Accounting Part 1

Accounting: Part 1Theory On Control of AssetsRahul Patel24th January 2018 Table of contentsInternal Controls and Auditor RolesTypes of Internal ControlsRisk AnalysisRecommended Controls For AssetsBibliography 1.  Internal ControlsInternal Controls Definition: Policies and procedures  that are implemented to ensure the continued reliability of accounting systems within a business are known as internal controls. These Internal controls are used in all sectors and deal with the interactions that occur between the business departments. Internal Controls are a means to ensure adherence to its policies and plans.Purpose of Internal Controls: Businesses require these controls to have reliability and accuracy so that the business can uphold their integrity. Without these implemented policies and procedures, fraud, waste, theft and  would occur within a business resulting in the integrity of the business being questionable. Internal controls also used to safeguard assets and businesses resources.Roles of a Internal Auditor: An internal auditor is an independent consultant to the business. They challenge the businesses current performance and standings so that they can find areas for improvement and find controls to implement so that those areas of the business can improve. In short Internal Auditors offer council to a business to help them better reach their objectives and goals.Internal auditor roles consists of  reviewing and analysing policies, procedures and operations. These are the roles an Internal Auditor acts on, to make sure that the business follows the required laws and does not act make any errors or commit fraud. 2.  Different Types of Internal ControlsPreventative Control:  These are controls that are utilised to stop a specific action from occurring.Segregation of duties: Duties are divided amongst workers so that there is a smaller risk of error or fraudulent action. Duties are mostly divided by the employees that authorise a transaction, the employees that record the transaction and the employees that handle the related asset. An example of a Preventive control would be the use of keys and locks. Only certain employees have access to sensitive areas within a business. This prevents other employees from gaining access sensitive business content.Detective Control: These controls that are used to find and detect erroneous and false actions that have already occured.Reconciliations: different employee reports can be compared with one another whereby differences can be investigated and then corrective action may take place.Physical Inventories: This is a control that is used by physically counting stock to determine whether it is lower than the accounting statements. If stockcount is lower, managers of the business can deal with the issue accordingly.An example of a Detective Control would be cameras, as they can record evidence and can be viewed after an incident.Corrective Control: This is the control that is used to fix errors that have been identified from detective controls.Corrective controls are used to help mitigate damage that has already occured and possibly implement new systems to prevent the business from experiencing the same thing again.Here are some examples of how corrective controls may be used:The use and implementation of insurance can be used for replacement of damaged goods and stolen assetsTraining courses may be implemented for employees to prevent future errors and irregularities.Directive Control: These controls are actions taken to create a desirable improvement or an event to occur. These actions may apply to all fields within a business.Incentives: Businesses make use of incentives to motivate employees to work harder, so that they may be rewarded if their hard work is recognised. For example the reason businesses would do this is to increase the amount of sales the business makes. An incentive could be things like:Offering workers more flexible hoursOffering workers bonus days off in return for them to work harderProviding workers with positive reinforcement 3.  Risk AnalysisA Risk Analysis is the process of recognizing risks and classifying the likeliness of a risk event. To carry out a Risk Analysis, you need to identify the  threats that you may possibly face, and then calculate the likelihood that these threats will transpire. In short, a Risk Analysis is the likeliness of a business losing an asset.A Risk Analysis is useful for these Types of situations:When you’re contemplating whether to go forward with a business deal or project.When you’re preparing for possible occurrences such as equipment failure, theft or staff sickness.When you’re making preparations to deal with possible, new competitors entering the business market, or changes to government policy that may affect the business.4.  Recommended Controls for Assets a)Stock: Most businesses have a large investment in Stock as it is the main source of a businesses income. Hence there is always the possibility of losing a portion of that investment due to theft and to damaged goods. To reduce the risk of theft and damage of stock certain internal controls must be put in place. Here are some of the internal controls that can be used for stock and stationary.Warehouse security and lock: This may be one of the most important internal controls. Ensuring that your warehouse is locked and the stock is secure, will reduce the possibility of stock being damaged or stolen. Locking the warehouse will ensure that only employees with authorisation have access to the stock.Physical Stock Count On Stock and Stationary: A Physical count on these assets are important to determine whether your supplier has provided the correct quantity of stock stated upon purchase. A count is also done to ensure that no stock or stationary has been damaged upon arrival.     b) Cash:The handling of cash is very important to the business as cash is an asset. Hence Internal Controls must be used to ensure that no portion of cash received, petty cash or cash float is misplaced or stolen. These are the controls that can be implemented for petty cash, cash float and bank:Segregation of duties, duties are mostly divided by the employees that authorise a transaction, the employees that record the transaction and the employees that handle the related asset. This control makes it much more difficult for theft or blame for loss of money to occur, as one person will be responsible at all times for what happens to the money.Review authorized signers. Carefully consider who your authorized signer are so that they do not have  have access to the blank cheques, for the could issue cheques out without the businesses knowledge. c) Tangible Asset: Tangible assets are one of the most expensive assets to a business as they are important for keeping the business running. There are numerous controls that can be implemented to protect land and buildings, vehicles and equipment.Control access to key areas of your operations, such as equipment rooms to ensure that only authorised employees use the equipment to ensure the equipment lasts and does not get damaged. (equipment)Insurance: A business should have their  vehicles, equipment and Land and Buildings insured incase of an emergency where these assets are damaged. By having these assets insured, upon damage of an asset you can receive a payout to recover a portion of money(based on value of asset)  that was lost.. d) Debtors:A bookkeeper within the business needs internal controls in place  for debtors  in order to reduce  the risk of fraud, error and loss of money. The purpose internal controls for debtors  is to ensure that  invoices from sales made are properly recorded and that customers make payment within the specified and agreed upon terms of the business. A  control that is used for debtors is a Policy. The business should have well stated policies and procedures for debtors. Controls such as credit and collection policies should be present to ensure all employees understand the accounts receivable process.A control for Invoices is also used: If an invoice for a large-priced  amount contains a mistake or error, the customer may hold up payment until you send a revised invoice. Consider making use of proofreading for invoices with large amounts to combat this problem.

Leave a Reply

Your email address will not be published. Required fields are marked *