Loose Leaf for Financial Accounting: Information for Decisions
Loose Leaf for Financial Accounting: Information for Decisions
9th Edition
ISBN: 9781260158762
Author: John J Wild
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 6, Problem 1DQ

List the seven braod principles of internal control.

Expert Solution & Answer
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Summary Introduction
The principles which are followed for the management in internal control.

Introduction: Internal control is the procedure where the management of the company keeps safeguard the company’s assets, increases efficiency, stops the fraudulent act which takes place among employees.

Answer to Problem 1DQ

Principles of internal control help the management to design, implement and handle employee effectiveness in order to keep defraying with the company. Internal control helps the company implement proper rules and procedures so that they can ensure the financial and accounting information in order to prevent fraud in the company.

Explanation of Solution

The list of principles of internal control:

  1. Sustain records: By keeping records of the company’s finance and accounts information will help them to be aware of any misleading fraud, or misrepresentation of accounts and documents that can be detected. Likewise, it will become easy for the company to easily monitor and helps the company to protect its assets and carry on with employees.
  2. Fix responsibility: By giving emphasis on the responsibilities towards employee and assets of the company gives management the strong team to work towards the achievement of the goals of the company. While they clearly identify the terms and responsibility of the employees of the company makes their task easy. After that employee becomes accountable for their work and any fraud they make intentionally or not.
  3. Record keeping and custody of assets is separated: This principle gives the overview of how the management of the assets is recorded and the custody of assets is maintained by an individual or the department responsible for it.
  4. Insurance of the company assets and bonding with a key employee. All the assets the company owns, must be insured by the individual or department responsible for it. Against fraud or theft which is likely to occur if left unhandled, as it helps to reduce the company’s risks. The employee who is responsible for the insured assets is least to commit fraud.
  5. Separate responsibility for the related transaction: This principle gives the responsibility to the different employees for handling the same sort of task but on their own end differently. So like that the separate responsibilities of the same or related transaction are maintained and the person feels the sense of responsibility towards the company.
  6. Use of technology: By using the technology in order to control the business transactions and the management helps to maintain the flow of control and responsibility in the company. The types of technology that can be used may be a teller machine for counting the cash the company receives. User ID with password controls helps to access the payment system so unauthorized may be prohibited. Access and card and biometric card control will help secure confidential locations like a locker room or server room.
  7. Regular and independent review: As the company grows all other criteria also expands with it like change in role and technology happens, responsibility tales place, work pressure increases. According to this principle, the regular review of the internal control helps to be less taken by fraud and misleading activities in the company.

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