week 7 Flashcards
(21 cards)
imprest system
the amount of couch for which the custodian is responsible is clearly identified.
This is the system’s main internal control feature.
Payments reduce the amount of cash in the fund so the funds needs to be periodically replensihed
e.g. petty cash account must keep 200 balance at all times
internal control over cash payments
describe 3
- competent, reliable, ethical personnel: cash payments are entrusted to high-level employees with larger amounts paid by more senior personnel
- assignment of responsibilities: specific employees approve purchase documents for payment. Executives examine approvals, then sign cheques
- Proper authorisation: large expenditures must be authorised by the business owner or senior management to ensure agreement with organisational goals
internal control over cash payments
describe 3 more
- separation of duties: computer operators and other employees who handle cheques should have no access to the accounting records. accoutnants who record cash payments have no opportunity to handle cash
- Internal and external audits: Internal examine whether transactins agree with management policies. External eamine the internal controls over cash payments to determine if accounting system produces accurate amounts for expenses, assets and other items related to cash payments
- documents and records: cheques, invoices
internal control for cash receipts
competent, reliable, ethical personnel
Businesses carefully screen employees for undesirable personality traits
Training programs
internal control for cash receipts
assignment of responsibilities
specific employees are designated as cashiers, supervisors of cashiers or accountants for cash receipts
internal control for cash receipts
separation of duties
cashiers and mailroom employees who handle cash don’t have access to accounting records
accountants who record cash receipts have no opportuinity to handle cash
internal control for cash receipts
internal and external audits
external audtiros examine internal controls over cash receipts to see if the accounging system produces accurate amounts for revenues, receives and other items related to cash receipts
example of separation of duties as a good internal control procedure
assigning mailroom employee as first person to handle postal cash receipts rather than accountants who may hide a theft
how can business achieve internal control objects?
Control procedures
Risk assessment - idnetifies risks, more control to safeguard company’s assets for higher risks
Information system - only authorised users have access to various parts of accounting system
monitoring controls
environment
Components of internal control
monitoring controls
Internal auditor ensures the employees are following company policies and operations are running efficiency
External auditors evaluate controls to ensure financial statements are presented fairly in accordance with proper accounting principles and practices
Separation of duties
separation of operations from accounting
accounting function should be completely separate from operation e.g. manufacturing and sales departments so that reliable records may be kept
Separation of duties
separation of custody of assets from accounting
accountants do not handle cash –> lower chance of fraud
cashiers (custody of cash) do not have access to accounting records
If one person is assignment both cash handling and accounting duties, as they can control data entered into accounting system and steal cash and conceal theft by making bogus entry on the books
if warehouse employees could account for inventory, i.e. handing inventory + accounting duties
could steal it and write it off as obsolete
Separation of duties
Separation of the authorisation of transactions from the custody of related assets
if they are allowed to authorise transactions and handle the related asset, they can authorise payments to themself and sign the cheques.
Separation of duties
Separation of duties within the accounting function
different people should perform various phases of accounting to minimise errors and fraud opportunities e.g. different accountants responsible for cash receipts and cash payments
Internal control procedures
Documents and records
prenumber documents so that a gap can call attention to a missing document
Other controls
storing cash and other important business documents in fireproof vaults
business purchases fidelity insurance which will reimburse them for any loss due to employee theft
job rotation: knowing someone else will be doing their job will keep them honest
how can depositing cash in bank account be an important part of internal control
banks have established practices for safeguarding tax
Depositors are provided detailed records of transactions
signature card: persons authorised to transact business through an account in that banks is required to sign a signature card. signatures on document will be compared against signature card
bank reconciliation
reconciles on a date the differences between cash on business’s books and cash according to bank records.
bank side
items not yet recorded by the bank but are recorded by the business or errors made by the bank
book side
items not yet recorded by the business but that are recorded by the bank, or errors by the business
