In: Accounting
While you were involved in the audit of your client White Cross
(Pty) Ltd, the following policies, procedures and conditions
exist:
1. There is strong segregation of duties in the inventory cycle
between receiving inventory, its custody, the issue of inventory
and the recording of all movement in the inventory records.
2. The board of directors and senior management meet every six
months to identify the challenges facing the company and how
successfully they are being addressed.
3. The company’s organizational structure is designed in such a way
as to provide the board with a realistic chance of achieving its
objectives on an ongoing basis.
4. The human resource department goes to great lengths to define
the skills necessary for each job category and to recruit suitable
personnel.
5. The financial director meets frequently with the financial
accountant to ensure that information required to be disclosed by
IFRS is properly accumulated, recorded and processed.
6. Access to the company’s network is controlled by the use of
comprehensive logical controls, eg: user IDS’s, user profiles,
passwords, and is granted on a need to know basis.
7. The recording in the general ledger of sales, purchases, etc,
processed by the computer is achieved by passing journal entries.
All journal entries are scrutinized and authorized by 2 senior
financial accounting department employees.
8. All transactions keyed into the computer via terminals are
subject to a wide range of input controls.
9. The internal audit department conducts frequent reviews of
breakdowns in internal control and how these are corrected.
10. To enter White Cross (Pty) Ltd’s computer facility, warehouse
and processing plant, an individual must place his thumb on a
biometric scanner.
YOU ARE REQUIRED TO:
a) Briefly describe each of the components of internal control.
(10)
b) Indicate to which component each of the policies, procedures or
conditions listed in
points 1-10 relate. (10)
c) Explain the difference between an automated control and a manual
control (1)
d) Suggest four ways in which computerization (IT) benefits a
company’s internal control. (4)
Answer for (a).
The following are the components of internal control.They are
1. Control activities:
example: Physical control over assets by preventing physical acces to unathorised persons
2. Risk assessment:
example: Client managements risk assessment like identifying the factors that increase risk
3. control environment:
example: 1 integrity
2 organizational structure and
3 ethical values
4. Communication and information:
example: For small company with active involvement by the owner, a simple computerised accounting system that involves one honest
5. Monitoring:
example: For many companies ,espicially larger companies, an internal audit department is essential for effective monitoring.
Answer for (b).
The following are the procedures or conditions for internal control. They are
1. Trail balances
2. Approval authority
3.Access controls
4. Physical audits
5. Seperation of duties
6. Standerdised documentation
These are the procedures or conditions for internal control.
Answer for (c).
The difference between manual control and automated control in accountig is explained as below,
Automated control | Manual control |
1.With the implementation of automated control it reduces the paper and make the data storable, retrievable and searchable whenever is needed | 1. Manual control is like bookkeeping control in which records are to be prepared with the hands and no automation is involved as no automated controls or softwares are used. |
2. It allows you yo monitor your processes in real time and identify problems when they occur easily. | 2.Employees may go to frustration with manual control |
3. It is a basically a combination of both the software and hardware which is designed and performed to work without the need of human operator to provide inputs. | 3. Manual controls can waste both money and time |
Answer for (d).
These following are the four ways for computerisation (IT) benifits a company's internal control.