5 - Cash Management & Internal Control

Question 1

Define Internal Control

Answer 1

A process for assuring achievement of an organisation’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and polices.

Question 2

Five components of internal control

Answer 2

MICER

• monitoring of controls
• information systems
• control procedures
• control environment
• risk assessment

Question 3

Characteristics of an effective system of internal control

Answer 3

Competent, reliable, ethical personnel, assignment of responsibilities, proper authorization, separation of duties, electronic devices and computer controls, mandatory holidays and job rotation

Question 4

Encryption as an internal control

Answer 4

Primary method of achieving confidentiality in e-commerce.

Plain text messages are rearranged by some mathematical process.

Question 5

Firewall as an internal control

Answer 5

They limit access to a local network to keep out intruders.

Question 6

What are some limitations of internal control?

Answer 6

Cost vs benefit - cost of establishing procedure should not exceed expected benefit.

Human element - collusion or an individual can act dishonestly

Size of business

Question 7

Four reasons why bank balances between a business and a bank could be different

Answer 7

Timing difference
Dishonoured cheque
Direct debit
Bank fees

Question 8

Items recorded by a company not on the bank statement

Answer 8

Deposits in transit (+); outstanding cheques (-)

Question 9

Items recorded by a bank but not by the company

Answer 9

Bank collections; electronic funds transfer; service charges; interest earned or paid on account; bounced cheques