1. Match each of the following transactions (1) through (10) with the applicable

Question

1. Match each of the following transactions (1) through (10) with the applicable internal control principle a through g (some answers refer to more than one principle). (a) Establish responsibility b) Maintain adequate records. (c) Insure assets and bond employees. (d) Separate recordkeeping from custody of assets (e) Divide responsibility for related transactions. (t) Apply technological controls. (g) Perform regular and independent reviews. (I) Cashier does not have access to the cash register recorded tape or file (2) A company uses a voucher system. (3) No two clerks share the same cash drawer. (4) The bookkeeper prepares and signs checks. (5) A company uses a computerized point of sale system. (6) A company hires CPAs to perform an audit. (7) A company buys an insurance policy to protect against employee theft. (8) A company has separate departments for purchasing, receiving, and accounts payable. (9) A company has an internal auditor on staff. (10) A company uses a check protector.

Explanation / Answer

Matching of Transaction with appropriate Internal control principle

(a) Establish Responsibility

(d) Seprarate recordkeeping from custody of assets

Same person should not be controlling the two functions which are interconnected to each other hence cashier should not be alloted recordkeeping of assets.

And it also establishesh responsibilities since only one person is alloted a one function.

(e) Divide responsibility for related transactions

(b) Maintain adequate records

(e) Divide responsibility for related transactions

(d) Separate recordkeeping from custody of assets

Transaction Internal Control Principle Explanation (1)

(a) Establish Responsibility

(d) Seprarate recordkeeping from custody of assets

Same person should not be controlling the two functions which are interconnected to each other hence cashier should not be alloted recordkeeping of assets.

And it also establishesh responsibilities since only one person is alloted a one function.

(2)

(e) Divide responsibility for related transactions

(b) Maintain adequate records

Maintaining voucher system helps in maintaing the proper records and also divide the responsibility for related transactions like preparing voucher, authorising voucher, documenting the voucher. (3) (a) Establish responsibility Maintaing same drawer for two clerks will increase control risk hence control would be more effective when one person is responsible for given task. (4) (d) Separate recordkeeping from custody of assets Control risk is high where same person performing two functions which are interrelated. Person preparing check and also signing it will increase control risk. (5) (f) Apply technological controls Technological controls are necessary where technology is used for any function in entity. Necessary updation, authorisation access, password encryption necessary (6) (g) Perform regular and independent reviews. Regular and independent reviews are necessary when CPA appointed by entity (7) (c) Insure assets and bond employees By this the bonding of key employees will is accomplished by purchasing insurance on that employee and will cover the organisation if a loss occur. (8)

(e) Divide responsibility for related transactions

(d) Separate recordkeeping from custody of assets

Separate department maintaing decrease control risk since it divides responsibility, increase team effort, cooperation and helps in following maker checker concept since one person will not alloted more than one function. (9) (g) Perform regular and independent reviews Performing independent and regular reviews are necessary when any internal auditor is appointed like Discussing the report of auditor to management. (10) (f) Apply technological controls Using check protector for unauthorised access to signature or amount of check decrease control risk but increase the control risk of technical nature hence applying technological controls is necessary.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.