Chapter 14 - Megan Matthews ACCT 425 December 1, 2011...

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Megan Matthews ACCT 425 December 1, 2011 Chapter 14 D1. Why is it important to consider both the costs and benefits of internal controls? Two reasons . First, you cannot control all risks, no matter what you spend, and second, there is a loss of value if you control a risk where the cost of the control exceeds the benefits of control. D2. Is risk 100% controllable? Explain your response . No. Risk is a fact of life and a normal part of doing business. This is why an organization will consider both the likelihood of a loss and the size of the potential impact when developing a risk control strategy. D3. On January 1, CBU installed a new computer system for tracking and calculating inventory costs. On December 31, at closing, CBUs system reported inventory at $4.5 million for financial statement purposes. At midnight, the auditors performed a physical inventory count and found the inventory total to be $3.5 million. To correct the discrepancy, CBUs accounting staff processed an adjusting entry to reduce inventory by $1.0 million. The next day, two accountants were discussing the events of the previous night. Accountant A was proud of the audit and said it illustrated a benefit of having a good
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Chapter 14 - Megan Matthews ACCT 425 December 1, 2011...

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