Internal Controls in Assurance

The assignment content is about internal controls in auditing, reconciliation, financial reporting, cost-volume-profit charts, management accounting, and balanced scorecards. It discusses the evolution of audit concepts from traditional auditing to assurance, emphasizing the importance of internal controls for operational effectiveness, reliability in financial reporting, compliance with laws and regulations, and safeguarding fixed assets. The content also touches on topics such as profit, earnings per share, working capital ratio, variable and fixed costs, and the Monty Hall problem.

Assessment 3
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Answer 1: Internal Controls
Concept of auditing traditionally has evolved. It has evolved from auditing to audit and
assurance. Traditionally auditing involved vouching, sample tests and compliances. But now
the scope of audit has extended to assurance. It implies assuring the clients that the Internal
controls are in order (Shaub, 1995). Internal controls have direct co-relation with the
organization’s operational effectiveness, reliability in financial reporting, compliances with
all applicable statutory laws & regulations and policies laid down by management. A very
interesting update in the field of auditing has emerged in the form of reporting the Internal
Financial Controls over and above Financial Reporting. These are guided by the Institute
governing the Chartered accountancy course. This scope of enhancement has increased more
reliability to the stakeholders and revenue authorities about the financial statements and
reporting requirements. Lists of checkpoints have been recommended by the governing
bodies which cover all the ins and outs of the organization irrespective of the industry
domain.
There are 4 basic components of internal control
1. Operational effectiveness: Auditor must ensure that the operations are carried out
effectively in the way it is expected. Revenue leakages and over / under absorption of
overheads are controlled and closely monitored. The budgets laid out by the
management are rational enough to be followed by the Company
2. Reliability in financial reporting: there should not be irregularity in usage of
accounting heads, significant accounting policies and the same should be followed
consistently without deviation. If the same requires deviation, it should be approved
by the top management (Doyle et al, 2007). General assurance should be provided for
the financial reporting discipline.

3. Compliances with laws and regulations and management’s policies: It should be
meticulously monitored by the auditor that the legal payment deadlines are met by the
companies or not. In case of any delay or omission to that extent, whether the
company has compensated the Revenue department or not forms important part of the
Internal Control assurance
4. Information system: How accurate the Management Information System is a vital
criteria to decide about the execution of the particular policy. The reporting on
Information system and Information asset form a significant part of the Audit report.
5. Safeguarding the fixed assets: Fixed assets are those which are for the future benefit
of the organization. The auditor must ensure whether the same are safeguarded or not.
Whether the replacement costs are charged to revenue or not.
Answer 2:
Reconciliation means justification of difference. Its only reconciliation which helps in
eliminating differences (Stein, 1991). Bank reconciliation is done with respect to Bank
statements and Bank register maintained by the company as on a particular date (normally
last day of financial / periodic reporting). Bank reconciliation is a control measure to check
the accuracy and adequacy of banking transactions of the organization.
Reconciliation operates with a basic fundamental. Do what the other has done, and undo
what the other has not done.
Answer 3

A. Information users could be all stakeholders/shareholders, Suppliers, Customers,
Contractors, Revenue department, Management.
B. The work in an organization is basically divided into 3 types of management. Top
level, Mid-level and Bottom level.
a. Score keeping or book keeping is normally responsibility of the bottom level
management. Transactions processing system is the part of such management
(Carruthers and Espeland, 1991). The responsibility area is of the Bottom level
or the supervisory level management
b. Attention directing are the mid-level managers who get access to all
transaction based reporting data from amongst all departments. The mid-level
management provides attention to the loopholes in the course of preparation of
such individual transaction based system
c. Problem solving is in the hands of Top level management. The problem
remaining unsolved is the ultimate responsibility of the top management.
C. Disagree. In fact a Chartered Accountant is must to be a part of the Board. The
performance of the Company has a lot to do with the actual reporting and accounting.
The work actually done needs to be justified. The same is the task of a Chartered
accountant to produce the work actually done
Answer 4
1. I will try to know more about the investment and shall try to understand the feasibility
of the same in my own exploration unit. For acquiring this type of information I will
give a positive feedback to the new geologist.

2. I will not share details of the financial performance. I can casually talk about a
brighter future if any. If there is no bright future, I shall not utter a single word about
the same
3. Provisions for expenses are about the anticipation. If it affects the performance
substantially, I shall not provide for the same. With a strong balance sheet, I will be
able to secure funds from Bank and utilize the same to pay back the anticipated
expenses and prosper
4. Research the tax laws and adhere to the same considering that the same is not done
with the help of a legal advisor who charges hefty amount of fees
Answer 5
1. Profit: $560 million
2. EPS: 25.4
3. Earnings Before depreciation interest and tax is generally used by bankers to calculate
Debt service ratios. Revenue seat factor is a factor used to measure the operating
revenue. Revenue received in advance is the advance receipts from customers.
Retained earnings which remain after all kinds of appropriation of profits
4. Working Capital Ratio: 0.68 times
5.
Statement showing operating cash flows
(Direct method)
Cash received from customers 17239
Cash payment to suppliers -14747
Answer 6

A. Variable Cost: all marginal costs which increase with increase in operations
(Goyal, 1977). For eg Workers’ wages, Raw Material consumption, Factory
overheads
B. Fixed Cost: which remain even if the operations are laid off. Eg Rent of premise,
Salary of executive staff, electricity of office building
Answer 7
Cost Volume Profit Chart
Category 1 Category 2 Category 3 Category 4
0
1
2
3
4
5
6
Cost Volume Profit
Cost Volume Profit
Answer 8
1. Yes I will change my decision. On asking the problem to 10 friends, they all will give
a second thought and change their decision
2. Monty hall problem is relating to probability and strategic decision making using
simulation (Gilovich et al, 1995)

3. Probability of occurrence of the disease is 0.8 x 0.95 = 76%. Man should leave for
Mauritius
4. It’s a probability distribution decision. The same needs to be worked out as per the
suitable formulas of the learned facilities
5. Humans generally do not make such kind of probability working. They go by either
elderly guidance or self-education
Answer 9
Op Cash 60
Cash sales 1050
Inventory -576
Cash expen -136
Cl cash 398
Answer 10
Material Variance
Price Varia 198
Volume -1200
-1002 Adverse
Labour Variance
Usage -9800
Expense -26400
-36200 Adverse
Answer 11

Yr Inflow Disc factor Inflow inflow
1 10000 0.88 8772 8000 7018 9000 7895
2 10000 0.77 7695 8000 6156 9000 6925
3 10000 0.67 6750 8000 5400 9000 6075
4 10000 0.59 5921 8000 4737 9000 5329
5 10000 0.52 5194 8000 4155 0
34331 27465 26223
-5669 -12535 -13777
PBP 4 years
NPV -5669
NPV after 3 years -16783
NPV for 8000 per year -12535
NPV for 9000 per year -13777
Answer 12
Balanced Score Card:
It is a tool of Management information system used in Strategic Planning. The industry and
business objectives align to the vision and strategies of the organization. In balanced score
card, organizational performance is closely monitored.
Management Accounting
Accounting has evolved from traditional accounting and book entry to management
accounting. Management accounting has been developed in order to get a comprehensive
understanding of the business and its processes. It involves costing, budgeting, decision
making, CVP analysis, Marginal Costing, Standard Costing etc.

References:
Carruthers, B. G., & Espeland, W. N. (1991). Accounting for rationality: Double-entry
bookkeeping and the rhetoric of economic rationality. American journal of Sociology, 31-69.
Doyle, J. T., Ge, W., & McVay, S. (2007). Accruals quality and internal control over
financial reporting. The Accounting Review, 82(5), 1141-1170.
Gilovich, T., Medvec, V. H., & Chen, S. (1995). Commission, omission, and dissonance
reduction: Coping with regret in the" Monty Hall" problem. Personality and Social
Psychology Bulletin, 21(2), 182-190.
Goyal, S. K. (1977). An integrated inventory model for a single supplier-single customer
problem. The International Journal of Production Research, 15(1), 107-111.
Shaub, M. K. (1995). An analysis of the association of traditional demographic variables with
the moral reasoning of auditing students and auditors. Journal of Accounting Education,
12(1), 1-26.
Stein, G. S. (1991). First Amendment and Campaign Finance Reform: A Timely
Reconciliation, The. Rutgers L. Rev., 44, 743.