You are an accountant at a local CPA firm that is auditing the accounting records of ABC Company. You have been asked to educate the accounting department about the limitations of the internal control system in preparation for an upcoming audit. During your audit, you have identified that because of a weak internal control system, an adjusting entry for prepaid insurance was not recorded for the first 3 months of the year at $500 per month.
- Identify the limitations of the internal control system. Provide at least 3 limitations.
- Provide at least 2 examples of internal control procedures, and explain how these procedures can be implemented.
- Identify symptoms of a lack of internal control.
- Explain the impact of the missing journal entry on the financial statements of the company.
- Internal controls typically apply to routine transactions, not unusual events. Looking at controls may neglect higher risk one-time transactions.
- Management can override controls.
- Auditors do not always understand the system of controls, especially automated ones.
- No true causal relationships between good controls and good financial reports. You can have lousy controls and great report and visa versa.
- The controls can be great but not followed due to fatigue, forgetting, or poor training. A rule can be ...
The response is 305 words and gives five limitations, two procedures, and six symptoms of missing controls in bullet points that can be expanded.