Question

As the auditor of the Cranberries Company, you observed six issues that company's internal controls violate the internal control objectives or components: 1. Accounts receivable balances are collected and recorded by the same employee. 2. Finance manager can approve every payment without consulting the CFO or CEO. 3. There are some procedures that do not follow the laws and in the country. 4. A company was acquired from an economically instable country. Although foreign exchange is too volatile in that country, management does not see the situation as a concern. 5. Internal controls do not detect material misstatements about the revenue recognition. 6. Board of directors did not participate to the meetings of revising the internal controls. Required: For each issue, i. Identify the objective or component that was violated. (1 point per issue) ii. How can top management resolve the issue? Explain with your own examples. (4 points per issue)

Answer 1

Answers are presented in the tabular form :-

Question	identification of objective or component that was violated	resolution of the issue by the top management
accounts receivable balances are collected and recorded by the same employee	segregation of duties has not been implementing in the organisation	by revising the internal controls, top management has to implement segregation of duties among the employees
finance manager can approve every payment without consulting the CFO or CEO	assigning the authority to the employees without any materiality limits	top management has to examine all value of the transactions that was approved by finance manager consent of the CFO or CEO should be made compulsory for the payments which will be more than the material level.
There are some processes that do not follow the laws and in the country	violation of laws.	Implementation of a legal wing in the organisation, on the decisions taken by the organisation has to be reviewed by that legal wing.
A company was acquired from an economically instable country. All the foreign exchange is too volatile in that country, management does not see the situation as a concern	violation of legal compliances	organisation has to set up a legal and foreign exchanges wing and all the transactions involved in foriegn exchange to reviewed by the legal and foreign exchange wing.
internal controls do not detect the material misstatements about the revenue recognition	implementation of weak internal control system	provision of internal control system and updating all the materiality levels in revenue recognition.
board of directors did not participate to the meetings of revising the internal controls	weak cordination between directors	making new byelaws and updating the memorandum of company and strictly conducting of board meeting and discussing the major and material items in meetings. The presence of directors to all boaard meeting should be made compulsory with some minor relaxations. Maintaining minutes to all the meeting by the company secretary.

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