StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Internal Control - Case Study Example

Cite this document
Summary
Internal control in auditing and accounting is defined as the process that assures the objectives of an organization are achieved in operational efficiency and effectiveness, policies and regulations, compliance with laws, as well as reliable financial reporting (Trenerry,…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97% of users find it useful
Internal Control
Read Text Preview

Extract of sample "Internal Control"

Case Study: Internal Control Table of Contents Table of Contents 2 Introduction 3 LJB Company: Going Public 3 Question 1 3Question 2 4Question 3 4Summary and Conclusion 5Introduction Internal control in auditing and accounting is defined as the process that assures the objectives of an organization are achieved in operational efficiency and effectiveness, policies and regulations, compliance with laws, as well as reliable financial reporting (Trenerry, 2009). It is a broad concept that entails everything which controls an organization’s risks.

At organizational level, objectives of internal control relate to compliance with laws and regulations, timely feedback on achievement of strategic and operational goals, and reliability of financial reporting. This paper will cover internal control requirements for a company, which decides to go public. The second concern to be addressed will be advice on the right things the company is doing and recommendation on a pending decision. Finally, the paper will address the things that the company is doing wrong and recommend ways of improvement.

LJB Company: Going Public The action of taking a company public is considered as one of utmost importance. Remarkably, such an action has to be taken by the Chief Financial Officer in consultation with the Chief Executive Officer and the board. Going public comes with its own challenges and changes to the enterprise.Question 1 The internal control requirements for LJB Company will change considerably with the decision to go public. As a small enterprise or a local distributor, senior management is involved in multiple responsibilities, which changes once the company goes public.

One of the new internal controls will be separation/segregation of duties or assertions categorization (Whittington & Pany et al., 2004). Financial activity will have to be divided on clear boundaries to avoid overlapping duties. A single person will separate authorization of transactions, record keeping, and custody roles to prevent error or fraud. Another new control requirement will be the performance of internal audits verified by external auditors as stipulated under the Sarbanes-Oxley Act.

This is under the principle of independent review.Question 2 LJB Company has an accountant, which is good for financial aspects of internal control. The accountant is tasked with retention of records by maintaining documents to substantiate transactions, which is being done at LJB as well. The accountant is also rightfully tasked with the duty of receiving checks and completing the monthly bank reconciliation. It would be advisable to buy the indelible ink machine to keep track of the pre-numbered invoices.

This will result in accuracy in terms of the principle of record keeping. Numbering the checks will be a means of tracking checks reducing instances of fraud. The accountant does right to keep checks into a safe in his office that is in accordance with the principle of asset records and custody (Trenerry, 2009).Question 3 It is not prudent for LJB Company to have one person handling a couple of duties that would otherwise be done by several people. The accountant in the company handles far too many responsibilities that could easily occasion errors.

The internal control principle of responsibilities dictates that the company has to have segregation of duties for efficiency and better accountability (Trenerry, 2009). There are duties that should be handled by the Public Relations manager like hiring and firing as well as payment of employees. Companies must have clearly established responsibilities. The petty cash at the company is handled casually and a system should be put in place to ensure no room for fraud. The principle of responsibility for related transactions and that of record keeping dictates that records of money are kept in the appropriate books and signed against by concerned parties (Trenerry, 2009).

The company should have a petty cash voucher and all cash to be kept by him not a free for all access.Summary and Conclusion Companies need to review their internal controls on a regular basis. Internal control is a basic tool for measuring, monitoring, and directing the resources of an organization. A successful company takes into account the internal control principles of responsibilities, asset records and custody, insurance and bonding, record keeping, independent review, technological controls, and responsibility for related transactions (Trenerry, 2009).

ReferencesTrenerry, A. R. (2009). Principles of internal control. Sydney, N.S.W.: UNSW Press.Whittington, R., Pany, K. & Whittington, R. (2004). Audits of internal control for public companies special supplement for use with principles of auditing and other assurance services. Boston: Mcgraw-Hill.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Internal Control Case Study Example | Topics and Well Written Essays - 500 words - 1”, n.d.)
Retrieved from https://studentshare.org/english/1628046-internal-control
(Internal Control Case Study Example | Topics and Well Written Essays - 500 Words - 1)
https://studentshare.org/english/1628046-internal-control.
“Internal Control Case Study Example | Topics and Well Written Essays - 500 Words - 1”, n.d. https://studentshare.org/english/1628046-internal-control.
  • Cited: 0 times

CHECK THESE SAMPLES OF Internal Control

Internal Control Failures Paper

Rules of Internal Control generally are regarded as belonging within the self-disciplinary purview of professional associations, but talk of rules or standards for financial reporting often gives rise to concern that because such rules affect something loosely called "the public interest," their formulation should not be entrusted to the private sector.... hellip; The case of the World Bank shows that Internal Control failures result in organization and stakeholder losses, have a negative impact on the image of the organization, its cash management and budgeting. One of the biggest and most powerful financial organizations, the World Bank, failed to control funding of large-scale hydropower projects....
6 Pages (1500 words) Essay

Justification for an Internal Control System

The need for new system of Internal Control has developed primarily because in the fast changing environment of globalization, business compulsions have become more stringent in their nature and factors like accountability, responsibility and reliability have become important… The lack of effective controls vis-à-vis malpractices in accounts and auditing, security of confidential information, corrupt practices in the higher hierarchy of management, disparity in Justification for new system when controls exist in the insurance and portfolio approach The need for new system of Internal Control has developed primarily because in the fast changing environment of globalization, business compulsions have become more stringent in their nature and factors like accountability, responsibility and reliability have become important pre-requisites for business to create a credible environment for their trade and investment....
2 Pages (500 words) Essay

Internal Control Over Financial Reporting

This paper discusses the Internal Control over financial reporting and the integrated audit in two large companies such as Ford Motor Company and Toyota Motor Corporation, what disclosure controls they use, why they are important and how they affect on company's stock price.... hellip; The price of the company's stock should be affected by its quality of Internal Control system.... A company associated with a poor Internal Control system poses a risk to the investor due to the unreliability of information....
5 Pages (1250 words) Essay

The Internal Control Environment of the Company

In the paper “The Internal Control Environment of the Company” the author identifies and explains the main sections of the annual report.... The management gives its own opinion on the company's financial positions and the factors they believe affect the company's performance....
3 Pages (750 words) Assignment

Auditing - Understanding and Assessing Internal Control

The internal… In this case internal audit reports to CFO, which creates independence threat, and CFO may not intimate the weaknesses in the Internal Control system, which may result in Homepro - Auditing - Assessing Internal Control Homepro - Auditing - Assessing Internal ControlRisk of material misstatementLevel of riskHeads affected1.... In this case internal audit reports to CFO, which creates independence threat, and CFO may not intimate the weaknesses in the Internal Control system, which may result in material misstatement....
2 Pages (500 words) Essay

The Internal Control System of any Company

The relevance of the case is to show the need for a strong Internal Control system which will help in fraud detection.... The alternative solution is the implement of a preventive and detective Internal Control in order to detect fraud and any irregularities.... Internal Control is part of business information systems and is inseparable from technology and this shows how the concepts learned from the course on business information system integrate with technology....
1 Pages (250 words) Case Study

The Internal Control over Cash Payments

This paper “The Internal Control over Cash Payments” present responses to three different situations that exhibit weakness in the Internal Control system.... The missing Internal Control measure and the possible problem will be identified in each case.... hellip; In evaluating the Internal Control over cash payments of Yankee Manufacturing, an auditor learns that the purchasing agent is responsible for purchasing diamonds for use in the company's manufacturing process, approving the invoices for payment, and signing the checks....
2 Pages (500 words) Assignment

Identify any internal control weakness

One of the Internal Control weaknesses is assigning only one department to take the order of the customers as well as ship the orders to the customers.... The present company inventory setup allows the same department to send more items than the items actually ordered by the… The proper Internal Control procedure is for one department focusing on taking orders and the shipping department sending the items to the customers (Rittenberg, 2011). Next, another Internal Control risk is May 6, Internal_control (weaknesses) One of the Internal Control weaknesses is assigning only one department to take theorder of the customers as well as ship the orders to the customers....
1 Pages (250 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us