Introduction
This document will discuss the purpose of the internal control system. The purpose of the internal controls system is to safe guard assets, ensure integrity of financial information, and to protect customer’s information. While auditing the ABC Company’s financial record I found an error which reflects the strength of their internal control system. So I’ve been asked to educate my fellow accountants on the limitations of the internal control system in preparation for an upcoming audit. Specifically this document will discuss the following: The limitations of the internal control system. Two examples of the internal control procedures and they can be implemented. I will identify symptoms of a lack of internal control, and I …show more content…
The reality of it is that human being are not always trust worthy, even in management positions. Some humans make honest errors that can be and may have been caught later, but still have proven that the system failed. Other humans intentionally do dishonorable acts. There are many employee within a company that has access to data and if they get the chance will misrepresent and manipulate financial data to steal money. Some crooked managers have the power to override the system of internal control and therefore find a way around the system to commit these dishonorable acts. This too proves that the system failed at some point. The first limitation we should acknowledge is internal controls procedures and policies. No system of internal control is not going to do exactly what it was designed to do. So get that idea that the system is fail safe out of your head because it’s not. Secondly the lack of training for employees is another limitation. If an employee doesn’t fully understand the importance of the policies and procedures of internal control this can affect the system too. Many lazy employee will find a quicker way of getting their work done not realizing the importance of doing some of the steps they’ve skipped and jeopardize the integrity of the company (Hossain, …show more content…
Leaving out of data in the adjusting entry can affect the results on the financial statements. During an audit I found that the accountants working at the ABC Company failed to record an adjusting entry for the first three months of prepaid insurance they received at $500 a month. This was a deferred expense- meaning they paid $500 in advance for that insurance. The adjusting entry should show an increase in expense account for $1,500.00 and a decrease in prepaid account for $1,500.00. So the financial statements at the end of the year is off by $1,500.00. The income statement needs to increase by $1,500.00 under the expense category and on the balance sheet $1,500.00 needs to be subtracted from the liability
This document will discuss the purpose of the internal control system. The purpose of the internal controls system is to safe guard assets, ensure integrity of financial information, and to protect customer’s information. While auditing the ABC Company’s financial record I found an error which reflects the strength of their internal control system. So I’ve been asked to educate my fellow accountants on the limitations of the internal control system in preparation for an upcoming audit. Specifically this document will discuss the following: The limitations of the internal control system. Two examples of the internal control procedures and they can be implemented. I will identify symptoms of a lack of internal control, and I …show more content…
The reality of it is that human being are not always trust worthy, even in management positions. Some humans make honest errors that can be and may have been caught later, but still have proven that the system failed. Other humans intentionally do dishonorable acts. There are many employee within a company that has access to data and if they get the chance will misrepresent and manipulate financial data to steal money. Some crooked managers have the power to override the system of internal control and therefore find a way around the system to commit these dishonorable acts. This too proves that the system failed at some point. The first limitation we should acknowledge is internal controls procedures and policies. No system of internal control is not going to do exactly what it was designed to do. So get that idea that the system is fail safe out of your head because it’s not. Secondly the lack of training for employees is another limitation. If an employee doesn’t fully understand the importance of the policies and procedures of internal control this can affect the system too. Many lazy employee will find a quicker way of getting their work done not realizing the importance of doing some of the steps they’ve skipped and jeopardize the integrity of the company (Hossain, …show more content…
Leaving out of data in the adjusting entry can affect the results on the financial statements. During an audit I found that the accountants working at the ABC Company failed to record an adjusting entry for the first three months of prepaid insurance they received at $500 a month. This was a deferred expense- meaning they paid $500 in advance for that insurance. The adjusting entry should show an increase in expense account for $1,500.00 and a decrease in prepaid account for $1,500.00. So the financial statements at the end of the year is off by $1,500.00. The income statement needs to increase by $1,500.00 under the expense category and on the balance sheet $1,500.00 needs to be subtracted from the liability