ACC571 Case Response 1 - Case 58

ACC571 Case Response 1 - Case 58 - Case Response 1 Case...

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Case Response 1 1 Case Response 1: Chapter 4 - Case 58. What Do You Think of Karen’s Approach to Dealing with Weezo’s Lack of Internal Controls? Strayer University Case Response 1:
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Case Response 1 2 Chapter 4 - Case 58. What Do You Think of Karen’s Approach to Dealing with Weezo’s Lack of Internal Controls? I don’t agree with Karen’s approach to dealing with Weezo’s lack of internal controls. Dick, as an external auditor, cannot just do his usual audit assuming a good internal control system when he finds Weezo’s lack of internal controls. An auditor should maintain a high degree of inquisitiveness, awareness and healthy skepticism about the possibility of fraud by audit clients. Possible fraud should be investigated further. Ignoring the reality of the poor internal controls environment is a naïve and imprudent approach. As a result, it may lead audit failure or fraud committed by audit clients. Dick should understand and take into consideration the following points to prevent audit failure or illegal acts committed by the audit client. Then, he should discuss with Karen, and makes the final decision in this case together. 1. The importance of a strong internal control system. 2. The role of the external auditor. 3. The responsibilities of the external auditor. 4. Detecting fraud or illegal acts. 5. The effect of Sarbanes-Oxley Act on private companies. The importance of a strong internal control system The first line of defense against various types of fraud is a strong internal control system. According Hopwood, Leiner, and Young (2008), “internal control is a process effected by management, the board of directors, and other personnel that is designed to minimize risk exposures to an acceptable level given the company’s objectives” (p. 50). Additionally, in 1992, COSO stated that internal control is “designed to provide reasonable assurance regarding the
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Case Response 1 3 achievement of objectives in the following categories: Effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations” While a lack of internal control does not guarantee fraud will take place, it does open the door a bit wider. If people intend to commit fraud and think they may be blocked by strong internal controls, they will be deterred. Weak internal controls may result in increased bureaucracy, reduced productivity, increased the complexity of processing transactions, increased the time required to process transactions and added no value to the activities. Moreover, weak internal controls may interfere with the accomplishment of the organization’s goals and objective and allow for misuse or abuse of assets. On the other hand, strong internal controls help ensure efficient and effective operations that accomplish performance and profitability goals, protect employees and reduce risk of asset loss. Strong internal controls also can improve proper recording of transactions and provide reliable financial
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This note was uploaded on 11/15/2011 for the course ACCOUNTING ACC571 taught by Professor Naurid.ahmed during the Summer '11 term at Strayer.

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ACC571 Case Response 1 - Case 58 - Case Response 1 Case...

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