CACC 100 CH07

CACC 100 CH07 - CACC100 CH07 INTERNAL CONTROL Designed to...

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CACC100 CH07 INTERNAL CONTROL Designed to provide reasonable assurance to: 1. Optimize the use of resources to reduce inefficiencies and waste 2. Prevent and detect errors and irregularities in the accounting process 3. Safeguard assets from theft, robbery, and unauthorized use 4. Maintain reliable control systems to enhance the accuracy and reliability of accounting records (1 – 4) helps improves the quality and reliability of financial reporting Reasonable assurance – cost of establishing control procedures should not be more than their expected benefit Limitations: 1. Reasonable Assurance - If cost of control exceeds resulting benefit, we get a negative impact 2. Human Element - A good system can become ineffective as a result of employee fatigue, careless, or indifference 3. Size of Business - May be difficult for small companies to apply the principles of segregation of duties and independent internal verification because of the small number of employees PRINCIPALS OF INTERNAL CONTROL (IC) (1 – 4) is accomplished through 6 common internal control principles: 1. Establishment of Responsibility 2. Segregation of Duties 3. Documentation Procedures 4. Physical Controls 5. Independent Verification 6. Other Controls IC PRINCIPLE 1 – ESTABLISHMENT OF RESPONSIBILITY Assignment of responsibilities to specific individuals to: 1) Achieve effective control Control is most effective when only one person is responsible for a specific task 2) Authorization and approval of transactions IC PRINCIPLE 2 – SEGREGATION OF DUTIES Concept: The work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee 1) The responsibility for related activities should be assigned to different individuals - Reduces potentials for errors and irregularities - Reduces unauthorized practices 2) The responsibility for accounting for an asset should be separate from the responsibility for physical custody of that asset
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CACC100 CH07 - Accountant (record keeper) should not have physical custody of the asset or access to it - Custodian of an asset should not maintain or have access to the accounting records o Prevent conversion of asset to personal use IC PRINCIPLE 3 – DOCUMENT PROCEDURES Contributes directly to the accuracy and reliability of the accounting records Documents provide evidence that transactions and events have occurred Document Procedures: 1) Document should be pre-numbered and accounted for 2) Source documents should be promptly forwarded to the accounting department to help ensure timely recording of the transaction IC PRINCIPLE 4 – PHYSICAL CONTROLS Mechanical and electronic controls Safeguard assets - Safes, vaults, and safety deposit boxes for cash and business papers - Locked warehouses and storage cabinets for inventories and records - Computer facilities with password or biometric access - Alarms to prevent break-ins - Television monitors and garment sensor to deter theft
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This note was uploaded on 03/27/2012 for the course ACC 100 taught by Professor Unknown during the Spring '08 term at Ryerson.

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CACC 100 CH07 - CACC100 CH07 INTERNAL CONTROL Designed to...

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