Internal Control Memo


Internal controls are policies and procedures designed to safeguard the assets of the company and ensure the accuracy and completeness of the accounting records. Utilizing applications running ?in the cloud? solves some control issues while creating others. The following are examples of internal control procedures that professional accountants recommend to their clients, and independent auditors observe in assessing the risk of the financial statements containing material misstatements whether due to error or fraud. Refer to the textbook for other examples of General and Application Controls that might apply to China
? Cash balances in the general ledger should be reconciled to bank statements regularly each month.
? Access to accounting records should be limited to designated individuals.
? Once a transaction has been entered, the ability to change or delete it entirely should be limited to some other individual,
preferably an accounting manager.
? Authority and ability to write off an accounts receivable balance or grant a credit allowance to a customer should be limited
to a financial manager.
? There should be a warning if the sales invoice about to be posted would cause that customer?s balance to exceed their
credit limit.
? Monthly statements should be sent to customers, so that customers will act as ?auditors? and complain if overcharged or under-credited for their remittances. Dunning messages on invoices and on monthly statements, together with regular follow-up letters to past due accounts, should be used to speed collection and minimize write offs.
? Aged receivable reports should be produced regularly to identify the delinquent accounts and pursue them for payment.
? A perpetual inventory system should be employed in which at least the material items in inventory are tracked
? Financial statements should be prepared monthly, with gross profit percentage and expense percentages, so that management can question apparent errors or omissions.
? The monthly financial statements should be comparative, i.e. show last year?s figures alongside this year?s, preferably with percentages as well as dollar amounts, to make apparent any significant variations in revenue or expense items that should be investigated for possible error or even fraud.
? Budgets should be prepared, and variances between actual and budgeted figures should be shown on budgetary income statements each month.
? An adequate audit trail must be provided so that account balances can be easily analyzed and investigated. A listing of the individual transactions that comprise an account balance should be available and for each of the listed transactions there should be a reference to the specific source document from which the transaction was entered.
Explore the QuickBooks program with a view toward determining which of the above procedures are made possible or are facilitated by the program. After such a review of the program, use Microsoft Word to write a memo addressed to the directors of China Trade, James Madison and Mae Ling, in which you use bullets to list features of QuickBooks that will help the
company implement sound internal control policies and procedures. In a separate paragraph, identify any weaknesses or deficiencies relating to internal control that you have observed in the program. Also point out the kinds of errors and omissions that cannot be prevented by any accounting system, manual or computerized, no matter how well it is designed.
Hint: On the main QuickBooks web site, search for ?online security.?
(PS: QuichBooks is a website for accounting software.
please email me if there is any confusion.
this is about China Trade.



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