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Lecture

Monitoring business and accounting systems.docx

4 Pages
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Department
Marketing
Course Code
MKT 2210
Professor
Subbu Sivaramakrishnan

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Description
Chapter 5:Monitoring business and accounting systems Internal control system is the whole system of controls,financial and otherwise,established by the management in order to carry on the business of the enterprise in an orderly and efficient manner,ensure adherence to management policies,safeguard the assets and secure as far as possible the completeness and accuracy of the records.The individual components of an internal control system are known as controls or internal controls. These are eight types of internal control listed.One way of remembering them is use the mnemonic SPAM SOAP. -Segregation of duties.Executive tasks should be separated from control tasks. One of the prime means of control is the separation of those responsibilities or duties which would, if combined,enable one individual to record and process a complete transaction.Segregation of duties reduces the risk of intentional manipulation or error and increases the element of checking. Some functions should be separated whenever possible. For example, authorisation, execution and custody. An example of segregation of duties concerns the receipt, recording and banking of cash. It is not a good idea for the person who opens the post to be the person responsible for recording that the cash has arrived. It would be even poorer practice for that person to be responsible for taking that cash to the bank. If these duties are not segregated, there is always the chance that the person will misappropriate or steal the cash and no-one would know. -Physical controls.These are concerned with the custody of assets and records and are also concerned with ensuring that access to assets and records is only permitted to authorised personnel. Procedures and security measures are needed to ensure that access to assets is limited to authorised personnel. Such controls include locks, safes and entry codes. -Authorisation and approval. All transactions should be authorised or approved by an appropriate responsible person. The limits for these authorisations should be specified.In a purchasing system there should be authority limits,where purchases of amounts exceeding those limits require higher authority. -Management controls.Management controls are exercised by management outside the day-to-day routine of the system.These include the following: overall supervisory controls, review of management accounts and comparison with budgets,internal audit function and special review procedures. -Supervisory controls.Any system of internal control should include the supervision by responsible officials of day-to-day transactions and the recording of them. -Organisation as a control.Enterprises should have a plan of their organisation,defining and allocating responsibilities and identifying lines of reporting for all aspects of the enterprise’s operations, including the controls.There must be a well-defined organisational structure showing how responsibility and authority are delegated. An effective plan would require: (i) separation of a company’s operations into appropriate divisions and sub- divisions, (ii) appointment of persons to assume responsibility, (iii) establishment of clear lines of responsibility between each division and sub- division and the board of directors, (iv) overall co-ordination of the company’s activities. This will help to prevent friction so that staff work together well. It also means that no duties go un
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