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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Ethics in Action

During the preparation of the bank reconciliation for Building Concepts Co., Joel Knolls, the assistant controller, discovered that Lone Peak National Bank incorrectly recorded a $3,290 check written by Building Concepts Co. as $329. Joel has decided no t to notify the bank but wait for the bank to detect the error. Joel plans to record the $2,961 error as Other Income if the bank fails to detect the error within the next three months.

Discuss whether Joel is behaving in a professional manner.

To determine

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.

Given: Mr. J do not notify to the bank that a check has been incorrectly recorded.

To determine: whether J is behaving in a professional manner.

Explanation

The act of J and her supervisor is very unethical and not professional...

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