Question
In: Accounting
A company’s policy requires managers to request material needed for jobs. The home office purchases the...
A company’s policy requires managers to request material needed for jobs. The home office purchases the requested material and has it shipped to the job site. Is this an example of strong or weak internal controls? Please explain.
Solutions
Expert Solution
Answer: Internal control- These are the procedures with the help of laws and rules so that financial statements of a company can be reliable, transparent and truthful and also for the operational efficiency of a company. Internal control procedures are used to safeguard the company's assets. When a company does not have strong internal control, fraud can happen easily.
Strong Internal control- When company is following laws, orders and rules and its financial statements are free from any material misstatement.
Weak internal control- When company is not serious about the protection of its assets and reliability of its financial statements, it will have customers' complaints, missing documents, inaccurate financial documents etc.
In the above question, as per company's policy, managers should request for material needed but home office purchased the material, this is an example of "Weak internal control". Task that has been assigned to managers, somebody else is doing. Assigning duties must be done by the same person only. There should be proper communication between manager and the people in home office.
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