Good Procedures for
Processing Transactions:
• Prompt recording. Employees record
transactions immediately as they occur. This
decreases opportunities for errors and
irregularities regarding the transactions.
• Visual checking. An employee recording
the transaction confirms visually that all
data are complete and correct.
Good Procedures for
Processing Transactions:
• Balancing. An employee determines that
the total debit entries equal the total credit
entries for the transaction.
• Batch controls. Employees accumulate
transactions into batches. They total the
amount of the transactions in each batch and
attach this total to the batch. In each later
processing step, this total is recalculated and
compared to the original batch total. This
verifies that no transactions are lost from
the batch.
INFORMATION AND
COMMUNICATION
Information and communication are
required for making operational
decisions, for financial reporting, and for
compliance with laws.
Modern accounting systems implement
double entry accounting methods with
features that prevent and detect errors
and irregularities, such as:
Double-Entry Accounting
Methods Features:
1. Debit and Credit Analysis
2. Chart of Accounts
3. Standard Journal Vouchers
A document used to record a standard journal entry. It
shows the proper accounting entry for a common
transaction and minimizes the likelihood of recording the
transaction incorrectly.)
4. Trial Balance
5. Control Accounts
Characteristics of a WellDesigned Chart of Accounts:
1. Responds to organization needs.
Account included in a chart of
accounts should meet management’s
needs for control of operations and
financial accounting requirements for
external reporting.
Characteristics of a WellDesigned Chart of Accounts:
2. Facilitates report preparation.
Account in the chart of accounts
should be listed in their order of
appearance in the financial
statements and should be compatible
with the organizational structure.
Characteristics of a WellDesigned Chart of Accounts:
3. Provides adequate description. A
description of each account and its
contents should be provided. This
guidance to the accounting staff
enables consistent use of the accounts
Characteristics of a WellDesigned Chart of Accounts:
4. Account titles provide clear
distinctions. Account titles should be
chosen to minimize ambiguities
concerning the contents of an
account.
5. Control accounts. When costeffective, the chart of accounts
should incorporate control accounts.
MONITORING
It is a process that assess the quality of
internal control performance over time.
Monitoring can be done in two ways:
1. Ongoing Monitoring Activities.
2. Separate Evaluations:
1. Independent Auditors
2. Internal Auditors
Monitoring Activities
Check
Clerical checks
Reconciliations
Comparison of assets
with records
Example
A shop worker fills out a materials
requisition. The shop supervisor reviews
it before signing it.
A shop supervisor examines the sequence
of completed materials requisitions to
ensure that non are missing,
An internal auditor and an inventory clerk
count the physical inventory. The auditor
compares the count totals with quantities
shown in accounting records.
Monitoring Activities
Check
Example
Computer-programmed A computer program checks calculations
controls
on a materials requisition after the data is
entered into the computer.
Management review of A factory manager investigates the cause
accounts
of an excessive materials quantity
variance.
User review of
An inventory clerk reviews a list of
computer reports
material requisitions to look for duplicate
processing of the same requisition.
QUESTION A
1. Which three categories of objectives
do accountants recognize for internal
control?
2. Which features of a double-entry
accounting system prevent and detect
errors and irregularities?
3. How does debit and credit analysis
aid in preventing and detecting errors
and irregularities?
QUESTION B
1. What is internal control?
2. Identify seven factors that affect an
organization’s control environment.
3. What is a standard journal voucher?
Why is it a good control practice?
QUESTION C
1. What are the two threats to accurate
and reliable accounting data?
Describe and distinguish between
them.
2. What are the components of internal
control?
3. What are four categories of control
activities?
QUESTION D
1. What is meant by the following statement:
“Internal control policies and procedures
are intended to provide reasonable but not
absolute assurance that management’s
objectives are attained”?
2. Which kinds of errors and irregularities
can occur even in an organization having
good internal control?
3. Describe the difference between general
and specific authorization.