Internal Control is a process for assuring achievement of an organization objectives in operational effectiveness and efficiency, reliable financial reporting and compliance with laws, regulations and policies.The importance of internal controls in financial reporting and safeguarding plan assets. Effective controls reduce the risk of asset loss and helps ensure that plan information is complete and accurate.

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An auditor tests the controls the company has set up for the sales cycle to determine how strong and reliable they are. If they are strong, the auditor can reduce the amount of transaction testing he must do. Common internal controls over the sales cycle include numbered sales invoices, purchase order authorization over a certain limit and authorization over receivable write-offs. The auditor selects a random sample of transactions and examines the related purchase orders, invoices and customer statements. If the control being tested is numbered sales invoices, for example, the auditor ensures that all numbers in a section are accounted for and that none are missing. If the control is that all purchase orders are approved by management, the auditor checks for a manager's signature on each document. If control errors are found, the auditor increases the amount of transactional testing he must do. An auditor determines if the financial statement amounts of sales and accounts receivable are correct by verifying individual transactions. Accounts receivable balances are tested by sending confirmation letters to customers to obtain objective assurance that the balance is correct. The auditor also chooses sales transactions from the sales ledger and verifies that there are legitimate sales receipts to back up the transaction. To test the accuracy of the sales figure, the auditor reviews sales transaction in the ledger close to the financial statement date to ensure that the company only included sales prior to that date.

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