Horngren's Financial & Managerial Accounting, The Managerial Chapters (5th Edition)
5th Edition
ISBN: 9780133851298
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 7.28BP
Requirement 1:
To determine
Internal control: Internal control is a process which ensures continuous reliability of accomplishment of a company’s objectives, related to operations, financial reporting, and in conformity with laws and regulations.
The following are the principles of internal control:
- Authorizing the responsibility
- Segregation of duties
- Documenting and recording transactions
- Physical controls
- Periodic independent verification
- Human resource controls
To identify: The missing internal control in each situation.
Requirement 2:
To determine
To Identify: The problems caused due to control weakness in each situation.
Requirement 3:
To determine
To propose: A solution to internal control problem for each situation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Correcting internal control weakness
Each of the following situations has an internal control weakness.
Jade Applications has decided that one way to cut costs in the upcoming year is to fire the external auditor. The business believes that the internal auditor should be able to efficiently monitor the company’s internal controls.
In an effort to minimize the amount of paperwork, Ross Homes has decided that it will not keep copies of customer invoices related to sales revenue. Ross believes that this effort will minimize the amount of data storage the company will have to pay for.
Elle Bee, a trusted employee for many years, has never taken a vacation. The owner believes that he’s lucky that she is so committed to her job.
The Medicine Chest Company keeps a small petty cash fund to handle small cash transactions. Because no one wants to volunteer to be the custodian, the business manager has decided that all employees should have access to the petty cash. She figures that as long as…
Internal Control System
Required:
A list of terms and another list of definitions and examples are presented below. Match the directly related definition or example with the each term.
Strategic risk
Control environment
Information and communication
Business process risk
Monitoring
A member of upper management was fired for violating the company's code of conduct.
The internal audit group is testing the operating effectiveness of various internal control activities.
Competitors begin offering extended warranty coverage on products.
Problems with our suppliers have resulted in lost sales because our stores were out of stock.
Reports documenting problems with production are forwarded to management.
Correcting internal control weakness
Each of the following situations has an internal control weakness.
Upside-Down Applications develops custom programs to customer’s specifications. Recently, the development of a new program stopped while the programmers redesigned Upside-Down’s accounting system. Upside-Down’s accountants could have performed this task.
Norma Rottler has been your trusted employee for 24 years. She performs all cash- handling and accounting duties. Ms. Rottler just purchased a new luxury car and a new home in an expensive suburb. As an owner of the company, you wonder how she can afford these luxuries because you pay her only $30,000 a year and she has no source of outside income.
Izzie Hardwoods, a private company, falsified sales and inventory figures in order to get an important loan. The loan went through, but Izzie later went bankrupt and could not repay the bank.</p> <p>d. The office supply company where Pet Grooming Goods purchases sales receipts…
Chapter 7 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (5th Edition)
Ch. 7 - Prob. 1QCCh. 7 - Prob. 2QCCh. 7 - Prob. 3QCCh. 7 - Prob. 4QCCh. 7 - Prob. 5QCCh. 7 - Prob. 6QCCh. 7 - Prob. 7QCCh. 7 - Prob. 8QCCh. 7 - Prob. 9QCCh. 7 - Prob. 10QC
Ch. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - What are the five components of internal control?...Ch. 7 - Prob. 4RQCh. 7 - What is separation of duties?Ch. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - How do businesses control cash receipts by mail?Ch. 7 - Prob. 10RQCh. 7 - Prob. 11RQCh. 7 - Prob. 12RQCh. 7 - Prob. 13RQCh. 7 - Prob. 14RQCh. 7 - Prob. 15RQCh. 7 - Prob. 16RQCh. 7 - Prob. 17RQCh. 7 - Defining internal control Internal controls are...Ch. 7 - Prob. 7.2SECh. 7 - Prob. 7.3SECh. 7 - Prob. 7.4SECh. 7 - Prob. 7.5SECh. 7 - Prob. 7.6SECh. 7 - Prob. 7.7SECh. 7 - Prob. 7.8SECh. 7 - Prob. 7.9SECh. 7 - Prob. 7.10SECh. 7 - Prob. 7.11ECh. 7 - Prob. 7.12ECh. 7 - Prob. 7.13ECh. 7 - Evaluating internal control over cash payments...Ch. 7 - Understanding internal control, components,...Ch. 7 - Prob. 7.16ECh. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.21APCh. 7 - Prob. 7.22APCh. 7 - Prob. 7.23APCh. 7 - Prob. 7.24APCh. 7 - Prob. 7.25APCh. 7 - Prob. 7.26APCh. 7 - Prob. 7.27BPCh. 7 - Prob. 7.28BPCh. 7 - Prob. 7.29BPCh. 7 - Prob. 7.30BPCh. 7 - Prob. 7.31BPCh. 7 - Prob. 7.32BPCh. 7 - Prob. 7.33CPCh. 7 - Prob. 7.34PSCh. 7 - Prob. 7.2CTDCCh. 7 - Levon Helm was a kind of one-man mortgage broker....Ch. 7 - Prob. 7.1CTCA
Knowledge Booster
Similar questions
- Identifying and correcting internal control weakness Suppose The Right Rig Dealership is opening a regional office in Omaha. Cary Regal, the office manager, is designing the internal control system. Regal proposes the following procedures for credit checks on new customers, sales on account, cash collections, and write-offs of uncollectible receivables: The credit department runs a credit check on all customers who apply for credit. When an account proves uncollectible, the credit department authorizes the write- off of the accounts receivable. Cash receipts come into the credit department, which separates the cash received from the customer remittance slips. The credit department lists all cash receipts by customer name and amount of cash received. The cash goes to the treasurer for deposit in the bank. The remittance slips go to the accounting department for posting to customer accounts. The controller compares the daily deposit slip to the total amount posted to customer accounts.…arrow_forward1. A new systems development project is being planned for Reindeer Christmas Supplies Company. The invoicing, cash receipts, and accounts payable modules are all going to be updated. The controller, Kris K. Ringle, is a little anxious about this project. The last systems development project that affected his department was not very successful, and the employees in the accounting department did not accept the new system very well at first. He feels that the systems personnel did not interact sufficiently with the users of the systems in the accounting department. Prepare a memo from Ringle to the head of the information systems department, Sandy Klaus. In this memo, provide some suggestions for including the accounting personnel in the systems development project. Give persuasive arguments as to why prototyping would be helpful to the workers in the accounting department.arrow_forwardEmployee theft is the largest "expense" of a business in this country. The key to implementing controls is to determine the right amount. It is important to weigh the cost and benefit of each control. For example, if a company wishes to install security cameras to deter theft however it will cost $20,000 and would be expected to reduce theft less than that then the company may want to consider other options. Knowing that, what controls might be in place to avoid an executive making a decision that would personally benefit him?arrow_forward
- Identify Control Weaknesses and Recommendations. Georgia Beemster, CPA, is examining the financial statements of the Louisville Sales Corporation, which recently installed acomputerized processing system. The following comments have been extracted from Beemster’s notes on computer operations and the processing and control of shipping notices andcustomer invoices:∙ To minimize inconvenience, Louisville made the conversion to the new accounting information system without changing its existing system. The vendor supervised the conversion andtrained all computer department employees in systems design, operations, and programming.∙ Each computer run is assigned to a specific employee who is responsible for makingprogram changes, running the program, and answering questions. This procedure hasthe advantage of eliminating the need for records of computer operations because eachemployee is responsible for her or his own computer runs.∙ At least one computer department employee remains in the…arrow_forwardDetermine whether each procedure described below is an internal control strength or weakness; then identify the internal control violated or followed for each procedure. The company does not use electronic time clocks because it fears it will hurt employee morale. The same employee requests, records, and makes payment for purchases of inventory. Several salesclerks share the same cash drawer. Employees that handle easily transferable assets such as cash are bonded. The company devotes resources towards keeping accurate accounting records for machineryarrow_forwardSystems Planning A new systems development project is being planned for the Reindeer Christmas Supplies Company. The invoicing, cash receipts, and accounts payable modules are all going to be updated. The controller, Kris K. Ringle, is a little anxious about this project. The last systems development project that affected his department was not very successful,and the employees in the accounting department did not accept the new system very well at first. He feels that the systems personnel did not interact sufficiently with the users of the systems in the accounting department. Prepare a memo from Ringle to the head of the information systems department, Sandy Klaus. In this memo, provide some suggestions for including the accounting personnel in the systems development project. Give some very persuasive arguments why prototyping would be helpful to the workers in the accounting department.arrow_forward
- The company XYZ suffers from numerous weaknesses in its internal control system. For each the below situations, you are required to identify the anomaly/risk related to this system and propose eventual solutions. The financial department issues one copy of the sales bill that is shipped to the customer with the company The inventory custodian is the person who deliver the merchandise to the The person who keep the checks (issued and received) is the same who have access to the company accounting system. A has now 9 years experience in the company. He is responsible to keep cash and checks. Since he joining XYZ , he has not claim any vacation. The financial manager prepares the checks for the company suppliers and receive the merchandises ordered by the The company XYZ has recently installed an ERP system to manage all its activities . Different staff have access to this system. Mr X is working…arrow_forwardAccounting In a description of a fraud scheme at Sharefore Inc., an analyst writes: “The next quarter, analyst expectations are higher, but sales have not picked up. The firm provides additional incentives to its sales force, uses overtime to boost shipments but now has additional expenses to contend with (incentives and overtime), so it does not fully accrue all its consulting expenses. Third quarter rolls around and sales still haven't improved enough, but the analysts keep increasing targets. Because this time, operating tactics are not sufficient, management pressures the CFO to meet analyst forecast numbers. The CFO becomes aggressive in the interpretation of installment sales and expense accruals. As expectations keep rising, so does the firm's stock price.” What form or forms of financial statement fraud is this? Where would we expect to see the impact of this form of fraud in Sharefore Inc.’s financial statements?arrow_forwardA new systems development project is being planned for Reindeer Christmas Supplies Company. The invoicing, cash receipts, and accounts payable modules are all going to be updated. The controller, Kris K. Ringle, is a little anxious about this project. The last systems development project that affected his department was not very successful, and the employees in the accounting department did not accept the new system very well at first. He feels that the systems personnel did not interact sufficiently with the users of the systems in the accounting department.Prepare a memo from Ringle to the head of the information systems department, Sandy Klaus. In this memo, provide some suggestions for including the accounting personnel in the systems development project. Give persuasive arguments as to why prototyping would be helpful to the workers in the accounting department.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningAccounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,