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Theory On Control Of Assets Essay

3658 words - 15 pages

Part 1: Theory on control of assets

1) Internal controls are methods that a company puts in place to ensure the integrity of financial reports and accounting information, and that they meet operational and profitability targets. They are implemented to assure the safe-guarding of assets as well as to detect fraud and any other errors. As such, they provide the company with reasonable assurance that specific objectives will be achieved.


2) The overall purpose of internal controls is to help a department achieve their goals by establishing protocols, preventing fraud and theft, separating duties, organizing information, reducing errors, protecting assets, making sure people adhere to policies and to ensure accurate accounting records are kept. It is what a department does or uses to see that the things they want to happen will happen…and the things they don’t want to happen won’t happen.

Examples:
• The person handling the order forms must not be the same person collecting the orders.
- Separation of duties
- Prevention against theft
• Files must be kept containing the order forms and kept in a safe area with limited people allowed access to it.
- Organizing information
- Prevention against theft
- Accurate accounts are kept

3) An internal auditor is there to add value and improve an organization’s operations. He helps the organization achieve their objectives by bringing in and using a systematic, disciplined approach which he can use to evaluate and improve the effectiveness of risk management, control, safe-guarding of assets and governance processes. He would pick up on mistakes and weaknesses within the business and approve on them by designing or fixing them with a new and updated system. He will implement this to ensure the organization a much more flawless set of controls. As a result of it being his own “design” of a system he will be able to monitor it and see if any others errors occur and whether or not more changes need to be made. If any problems occur he will then report to the directors or people in charge and from there a new approach will be looked at.

An internal auditing process would consist of a series of questions being asked and compared to the criteria needed, thereafter conclusions would be drawn up and a plan put in place.

Examples: ( The process of internal auditing )

➢ Condition: What is the particular problem identified?

➢ Criteria: What is the standard that was not met? The standard may be a company policy or other benchmark.

➢ Cause: Why did the problem occur?

➢ Consequence: What is the risk/negative outcome (or opportunity foregone) because of the finding?

➢ Corrective action: What should management do about the finding? What have they agreed to do and by when?

➢ Every month a small portion of money disappears and no one knows where and how this happens. An internal auditor will follow a set process similar to the above one and put in place a strategy or a new system in order to...

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