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Auditing Case Study of Internal Control

   

Added on  2020-04-07

9 Pages2493 Words81 Views
AUDITING

AuditingCase Study -1(a)Internal control is the policy defined in an organization through which the organization can achieve its objectives most efficiently and comply with the regulations and defined policies. The strengths in the internal controls of Acid Pty Ltd. are :i.There are various terminals and checks pre-determined at every level of the business cycle such as at the ordering department, sales department, dispatch office, stores department and the delivery department. Such terminals and check are very important for the business process to accomplish effectively (Elder et. al, 2010).ii.The orders are taken on a selective basis as the orders receive pass through the computer edit checks and those orders which are not up to the mark are rejected by the system. This ensures that only those orders are taken which can be fulfilledby the company with full accuracy (Vause, 2009). It helps in ensuring a better activity and enables the company to receive orders. Moreover, the orders that are fulfilled are undertaken ensuring that the business is not affected.The weaknesses in the internal control of Acid Pty Ltd. are:i.Although the order checking and accepting system is good, it may result in fewer orders and thus fewer sales as the orders would have been checked through some officials and if any adjustments or modifications could be possible for procuring orders, it would help in increasing the sales (Church et. al, 2008). Therefore, the process of evaluation will lead to fewer sales.ii.The company takes the orders without checking the inventory levels. After taking the orders and going through different departments, the final orders are forwardedto the warehouse department where it is finally assessed by the store person and ifthe ordered goods are out of stock, the partial orders of goods in stock are forwarded to the dispatch department (Geoffrey et.al, 2016). Hence, the process of assessment is weak and will not help the company to enhance its sales. 2

AuditingMoreover, the process is slow and will not help the company to attain a better prospect.iii.Lack of oversight and review is there by the owners towards the whole business cycle as there are different flaws in all departments and these would be identified only when the owners or the top level executives keep a watch on all the activitiesand processes of the business cycle (Church et. al, 2008).iv.The long business cycle is a very time-consuming process.v.The accounts receivables are updated in the master file on a daily basis but the same is not reconciled with the delivery receipts.(b) The implications of weaknesses identified are as under :i.As there are no reviewing of the orders received from the customers apart from the computerized system, there is a possibility and might have been many cases where the order criteria may not have been found correct by computer system due to nonfulfillment of one or two criteria or may be due to any clerical error, but thesame could be rectified or amended by the department head (Matthew, 2015). Dueto complete dependency on computer systems for procurement of purchase orders, the company may lose many purchase orders in future which may further reduce the sales of the company and ultimately reduce the profitability.ii.The company takes the orders without checking the inventory levels. After taking the orders and going through different departments, the final orders are forwardedto the warehouse department where it is finally assessed by the store person and ifthe ordered goods are out of stock, the partial orders of goods in stock are forwarded to the dispatch department. This may create great losses for the company in the form of –-Fall in the reputation of the company as the customers who have placed their orders will not get those goods delivered which are not in stock with the company. As the company had accepted the orders, it should fulfill the same. 3

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