Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 7 - Fraud, Internal Control, and Cash - Questions: 3

Answer

Internal control system should have the following five components:- A control environment, Risk assessment, Control activities, Information and communication, Monitoring.

Work Step by Step

1) A control environment – The top management should make it clear that the organization values integrity and any unethical activity will not be tolerated. 2) Risk assessment – Companies must identify the factors that create risk for the business and determine how to manage these risks. 3) Control activities – For the reduction in number of frauds, management must design policies and procedures to address the specific risks being faced by the company. 4) Information and communication – The internal control system should capture and communicate all important information to the Management. The same should be circulated among all concerned. 5) Monitoring - The Internal control systems must be also be monitored periodically for its effectiveness. Any deficiency noticed must be reported to the top management.
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