internal control - amazon s3 · 2014. 8. 11. · internal control: –(1) administration and...

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Academic

PowerPoint

Internal Control

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Accountant’s Role

Accountant’s in the 21st century includes:

– Preparing the accounts and

– Forecasting and

– Analysing and data.

– Providing management with information for decision

– Safeguarding the to ensure reasonable chance of long term

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Internal Control and Internal CheckInternal Control includes the following:

Auditing

• (1) Administration & Management Control

• (2) Accounting Control

Detailed Control Procedures for:

• (1)

• (2)

• (3)

• (4)

• (5)

• (6)

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Auditing

Auditing standards set out objectives to ensure accounting control:

• (i) correct authorisation for appropriate business

• (ii) accounting records from the transaction to the final reports are in the appropriate manner while maintaining and accounting

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Auditing

• (iii) Access to assets is only in

accordance with authorization.

• (iv) Steps are taken to ensure recording of

and the existence of the assets are at

regular intervals and are instituted to

minimise any

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Auditing

Auditing recognises two major of

internal control:

– (1) Administration and Control

and

– (2) Accounting

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1 Administration and Management Control

• Is primarily concerned with

operational and maintaining

management policy.

• Areas include control and

evaluating individual

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1 Administration and Management Control

• Each firm must set for their particular

business.

• However there are five common principles:

– (i) Management

– (ii) Organisational

– (iii) Management

– (iv)

– (v) Business

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1 (i) Management Leadership

• A and favourable control environment is

responsibility of

• Senior management be seen to be

accountable and to controls,

otherwise general

will have little respect for

or of management.

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1 (ii) Organisational Structure

• There needs to be an overall of planning, and

• Organisational structure will depend on the and of the business.

• Job , departmental roles, and general and policies need to be by all staff.

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1 (iii) Management Supervision

• The overall supervision of control is

the responsibility of management.

• The supervision might include:

– on-going routines

– spot

– regular

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1 (iv) Personnel

• If the quality and of the personnel is not

of the standard, then the system they

work within has value for control.

• Individuals with responsibility need to have the

appropriate and experience to

their roles and

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1 (v) Business Circumstances

• Depending on the size of the and its

location (branches, subsidiaries), it is

that of controls and procedures are

maintained.

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2 Accounting Control

Accounting Control has three areas of

concern:

– (i) Effective accounting

control system

– (ii) of assets

– (iii) Maintaining financial

information

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2 (i) Effective Internal Accounting

Control SystemTo have an effective internal accounting

system, there are major principles:

– (a) Segregation of Functions

– (b) Authorisation

– (c) Procedures

– (d) Accounting Records and Procedures

– (e) Physical

– (f) Internal

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2 (i) (a) Segregation of Incompatible

Functions

• Division of should

be assigned where the role

of one can be

cross with the

work of another

employee.

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2 (i) (b) Authorisation Procedures

• Basically only individuals

delegated with from

management can on

certain transactions.

• For example, only the Purchasing

Officer has to the stock

order book for of goods.

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2 (i) (c) Documentation Procedures

• Proper is maintained to provide

evidence of transactions.

• Distinct roles defined; documents

used and safe of paper work is kept for

the required of time.

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2 (i) (d) Accounting Records and

Procedures• Transactions are processed

and while also preparing timely and data when required by the users.

• Accounting procedures, and documentation are all-important aspects for and

• All systems need to be

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2 (i) (e) Physical Control

• Security is necessary over the equipment,

records, and documents (access) as well

as security over the of the equipment,

records and

• Random of all items should be carried

out.

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2 (i) (f) Independent Internal

Verification

• Reviewing the and propriety of an

employee’s work by another employee is one of

the basic of internal

• This might include , for example, the till

tape with the day’s takings.

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2 (ii) Safeguarding of Assets• There are six major areas needing and

checking involving assets. Assets are the main area that is open to and

– (a) Accounts

– (b)

– (c) Cash

– (d) Cash

– (e) Non-Current

– (f) General

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2 (ii) (a) Accounts Receivable• Before is granted to clients, there should be

some of their to meet their

commitments e.g. check

• Credit should be enforced.

• Prompt and monthly

statements.

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2 (ii) (a) Accounts Receivable

• Review of Accounts

Receivable and for Doubtful

Debts

• Interest on accounts or

discounts for early

• Control Accounts and

Ledgers

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2 (ii) (b) Inventory• Periodic or

inventory control system

• Purchasing officer reliable

and

• Credit on the

Purchasing Officer authority

• All order forms in

order

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2 (ii) (b) Inventory

• Store Receiving Officer checks quality and quantity of the goods received – Goods Report

• Purchasing Officer and Store Receiving Officer are in locations in the business

• Regular checks of key documents: Order Form, Goods Received Report and Invoice Received

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2 (ii) (c) Cash Inflow including credit

cards and cheques

• Receipts issued wherever possible, in order

• Daily (intact) and vary the banking times

• Money kept on the premises in a and secured

location

• Independent carried out on till tape and money

totals

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2 (ii) (c) Cash Inflow including credit

cards and cheques

• All incoming mail in the presence of at

least staff members

• All cheques received stamped with the business

name and

• Multi-column journals

maintained

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2 (ii) (d) Cash Outflow

• All major payments should be made by and require signatures for authorization.

• Cheques issued in numerical order and marked with “ ”

• Multi-column cash maintained

• Remittance forwarded with cheques

• Small payments should be handled through a Imprest System

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2 (ii) (e) Non-Current Assets

• Control over non-current assets including purchasing, , recording, storing, access and

• Subsidiary ledger and asset cards.

• Correct allocated responsibility.

• Capital Expenditure Officer has a long term plan including maintenance, planned and possible for the business.

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2 (ii) (e) Non-Current Assets

• Storage or of Non-Current Assets will vary from item to item.

• Assets like a photocopier will be left in one location, however assets like a personal computer can be from office to office and to home.

• Added is needed on portable assets, plus adequate insurance cover is

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2 (ii) (f) General

• Regular Reconciliation Statements

• Staff receiving weekly wage packets, hours worked

can be and supported.

• If cash is issued for wages, then each employee must

sign for their wage packet

• Spot carried out on all procedures

• Rotation of

• Cash Budgets and Reports prepared

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2 (iii) Maintaining Reliable Financial

Information • It is essential that the procedures and controls

are able to maintain accurate and data.

• The accurate and reliable data is used to prepare the statements and reports for

• Management will use the statements and reports for decision purposes.

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Detailed Control Procedures

1 – Equity - Capital• The owner/s need to invest

adequate to float the business

• The capital must also maintain a satisfactory level of to allow the organisation to grow and operate

• Outside finance groups will provide little assistance if the proprietor/s is not willing to take some personal risk -

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Detailed Control Procedures

1 – Equity - Drawings

• Drawings are the of assets by the

owner/s for personal use when a is

anticipated.

• Too much cash can place

pressure on the

• Drawings should only be taken when

profits are a likely outcome.

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Detailed Control Procedures

2 – Liabilities - Finances• Finance – it is for a business to obtain

financial assistance from , whether for short term or long term

• It is important that the type of be appropriate for the asset being

• Long term finance for term project e.g. Mortgage for Land and Buildings

• Short term finance for term project e.g. for Inventory purchases

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Detailed Control Procedures

2 – Liabilities – Accounts Payable• A Purchasing Officer

who can make wise buying decisions e.g. discounts, delay to avoid or overdraft penalties

• Credit applied to Purchasing Officer as well as a division of

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Detailed Control Procedures

3 - Expenses• One way to maximise is to

minimise

• Divide the business into areas of activities or departments and make the head responsible for spending and

• Examine purchases carefully. Checks like matching orders with goods reports and invoices received is

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Detailed Control Procedures

4 - Income• Income is the cornerstone of any

successful business. It is that this area be closely.

• Budgets are normally the step in planning income

• Cash sales/services – receipts and daily banking.

• Credit sales/services – credit checks, credit limits, prompt invoicing, and interest penalties are all important

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Detailed Control Procedures

5 – General - Staffing

• Staffing – when employing staff, it is that

references are through and

qualifications are

• Staffing should be brought up to date

regularly.

• All staff should be and

evaluated

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Detailed Control Procedures

5 – General - Computer• It is critical that secure measures are taken

to the computer system.

• Several aspects need to be considered: hardware reliability, procedures, physical security of data (generation back-ups) and the and preventions of , and

• Correct staffing and high access to sensitive data kept on the computer e.g. passwords, pin-numbers or cards.

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Reference• Material used in the PowerPoint slides and

worksheets have been reproduced from

the following references with full

permission:

• Financial Accounting One, Two, Three and

Four

• Accounting 2007

• - Ashley Doyle