Howard Street Jewelry Accounting Case Study on Internal Controls

Howard Street Jewelry Accounting Case Study on Internal Controls

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Howard Street Jewelry Accounting Case Study on Internal Controls
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1. The main internal control concept the Levis ignored was segregation of duties. No one person should be responsible for all transactions from the beginning to the end. Betty had too many responsibilities that were interwoven and should have been performed by more than one person. She handled the cash that came in, maintained the cash receipts and the sales records. Another concept that this relates to is that no one individual should perform more than one of the following; recording transactions, authorizing transactions and maintaining custody over the assets. Betty was able to do all three; selling jewelry, putting items in layaway, recording sales, maintain cash receipts and accepted the cash. Betty was allowed to have incompatible duties which allowed her to commit fraud of $350,000. 2. The case states that the CPA served as their accountant for almost 40 years providing a wide range of accounting and business issues. The responsibility that the CPA has to pursue this matter is dependent on the time of this fraud relating to what services were provided by the CPA. It is also dependent on what services the CPA is providing now. Assuming the CPA was only providing tax return services, as he is doing now, than the CPA does not have responsibility to pursue this matter. The answer is not the same if the CPA is performing an audit, review or compilation. The CPA is liable in these circumstances. There are two types of liabilities that the CPA can have; common law liability and statutory law liability. The liability that the CPA has in this case is common law liability. Since it is a privately owned company, the CPA will not have statutory liability. The CPA must exercise due professional care, and if the CPA was performing one of the three tasks mentioned, then he probably was not exercising due professional care since this is a small company and over $350,000 in fraud was committed. It was also mentioned that the CPA mentioned that there were occasional shortages in the cash receipts records that seemed
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This note was uploaded on 03/28/2011 for the course ACCNT 3301 taught by Professor Smith during the Spring '11 term at University of Toronto.

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Howard Street Jewelry Accounting Case Study on Internal Controls

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