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Posted on Sep 29, 2022

Prep-Work Problem 12.5 Company X is interested in improving its compliance with internal control procedures. During 20X1, Company X determined that compliance with internal

Prep-Work Problem 12.5 Company X is interested in improving its compliance with internal control procedures. During 20X1, Company X determined that compliance with internal control procedures was 92%. On December 31, 20X2, Company X took a random sample of 165 instances where internal controls should have been followed and determined that internal controls were followed 153 times. Can Company X conclude (at the .05 significance level) that the level of compliance with internal control procedures increased in 20X2?

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Yes The level of compliance to internal control procedures in the year 20X2 also 9272 compared to last year 92 in company X from the random sample testing but company also can test other procedures and evaluate whether any changes required in internal control design procedures and effectiveness during the current year especially if some changes occurred in enterprise functioning and human resources etc Company can use the following techniques to strengthen internal control in organization 1Ensure Duties Are Segregated Segregation of duties is a basic key internal control and one of the most difficult to achieve At the most basic level it means that no single individual should have control over two or more phases of a transaction or operation It is used to ensure that errors or irregularities are prevented or detected on a timely basis by employees in the normal course of business Segregation of duties provides two benefits 1 make a deliberate fraud more difficult because it requires collusion of two or more persons and 2 make it much more likely that innocent errors will be found If a single person can carry out and conceal errors andor irregularities in the course of performing their daytoday activities they have generally been assigned or allowed access to incompatible duties or responsibilities 2 Develop Adequate Physical Control of Assets Controls should be established to secure and safeguard vulnerable assets Examples include security for and limited access to assets such as cash inventories and equipment which might be vulnerable to risk of loss or unauthorized use Such assets should be periodically counted and compared to control records 3 Correct Errors Promptly Even well designed internal controls can be break down Employees sometimes misunderstand instructions or simply make mistakes However errors detected at any stage of a process should receive prompt corrective action and be reported to the appropriate level of management 4 Develop Written Policies and Procedures Although OSF DCS and other central service agencies have procedures manual for agencies to follow an agency should develop its own comprehensive procedures manual for its internal business and financial processes Written procedures serve various functions They provide written notice to all employees of the agencys expectations and practices provide direction in the correct way of processing transactions serve as reference material and provide a training tool for new employees Written procedures also provide a source of continuity and a basis for uniformity Without clear written and current procedures an ... blur-text-image