could potentially impact the business of HerbaMed Ltd.

HerbaMed Ltd is a South African company that specializes in the development, production, and distribution of herbal-based pharmaceuticals. The company has implemented various policies, actions, and procedures as part of its internal control system: 1. HerbaMed Ltd mandates annual ethics training for all employees, followed by the signing of a code of conduct. This code, formulated by the board, is detailed in workshops led by senior management. Allegations of code violations are thoroughly investigated by an ethics committee. 2. To safeguard proprietary information, research personnel at HerbaMed Ltd are prohibited from taking any form of portable electronic devices out of the research facilities. The enforcement of this policy is ensured by the use of advanced security checkpoints at all research facility exits. 3. A dedicated project accountant at HerbaMed Ltd tracks and documents the costs associated with various research endeavors using advanced accounting software, ensuring accurate and timely financial reporting 4. Regular meetings between the head of finance and the head of research are held to review and discuss any significant variances between actual and projected research expenditures, promoting financial accountability and transparency. 5. The finance and sales heads conduct monthly reviews of accounts receivable, focusing on adherence to the 30-day payment terms. Accounts exceeding 120 days without payment are flagged for review and potential write-off, subject to the finance head's approval. 6. Bi-monthly, a board-level committee convenes to evaluate emerging trends in the herbal pharmaceutical market, regulatory changes, and overall industry dynamics, ensuring strategic alignment and compliance. 7. HerbaMed Ltd stores its finished products in a specialized, climate-controlled storage facility to maintain proc integrity and shelf life. 8. A customer feedback hotline managed by the marketing team collects and analyzes consumer complaints and suggestions regarding HerbaMed Ltd's products, offering insights into potential areas for improvement. 9. Access to the inventory database is strictly controlled; the warehouse supervisor has limited, read-only access, while inventory staff have no direct access to these records, minimizing the risk of inventory mismanagem You are required to: a) List the components of a system of internal control. b) Identify the component(s) of the system of internal control to which each of the above points (1-9) relates Give reasons for your choice. If you have chosen 'control activity, state which type(s) of control is being implemented, for example segregation of duties. c) List the limitations of control and for each limitation, explain how it could potentially impact the business of HerbaMed Ltd.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter3: Internal Control Over Financial Reporting: Responsibilities Of Management And The External Auditor

Section: Chapter Questions

Problem 26RQSC

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