An accounting and auditing system enables businesses to use their data in a uniformed way. It eliminates the possibility of financial information being applied differently in decision making since it is interpreted differently across the organization.
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Through an accounting system, the financial information from a company can be relayed in a manner that is void of ambiguity since the system does the interpretation and giving of results.
Internal controls of an accounting system supplement the analysis, implementation and design divisions of an accounting system (Leitch, p. 71).
It is the internal control that safeguards the entire accounting system from the risk of fraud, violation and external manipulation. It functions as a complete system that is found inside the larger accounting system but having different roles.
Thanks to the internal control, the information provided by the accounting system becomes reliable and timely. It is timely since the control protects against external interference which can interfere with the speed of operations.
The information is reliable since the control protects the system from fraud and abuse. The internal control thus ensures that financial information is accurate so that decision making can be effective. For a sales accounting system, the internal control ensures that there is environmental control.
Environmental control refers to the resulting employee behaviour and attitude as a result of the objectives set by management. Environmental control ensures that the goals set by management do not go against ethical work practice.
It is crucial for the sales accounting system to be able to assess common business risks that are faced by the business at different stages of growth.
Risk assessment becomes important if the sales function operates in a risky environment. In this case, employees are better placed to carry out risk assessment even though it is supposed to be a function performed by management.
Risk assessment and environmental control are functions that threaten the success and profitability of a business. The sales function cannot therefore operate without these roles performed by the internal control.
Information communication, monitoring, risk assessment and environmental control ought to take place in the internal control itself so as to eliminate the possibility of inefficiencies, errors and inadequacies.
Crazy Eduardo can use the following simple chart which indicates the possible controls for a layout of risks.
|Control 1||Control 2||Likelihood of breach||Magnitude of breach|
The internal control safeguards the sales accounting system from the threat of fraud which occurs when unauthorized parties can access financial information.
Financial information is sensitive to a company and unauthorized parties should not be able to access it. Even in the sales function, secrecy of information is important so that marketing strategies cannot leak to competitors.
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The internal control enables the sales manager to keep financial information confidential and available only to authorized personnel.
Strengths of an internal control
Since computerization is widely used in businesses globally, this method of handling sales information is relevant and up to date. Internal control is a computerized approach in the handling of financial information.
It therefore brings the advantages of having computerized accounting records in the company. This method of handling information separates the business from people who are considered as external parties.
For instance, family members of the owners previously had easy access to company records when financial information was stored manually.
Computerization prevents unauthorized access into company records which enables the sales affairs to be void of interference from family members. This approach also prevents malpractice of employees who handle cash.
The internal control keeps track of the operations of the sales accounting system. Hence, it becomes difficult for the personnel handling cash to misappropriate funds since everything is computerized.
Control is important in the sales function as sales involve the following activities by the sales team: credit, sales, accounting (accounts receivable and payable), billing, mailing, depositing, shipping (inventory) and bank reconciling.
In the sales function, there has to be a transaction between the seller and the buyer, authorization of the seller to make the sale and the buyer to make the purchase, accounting recordation, asset custody which is provided through cash or checks, and lastly reconciliation or verification of the account by an auditing team (Gelinas, Dull and Wheeler, p. 239).
The internal audit is not audited when the financial information is audited. A report on the internal control can however be issued following the limitations identified from the auditing findings about the financial system.
An evaluation of internal control, including internal control over financial reporting
Internal control is therefore a crucial role in financial reporting. Financial reporting enables the collection, storage and presentation of financial information in an organized manner.
This cannot be complete without internal control which is responsible for creating checks and balances. The internal control is that which ensures that the information retrieved from the financial reporting operations are reliable and accurate. Financial reporting is not complete without internal controls, which justifies decisions made from the basis of financial information.
Leitch, Michael. Intelligent internal control and risk management: designing high- performance risk control systems. Aldershot: Gower, Burlington, VT. 2008.
Gelinas, Ulric J., Dull, Richard B and Wheeler, Patrick R. Accounting information systems. Mason, OH: South-Western/ Cengage Learning, 2012.