Financial Decision Making
Question 1
A.
Internal control is all procedures which are adopted by an entity that controls its activities and protects their assets (Hoggett, Edwards, Medlin, 2006). One of the main objectives of internal control is that it must be reliable, and the information must also be performed correctly so that the information will be relevant providing an accurate representation of the entity’s economic events (Hoggett et al, 2006).
A system of internal control consists of all the measures used by a business:
- To safeguard its resources against waste, fraud and inefficiency
- To promote the reliability of accounting data
- To encourage compliance with business policies and government regulations
Internal control has two types, one is the administrative control and the other is accounting control (Hoggett et al, 2006). Administrative control establishes to provide operational efficiency and adherence to prescribe policies, like written directive identifying the standards to followed for hiring new employees, manuals identifying purchasing and sales procedures, and various performance reports required by employees (Hoggett et al, 2006).
Accounting controls are methods and procedures which protect assets, and ensures that there is reliability of accounting records, like procedures for the authorization of transactions and the separation of record-keeping duties (Hoggett et al, 2006). Accounting controls are designed to provide assurance that:
- Transactions are carried out according with management’s general or specific authorization
- Transactions are recorded as necessary to permit preparation of financial statements which conform with appropriate accounting standards and to maintain accountability for assets
- Access to assets is permitted only to accordance with management’s authorization
- The accounting records for assets are compared with the physical assets at reasonable intervals and...
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