Financial Internal Controls: Apple Inc. vs. McDonald's Report

This report analyzes and compares the internal control procedures of Apple Inc. and McDonald's. It examines seven key internal control procedures, including segregation of duties, access controls, reconciliation, authorization, documentation, reporting, and policy implementation. The report delves into how both companies maintain these controls through various mechanisms such as physical access controls, electronic systems, and regular audits. Furthermore, it discusses the importance of corporate governance, including the role of the board of directors in reviewing corporate governance documentation, ethical requirements, and the development of corporate social responsibility. The analysis highlights how both companies use these controls to prevent fraud, increase operational efficiency, and ensure the integrity of accounting information, emphasizing the importance of risk management, policy adherence, and ethical conduct within their organizational operations. The report also provides insights into the application of corporate governance requirements within the companies.

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Internal Control
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Introduction
Internal controls refer to policies, procedures, mechanisms, and rules that guarantee the
accuracy and reliability of both accounting and financial information (Abdallah, 2017). There are
two categories of internal control procedures; preventive and detective internal control
procedure. Preventive internal control procedure detects fraud and errors before they happen.
They include segregation of duties, control of access, authorization, and thorough
documentation. Detective internal control procedure identifies events that have been missed in
the first line of defense. They include periodic reconciliation of accounting information, internal
audits, and external audits. Internal controls are essential to every organization because they
detect and prevent fraud, increase operational efficiency, and promote the integrity of accounting
information. This report is going to analyze two organizations, Apple Inc. and McDonald's,
regarding how they undertake and maintain internal control procedures.
Apple Inc. is a technological company that designs, develops, and sells computers,
peripheral devices, and software and music players. Apple Inc. is the leading company in world
innovation of I phone, I pad and MacBook computers. McDonald's is an American fast food
company. Its products include fries, burgers, and hamburgers. It reaches many customers through
its outlets in different counties. Both Apple Inc. and McDonald’s adopt internal control
procedures to detect and prevent fraud, increase operational efficiency, and promote the integrity
of accounting information (Cade, 2018).
Internal control procedures
Both Apple Inc. and McDonald’s undertake seven internal control procedures such as
segregation of duties, authorization, and physical access control, periodic reconciliation of

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accounting information, thorough documentation, and physical audits (Hardwick, 2016). First,
the two companies undertake the segregation of duties by subdividing duties in the finance
department. The split duties entail bookkeeping, auditing, reporting, accounting, settlements,
dealings, and deposits. The two organizations maintain segregation of duties by employing
different staffs with different duties in the finance department. Some of the team include
auditors, accountants, bookkeepers, and financial reporters. The two organizations also maintain
segregation of duties through procedure documentation to outline methods of performing
specific tasks and positional descriptions that clearly specifies the roles of different staff in the
finance department. Additionally, they also maintain the segregation of duties through an
organizational structure that creates different working spaces for various staff in the finance
department. Segregation of duties aims to minimize the chances of committing fraudulent
activities.
Second, both Apple Inc. and McDonald’s undertake access controls by installing
passwords, biometrics, lockouts, and electronic access log (Honore, 2015). The access controls
prevent unauthorized people from accessing accounting systems to compromise the auditing
process. The two companies maintain the physical access controls by regularly changing
passwords and updating both the biometric systems and electronic access log. Third, both Apple
Inc. and McDonald’s undertakes and maintains reconciliation by ascertaining whether balances
in accounting systems match with balances in various entities such as banks, suppliers, creditors,
and customers. For example, both Apple Inc. and McDonald’s conducts bank reconciliation to
ascertain whether the bank's balances match with cashbook balance. Reconciliation assists in
identifying errors such as error of omission, commission, and double entry.

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Fourth, both Apple Inc. and McDonald’s undertake and maintain approval and
authorization by mandating departmental managers to approve transactions prior to their
implementation. Approval is done by seeing, analyzing, and accepting payment and expenses.
Approval and authorization prevent employees from committing fraud using the company's
money. Fifth, the two organizations undertake and maintain documentation by keeping
standardized documents of invoices, receipts, requisition, and expense reports. Standardized
documentation maintains consistency in record keeping and also enables a thorough comparison.
Reports
Both Apple Inc. and McDonald’s undertake and maintain internal control through
reporting (Honore, 2015). Thus the two organizations prepare different reports such as daily
settlement reports, cash flow reports, exposure reports, and bank account reports. Cash flow
reports show the amount of cash flow that the respective companies generate from operating
activities, investing activities, and financing activities. Thus, all departmental units prepare cash
flow projections per week, month, and year. Daily settlement reports indicate the day-to-day
activities that were conducted by each company. Thus, the two companies have a regular system
that keeps the data of events that occurs per day in the corporate environment. Bank report
indicates transactions that occur per day, month, and year. The two companies prepare bank
reports by extracting data from the electronic banking system. The exposure report indicates
various risks to which the company is vulnerable. Companies make exposure reports by scanning
the environment to identify both internal and external threats.
The two companies also prepare an operational report that includes management, board,
and exceptional report. Operational reports inform companies’ shareholders about the financial

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performance and stability of the company. Board members prepare a board to report to inform
shareholders about the stability of the company and also compliance with international financial
standards. Managers make management reports to inform stakeholders about the financial
performance of each department. Exceptional report informs senior managers and the board
about occurrences of policy breaches in the company. Exceptional reports enable senior
managers and the board to instill the appropriate disciplinary measure for breaching the
companies’ policy. Reports assist in streamlining companies' operations and also increasing
operational efficiency.
Policy and procedures
Both Apple Inc. and McDonald’s undertake and maintain internal controls through
procedures and policies (Khan, 2015). The two companies adopt two policies; risk management
policy and treasury policy. The board matches companies’ objectives with the companies’
culture during the preparation of the risk management framework. The board also participates in
discussions of accepting risk management issues with the aim of understanding risk issues that
are vulnerable to the organization. The board approves risk management policy to ascertain it
relates to financial risk management objectives. Risk management policy entails various types of
risks, such as operational, market, liquidity, and credit and settlement risk.
The board maintains a risk management policy by specifying risk limits that should be
undertaken. The board also maintains a risk management policy by clarifying the roles of
individuals, committees, and boards in managing risks. The board also supports risk management
by clearly specifying credit limits of risks. Credit limits of risks include diversification,
settlement, and tenure period. The board determines limits of treasury policy, such as credit and

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investment limits. The board provides staff with an up to date policy and procedure documents to
enable them to comply with companies’ policies.
Monitoring and implementation
Both Apple Inc. and McDonalds monitors internal control procedures by conducting
regular internal audits to find out whether employees follow internal control procedures. The
board of directors from the two organizations also reviews internal control procedures to find and
rectify any weaknesses. The two organizations implements internal control procedures by
assigning different roles to employees in the finance department, by conducting physical audits
to obtain firsthand information. Implementation also occurs by performing bank reconciliation
and documenting invoices, receipts and requisitions.
Corporate governance
Part a
Companies are both directed and controlled by rules, practices and processes known as
corporate governance (Zakaria, 2016). Both Apple Inc. and McDonald’s adopt corporate
governance because it enables them to achieve their objectives efficiently and effectively.
Corporate governance entails corporate governance documentation and organizational policies
and procedures. The Board of Directors believes that corporate governance is a journey and
therefore undertakes the role of reviewing corporate governance documentation and
organizational policies and procedures. The purpose of reviewing is to identify specific corporate
governance, ethical requirements, and their application to business activities.

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In both Apple Inc. and McDonald’s corporate governance documentation comprise of
corporate documents, committee charters, and governance documents. Corporate documents are
a certificate of incorporation and bylaws. Committee charters are audit, finance, compensation,
and nomination committee. Governance documents include guidelines of corporate governance,
code of conduct for board of directors, guidelines of independence of directors, and policies of
employees' business conduct.
The boards of directors review corporate governance documentation to develop specific
corporate governance. First, the board of directors of two companies reviews policies of
employees' business conduct to design corporate governance called a documented policy
managerial system. Board of directors reviews corporate governance guidelines by first
categorizing various departments of the companies. The board then identifies the specific
employees who can work in the respective departments. The board then proceeds to establish the
roles and responsibilities of the individual departmental employees. Board of directors then
continues to design policies, procedures, and processes that govern individual employees.
Therefore, employees always refer to documented policy managerial system to familiarize
themselves with their respective roles and responsibilities.
Second, the board of directors of two companies reviews the charter of the audit
committee to develop corporate governance called a routine internal audit. The purpose of
reviewing the charter of the audit committee is to identify the procedure of conducting audits of
various accounting documents. Through the reviewing process, the board of directors identifies
issues and vulnerabilities that necessitate auditing. The board of directors also determines the
purpose of auditing from the charter of the audit committee. Thus, both companies always
conduct routine internal audits in accordance with corporate governance.

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Third, the board of directors of two companies reviews the certificate of incorporation to
develop corporate governance known as risk management. The purpose of reviewing the
certificate of incorporation is to identify the objectives of the respective companies. The board
then proceeds to identify related risks that might jeopardize the accomplishment of individual
goals. After identifying vulnerable risks, the board continues to design mechanisms of mitigating
risks from occurring.
Additionally, the board of directors from Apple Inc. and McDonald’s also reviews the
policies and procedures of the respective companies to create corporate governance. First, the
board of directors of the respective companies develops corporate governance called corporate
social responsibility by reviewing the organization’s procedure of charitable donations and
environmental conservation. Therefore, individual companies always strive to fulfill corporate
social responsibility by giving back to the community.
The board of directors also identifies ethical requirements by reviewing policies and
procedures and corporate governance documentation of respective companies (Zabri, 2016). For
example, the board reviews the method that requires employees to reveal a conflict of interest to
identify an ethical requirement of honesty. Additionally, an ethical requirement of confidentiality
is determined from the procedure that requires employees to protect confidential information.
Directors also develop ethical requirements from various policies such as the Global Anti-
corruption policy, Apples' Business Conduct Policy and Practices, and the policy of standards of
business conduct. Boards of directors review the policies to develop ethical requirements that
deter employees from participating in corruption and also from accepting gifts from customers.
The boards of directors of the two companies also review policies and procedures and corporate

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governance documentation to identify ethical values such as honesty, respect, confidence, and
compliance.
Part b
Both Apple Inc. and McDonald's apply corporate governance requirements in their
organizational operations to achieve organizational objectives efficiently and effectively
(Nwogugu, 2015). Both companies use the charter of an audit committee to conduct internal and
external audits. They also use a certificate of incorporation to the design objectives of the
respective companies. McDonalds’ employees refuse bribes because of the fear of repercussions
outlined in the anti-bribery policy. McDonalds ’employees also avoid all forms of foreign
corruption, such as nepotism, racism, embezzlement, and bribe, as cautioned by international
corruption policy. McDonald's employees also form decisions through teamwork and also
perform their duties as per ethical practices such as respect, honesty, and confidentiality.
All stakeholders of Apple Inc. apply corporate governance requirements by following
Apples’ Business Conduct Policy. For example, all stakeholders of Apple Inc. reveal their
conflict of interest to the human resource and business conduct helpline as per Apples’ Business
Conduct Policy. Additionally, employees of Apple Inc. are vigilant to avoid disclosing Apple's
confidential information to third parties such as customers and suppliers. All stakeholders of
Apple Inc. maintain their customer focus by continuously producing innovative, high-quality
products and services. Stakeholders of Apple also report to the responsible legal department any
suspicion of infringement acts on third parties' copyright, trademarks, and patents. Apple
employees also avoid giving or receiving kickbacks in connection with the purchase and sale of
products.

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Part c
In both Apple Inc. and McDonald's, there are some internal control procedures that apply
the corporate governance requirements to perform internal operations (Khan, 2015). For
example, an internal control procedure that requires physical audits to be conducted applies the
corporate governance of routine internal audits. Moreover, the internal control procedure that
requires documentation of accounting information applies the corporate governance of a
documented policy management system. Furthermore, the internal control procedure that dictates
the segregation of duties applies the corporate governance of risk management to prevent
financial risks that involve fraud.
Conclusion
In a nutshell, internal control procedures aid Apple Inc. to prevent theft of its patents,
copyrights and trade secrets can compromise its consumer electronics, software services, and
online services. On the other hand, internal control procedures assist McDonald's to maintain the
growth of its brand in multiple countries. Internal audits identify fraudulent transactions that can
affect their profitability. The two corporations use corporate governance requirements to protect
confidential information and also prevent bribery activities.

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