Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information. 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.
Five elements of internal control:
- Control Environment: Control Environment refers to the attitude of top brass of the company or the corporate culture. The top brass of the company must set the tone to improve the morale for rest of the employees of the business.
- Risk assessment: The business must be able identify the risk associated with it, and accordingly use the internal control to safeguard its assets and ensures fairness in presentation in accounting information.
- Control procedures: The objective of setting the control procedure is to ensure that the business achieves its objectives.
- Monitoring controls: The internal control used in the business is being monitored by the internal auditors who are hired by the business, to ensure that the employees are adhering to the policies of the business and running the operations efficiently. The external auditors on the other hand ensures that the business accounting records are being maintained in accordance with the Generally Accepted Accounting Principles (GAAP).
- Information and communication: Information and communication system is important for a business and hence only authorized persons should be allowed the access to the confidential accounting information. Approvals are also should be made mandatory for the transactions by the
control system.
To suggest: Appropriate control procedures for preventing / detecting the theft of cash.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Bundle: Financial & Managerial Accounting, Loose-leaf Version, 13th + CengageNOWv2, 1 term (6 months) Printed Access Card Corporate Financial ... Access Card for Managerial Accounting, 13th
- Please read the following and identify any internal control principles that may be violated in the Jane Hardware store.(identify what could go wrong and what controls Jane Hardware should put in place to prevent it) Jerry Finch has worked for Jane Hardware for many years, Jerry has been a model employee. He has not taken a vacation in over three years, always stating that work was too important. One of Jerry's primary jobs at the store is to open mail and list the checks received. He also collects cash from customers at the store's outdoor nursery area. There are times that things are so hectic that Jerry does not bother to use the register, simply making change from cash he carries with him. When things slow down at the store Jerry often offers to help Cindy(the Accounting Clerk) post payments to the customer's accounts receivable ledger. Cindy is always happy to receive help since she is also quite busy and because Jerry is such a careful worker.arrow_forwardYou are a sales associate with a large department store chain. You have noticed that a fellow sales associate has been taking high-ticket items home with her. You have checked the sales records and she has not been paying for the items. You should: Ignore the conduct because it is not your business. O Ignore the conduct because she will be caught eventually. O Confront her with your knowledge. Report her conduct to the policearrow_forwardAt most movie theaters, one employee sells tickets and another employee collects them. Onenight, when you’re at the movies, your friend comments that this is a waste of the theater’smoney.Required:1. Identify the name of the control principle to which this situation relates.2. Explain to your friend what kind of fraud could occur if the same person did both jobsarrow_forward
- The goal of this problem is to identify and implement the proper internal controls on the following scenario. Give lengthy responses to each question. Tim just recently opened a pet store. He sells pet food, toys, and everything else a pet owner needs to keep their pets happy. He hired a bunch of employees to help him run his shop. As of today he only collects cash from his customers. During business hours he keeps most of the cash in the front desk drawer. After he closes, he counts the money puts in an envelope keeps the money at his desk drawer in the back office. He keeps the back office locked unless he sends one of his employees in the back office to get supplies or cash when they run out at the front desk. At the end of the month Tim deposits the money in the bank. 1. What kinds of internal controls should Tim implement to protect the cash at his pet shop? Explain how each internal controls would protect cash. 2. Why is so important for Tim or any company to implement…arrow_forwardInternal Controls Faith Cassen has recently been hired as the manager of Gibraltar Coffee Shop. Gibraltar Coffee Shop is a national chain of franchised coffee shops. During her first month as store manager, Faith encountered the following internal control situations: a. Faith caught an employee putting a case of 1,000 single-serving tea bags in his car. Not wanting to create a scene, Faith smiled and said, "I don’t think you’re putting those tea bags on the right shelf. Don't they belong inside the coffee shop?" The employee returned the tea bags to the stockroom. I with Faith's method of handling this situation because she has the internal control principle of safeguarding of assets. b. Gibraltar Coffee Shop has one cash register. Prior to Faith’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Faith made one employee on each shift responsible for taking orders and accepting the customer’s…arrow_forwardCharles Hart, an accounts payable clerk, is an hourly employee. He never works a minute past 5 P.M. unless the overtime has been approved. Charles has recently found himself faced with some severe financial difficulties. He has been accessing the system from his home during the evening and setting up an embezzlement scheme. As his boss, what control technique(s) discussed in lectures network risks and auditing could you use to help detect this type of fraud?arrow_forward
- Making a sale to customer who are already behind in making the payments on account is a threat. Rena is making a credit sale to Sara, a customer who is already six months behind in making payments on his account. What internal control procedure(s) would provide protection against these threats?arrow_forwardInternal Controls Faith Cassen has recently been hired as the manager of Gibraltar Coffee Shop. Gibraltar Coffee Shop is a national chain of franchised coffee shops.During her first month as store ma11age1; Faith encountered the following internal control situations: a.Faith caught an employee putting a case of 1,000 singleserving tea bags in his car. Not wanting to create a scene, Faith smiled and said, "I don't think you're putting those tea bags on the right shelf. Don't they belong inside the coffee shop?"The employee returned the tea bags to the stockroom. b.Gibraltar Coffee Shop has one cash register.Prior to Faith'sjoining the coffee shop, each employee working on a shiftwould take a customer order,accept payment,and then prepare the order. Faith made one employee on each shift responsible for taking orders and accepting the customer's Other employees prepare the orders. c.Because only one employee uses the cash register,that employee is responsible for counting the cash…arrow_forward1. FRAUD SCHEME HEALTH INSPECTOR A city health inspector threatens to close down a restau- rant by issuing a fake health violation notice if the owner does not make a financial payment to the inspector. If the restaurant owner does not cooperate, he will not be able to open for business and the publicity will drive away his customers permanently. Faced with a threat of economic loss, the owner makes the payment. Required What type of fraud is this, and what controls can be implemented to prevent or detect the fraud?arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
- Pkg Acc Infor Systems MS VISIO CDFinanceISBN:9781133935940Author:Ulric J. GelinasPublisher:CENGAGE L