The internal controls of an organization should be designed to accomplish severa

Question

The internal controls of an organization should be designed to accomplish several objectives. Several of these objectives are listed below. OBJECTIVES OF INTERNAL CONTROL FOR AN ORGANIZATION (1) Transactions are executed in accordance with management's authorization. (2) Transactions are recorded as necessary to: permit preparation of financial statements in conformity with generally accepted accounting principles (GAAP); and (a) (b maintain accountability for the assets. (3) Access to assets is permitted only in accordance with management's authorization. (4) The recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken when differences are found To achieve the above objectives, management will institute control procedures. The following are some examples of control procedures that the organization might have in place

Explanation / Answer

Solution :

Given- control objectives 1, 2a, 2b, 3 and 4;

& control procedures a, b, c, d, e and f;

Each procedure is connected with one or more control objectives to accomplish them.

For procedure a, objective 1 will be achieved because blank checks before being used for transactions would require management's authorisation.

With procedure b, objective 4 will be accomplished because the person independent of cash area is comparing bank accounts records with payroll accounts records to see any difference.

Procedure c will accomplish objectives 2a and 2b to do the transaction recording as per GAAP every day.

Procedure d will help to achieve objective 3 where capital expenditure will be reviewed by management and give its approval to access the assets.

With procedure e, objective 2a will be accomplished because inventory records are updated from reports generated by computerised system following GAAP.

Procedure f will help accomplish objective 1 again, where management authorization is needed for any transaction in terms of granting credit to customers.

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