question 1.docx - Question Describe theory related to segregation of duties and discuss how the theory related to segregation of duties does applies to

question 1.docx - Question Describe theory related to...

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Question Describe theory related to segregation of duties and discuss how the theory related to segregation of duties does applies to purchasing decision ad Telstra. Segregation of Duties Defined A fundamental element of internal control is the segregation of certain key duties. The basic idea underlying SOD is that no employee or group of employees should be in a position both to perpetrate and to conceal errors or fraud in the normal course of their duties. In general, the principal incompatible duties to be segregated are: Custody of assets. Authorization or approval of related transactions affecting those assets. Recording or reporting of related transactions. Traditional systems of internal control rely on assigning certain responsibilities to different individuals or segregating incompatible functions. The general premise of SOD is to prevent one person from having both access to assets and responsibility for maintaining the accountability of those assets. Segregation of duties is critical to effective internal control; it reduces the risk of both erroneous and inappropriate actions. In general, the approval function, the accounting/reconciling function, and the asset custody function should be separated among employees. When these functions cannot be separated, a detailed supervisory review of related activities is required as a compensating control activity. Segregation of duties is a deterrent to fraud because it requires collusion with another person to perpetrate a fraudulent act. Specific examples of segregation of duties are as follows: 1. The person who requisitions the purchase of goods or services should not be the person who approves the purchase. 2. The person who approves the purchase of goods or services should not be the person who reconciles the monthly financial reports 3. The person who approves the purchase of goods or services should not be able to obtain custody of checks. 4. The person who maintains and reconciles the accounting records should not be able to obtain custody of checks 5. The person who opens the mail and prepares a listing of checks received should not be the person who makes the deposit.
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6. The person who opens the mail and prepares a listing of checks received should not be the person who maintains the accounts receivable accounting records.
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