Internal Control

Introduction

The management in various organizations is obliged to provide necessary controls, particularly in their internal system. The implementation of such internal control and policy are applied to secure the revenues and have a proper allocation on the expenses and resources. Having the internal control in the management will sure create a great change among the structure of operation in the business.

Internal Control

The internal control system or ICS is supported in two basic parts which are procedures and controls. The procedures can establish the necessary performance of the organizations through the operation meanwhile; the controls are applied to ensure the conducted procedures of the business. The ICS allows the management to determine the measurement of the conditions or characteristics that can damage the entire organizations and turn into the improvements and cost-effectiveness (Brewer and List, 2004). There are changes that might drive the organization change its process, objectives, and others, for over the time. The internal control is an ongoing process and can help the entire organization to analyze its goals and objectives. Determining the risks is another scope of the control that can be describe as the detective and preventive controls (Brewer and List, 2004; Benison, 2007). Taking the idea of changes and the detective/ preventive actions, it only emphasizes that the management should place a monitoring action on the controls of the activities. Basically, monitoring helps the entire organization to ensure the effectiveness of the ICS as well as the effectiveness and efficiency of the policies, procedures and the responsibilities (Benison, 2007). Organizations should create a consistent philosophy regarding the establishment of the sound internal control system to help the organization in improving the overall business efficiency, communication and cooperation, and managing the basic policies (Nabtesco, 2006).

Effectiveness of Internal Control

The effectiveness should be also according with the efficiency and both are the fundamental management responsibilities. Effectiveness is judged on the basis of the results on the implementation of ICS. In an organization, the success of ICS as well as recognizing its effectiveness is based on meeting its objectives. The most effective representation of the control is done through recording. The manager has a responsibility to ensure that there is an internal control and therefore, emphasizing their function in monitoring the sales and the performance of the people. This gives rise to the relation of internal control in detecting or preventing the misstatements or errors in the records thus, allowing the controls to be consistent to avoid the discrepancies in the values (CPA, 2002).

The Effect of Internal Control on Management and Performance

Through testing the effectiveness of the controls and assessing the risks, the strategy in increasing sales can be achieved. By the use of appropriate procedures of inquiry, documentation, observation, and re-performance, the manager can understand how well the internal control is implemented. All the gathered information, the auditor (who is usually different from the manager) can observe if the financial statement is auditable as well as determining the risk that might involve in the system and how it can be controlled. It is true that there is a need for control system, not only for assessing the risks and creating an action or response but also for the security of the entire organization. The ICS is best applied with the guidance of the objectives which is to have a clear communication on the duties and responsibilities of the people, have a system that is appropriate on the activities, and to recognize the critical points in every activity and ensuring it. The assurance of the effectiveness of the internal control is based on the continuous monitoring whether the system in adequately designed properly, executed and effective in the certain activity. In the continuous process of internal control, the management can realize a more systematic way in handling the activities that involves the cash or budget handling.

Conclusion

The internal control should be performed by a person who has the knowledge in internal control operation or having the background in accountancy. All the knowledge and skills of the individual will reflect on the recording processes or financial statements of the company. The firm should be aware that the presence of errors and inconsistency in reporting can be a sign that there is a fraudulent action within the procedures. Also, the manager must maintain the communication to ensure that the process in the management is being followed. The internal controls can significantly return the core advantages in the business such as stability and improvement in the accountability.

References:

Benison, M., (2007) Internal Control Guide, Office of the Comptroller, Quality Assurance Bureau [Online] Available at: http://www.mass.gov/Aosc/docs/business_functions/bf_int_cntrls/Internal_Control_Guide_Volume_I.pdf [Accessed 07 September 2010]

Brewer, D., & List, W., (2004) Measuring the Effectiveness of an Internal Control System, Gamma Secure Systems Limited, Wm.List & Co. [Online] Available at: http://www.gammassl.co.uk/topics/time/time040317.pdf [Accessed 07 September 2010].

CPA, (2002) Assessing the Effectiveness of Internal Control over Financial Reporting in Accordance With Section 404 of the Sarbanes-Oxley Act of 2002, Certified Public Accountants, McGladrey & Pullen [Online] Available at: http://www.mcgladrey.com/Resource_Center/Articles/SarbanesOxleyActInternalControl.pdf [Accessed 07 September 2010]

Nabtesco, (2006) CSR Activities Corporate Governance, Annual Report [Online] Available at: http://www.nabtesco.com/ir/pdf/2006_3/AR/annual_report_2006_005.pdf [Accessed 07 September 2010].

Why the Cashbook Balance Does not Reconcile with the Bank Statement Balance

Introduction

In accounting department, it is plain to know that the responsibilities of the accountants are different among the other members in the organization. They have to create various reports in which their corporate leaders often consulted to formulate reasonable and sound decisions in the business. The most important thing that an accountant should bear in mind is the professionalism and integrity that they have to keep to assure that all the transactions are unbiased and true.

Background and Problem Statement

Monthly reports are included in the tasks of the accountants. Much more, the cashbook balance, bank reconciliation, and income and expenditure statement should be provided according to what is asked to them. The general work in the accounting department is composed only with the transactions appeared based on the event or date. The cash accounting methods are used in the department, and the staff should be fully aware about the existence of a cheque and must be recorded whether income or expenditure to avoid any errors (Lions Clubs International, 2008). Through the ongoing practice of the accountants and performing according to the codes of professional ethics, still there are many problems that arise in the department, like in cashbook and bank reconciliation, that might pose threat in the profession of an accountant.

Research Aim and Objectives

The main aim of the study is to learn the different reason that ends into the reconciliation problem between the banks and the cashbook. To support this aim, the study prepared the three specific objectives that can help the researchers and guide them in discovering the reasons behind this dilemma in the accounting department. First is to understand the important of reconciliation and thus, the effects that it may create in the financial position of the organization. Second is to unfold the situations where the reconciliation problems occur. And third is to recognize the classical solutions of the accountants to minimize the errors in reconciliation.

Literature Review

Bank reconciliation is needed at the end of each month and shows the transactions that appeared within the same month. Reconciliation is not just a representation of figures but a report on how the money performed within that month, and it should be balanced with the money recorded in the department and the money updated in the bank. The early arrangement with the bank can lessen the burden among the accountants or auditors and in return, the bank should provide the bank statement for the accountants. This kind of method shows that the money a corporation held and stocked in bank is balanced according to the outstanding transaction. It should be accurate and true, and thereby recorded (Lions Clubs International, 2008). During the audit, there are instances that bank reconciliations are against cashbook, which might reflect on the high levels of professionalism of the accountant and the entire department. Albeit standards had been prepared to avoid this dilemma still, the holes in the practice might be the foreseeable reason behind the reconciliation problem. The lack of supervision, training in the reconciliation process, guidance, modules, materials, and technologies are the common factors that might lead to the ineffectiveness of the reconciliation process. Reconciliations were not always performed or performed correctly and because of that the operating accounts went back to zero. The general ledger or cashbook might comprised of incorrect process such like the dishonored cheques or stale cheques that were left unadjusted and appeared to be different in the bank reconciliation process (Parliament of Tasmania, 2001). Cashbook balances for various funds might not also reconcile because of the non-preparation action, negligence, ineffective monitoring systems, and/or late up-date on the banks (Constitution of Kenya, 2004).

Methodology

The applicable method in the study is to use the comparative case study method. This type of method can help the researcher/s understand the complexity of the accounting and its practice in the corporate world. Far from the education, accountancy is not only a profession but a practice which for over the years holds a kind of reputation in various industries. Therefore, through the use of the case studies, the researcher might find valuable solution based on the real-experience of the accountants, particularly in reconciliation process.

References:

Constitution of Kenya, (2004) “Report of the Controller and Auditor General on the Appropriation Accounts, Other Public Accounts and the Accounts of the Funds”, Republic of Kenya for the Year 30 June 2004, Accessed 08 June 2010, from http://www.marsgroupkenya.org/Reports/Government/july_07/Controller_and_Auditor_General_Report_2004.pdf

Lions Clubs International, (2008) “SIMPLE SPREADSHEET ACCOUNTING for LIONS”, LionBooks Bookkeeping Manual, Accessed 08 June 2010, from http://www.lionsclubs.org.au/leadership/DownloadFiles/Lion-Books-User-Manual-Jan2008.pdf

Parliament of Tasmania, (2001) “Bank Account Reconciliations in Government Departments”, Auditor-General Special Report No. 39, Accessed 08 June 2010, from http://www.audit.tas.gov.au/publications/reports/specialreport/pdfs/specialrep39.pdf

Audit Planning and the Effects of Inappropriate Audit

Introduction

The challenges that are presented in globalization is not only in the issue of competitiveness but also the ability of the organization, as well as the individuals, to cope with the impact of changes. Accordingly, the increase in competitiveness manifests in the performance of people in the corporate world. Entering in the door of auditors, there is a significant progress and development that entirely affects the relationship of auditors towards their respective clients. The main function that auditors deliver is the idea of non-biased audit report.

Background and Problem Statement

It is important that the auditors took responsibility in their action which is founded by their education, training, and professionalism. The qualities of auditor’s are often taken to their experience and standards in professionalism. In addition, the planning stage in auditing is one of the most essential elements that might derive in the ability of the auditors in executing professionalism in their field. The importance of planning represents the appropriate action that an auditor can create, which is not solely relying in the basic knowledge but also through the organizational standards. However, what would be consequences can be drawn by the inappropriate auditing, and what would be the effective audit plan to avoid such consequences?

Research Aim and Objectives

The main aim of the study is to build a strong idea and definition regarding the audit planning. In addition, the study aims to deliver the appropriate ways in audit planning by scoping the various effects of inappropriate audit. To support the smooth investigation of the study, there are three important objectives that will play essential roles. First is to give a deeper approach regarding the internal auditing. Second is to emphasize the techniques or standards being applied in audit planning. And third is to assess the various consequences that an auditor can meet during the auditing process.

Literature Review

Auditing or internal auditing is considered to be one of the most stressful works in the corporate world. Many auditors are placed under the series of workloads, deadlines, and pressures. In this, the production of quality work can be a sinister. Added to that is the existence of changing roles which considered as placing the auditor is a disadvantage situation. The stress and pressure felt by the auditors might be the cause of sub-standard work outcomes. Auditors, albeit had a professional record and credentials should work according to the provision of policies and procedures. This is settled in order to follow the standard, and one of the practices applied in the audit planning. Audit planning is created to use the resources in an efficient way, follow the organizational objectives, and have a control over the auditing process. The continuous implementation of audit planning establishes the growth and improvement of the auditor’s performance. In addition, the audit planning can reduce the fraudulent activities that might pose threat not only in the organization but also in the integrity and credibility of the profession. Although defined as a stressful job, auditor’s still adhere on the audit planning and their related activities to align the management and control towards the organizational goals. The audit processes are created to secure the interest of the client or the organization and thus, this very same reason should be on the top priority of the auditor in audit planning. The audit planning might start in accepting and performing the initial audit through touring in client’s plants and offices. It is important that the auditor understand the nature of client’s business in order to review the different reports such as the key ratios with their competitors, and management controls and procedure implemented. The next step is to assess the business risk by identifying the various engagements of the business and the parties involve. In performing the analytical procedures, it is more likely appropriate to consult the accounting principles used by the organization and suggests other accounting techniques to derive in the most desirable financial statements.

Methodology

The suggested method in the study is the use of comparative case studies. The use of the said method will definitely give rise to various issues involved in auditing process. Moreover, the presentation of the case studies that are based on the experience of the professionalism suggests that there is an appropriate management and techniques that can be utilized towards the effective auditing process. The birth of the audit planning is believed to be brought by various conflicts of interest, contradicting goals, and auditing issues. And through the aim of the auditors in putting a standard approach in their practice, the creation of audit planning has been implemented.

References:

APB, (2009) “APB Ethical Standards Consultation on Audit Firms Providing Non-Audit Services to Listed Companies that they Audit”, The Auditing Practices Board, Accessed 18 June 2010, from http://www.frc.org.uk/images/uploaded/documents/APB%20ES%20NAS%20Consultation%20%28October%202009%29.pdf

Bedard, J., & Jackson, C., (2003) “Information Systems Risk Factors, Risk Assessments, and Audit Planning Decisions”, Accessed 18 June 2010, from http://aaahq.org/audit/midyear/03midyear/papers/Systems%20Risk%20Factors%20and%20Audit%20Planning%2009-18.pdf

Chenok, P., (1995) “Raising the Profession’s Performance, Fifteen Years of Meeting the Challenges”, Journal of Accountancy, Accessed 18 June 2010, from http://www.allbusiness.com/accounting/508214-1.html

IRS, (2003) “A Cooperative Effort of the Large and Mid-Size Business Division of the Internal Revenue Service and the Tax Executive Institute”, Internal Revenue Service, Accessed 18 June 2010, from http://www.irs.gov/pub/irs-utl/09-17-03_joint_audit_planning_process_with_cover.pdf

Jiambalvo, J., & Kennedy, J., (2002) “Analytical Procedures and Audit Planning Decisions”, Journal of Accountancy, 191(2)

Larson, L.L., (2004) “Internal Auditors and Job Stress”, Managerial Auditing Journal, 19(9): 119-120.

Ramamoorti, S., & Weidenmier, M., (2004) “The Pervasive Impact of Information Technology on Internal Auditing”, The Institute of Internal Auditors Research Foundation, Accessed 18 June 2010, from www.theiia.org/iia/download.cfm?file=1750

Harmonization between Domestic Accounting Standards with International Accounting Standards in Developing Countries: Empirical Evaluation

Introduction

Accounting profession seems to be the most intriguing job opportunity yet challenging in the corporate area. From the basic accounting standards to ethical professionalism, accountants are expected to bring the best characteristics that can promote the professionalism and maintain the dignity even in a competitive world of business. Accountancy exists in the corporate world not only on the available competency of the professional but also because of the standards being followed by the accountants to provide the adequate results regarding the globalization and corporate needs.

Research Background and Problem Statement

The accounting functions are continuously changes according to the challenges predicted by the influence of globalization and internationalization. In order to align all the organizational goal, competency and application of knowledge of the accountants, there is a creation of accounting standards that are being followed by the accountants to provide their corporate functions. Within the organization, the accounting reports are essential tools for the business leaders to generate sound decisions. In a deep sense, there are various accounting standards and functions that an accountant might provide towards the overall efficiency of the company. The computation and the various strategies are enclosed to those standards that are available for the accountants to use. The effectiveness of their method might vary since they are also compelled to follow the objectives of the organizations. In the long run, it can be a strong signal for the organizations effectiveness. However, the domestic accounting standards as compared to the international accounting standards should be also harmonized to guide the improvement strategies in developing countries.

Research Aim and Objectives

The aim of the study is to provide the information regarding the coordination and collaboration of domestic accounting standards and international domestic standards, with a purpose to aid the developing countries across the globe. With due respect to the accounting proficiency, there are three objectives that definitely guide the study in achieving its goal. First is to differentiate the domestic accounting standards against the international accounting standards and by determining the effectiveness of their application in an organization or country. Second is to describe the type of accounting standard that are implemented in the country. And third is to recognize the level of control in terms of professional ethics in the application of the accounting standards.

Literature Review

Accounting can be considered as a technology of control because of the intervention of accounting professional. Added to that is the existence of technologies such as software and computers to create an easy access in the organization of the transactions. In the performance of an accountant and their performance according to their function should be implemented with the level of control (Yayla, 2007). Accounting is encompassed with various transactions and sorting the items and accounts accordingly. The existence and relationships of the accounts can create a great impact towards the control with the organization and building their own competency. The provided standards include the accounting control in which might under the organizational structure, assuring that the interest of the organization are safeguarded. With the use of the standards, the accounting functions are directed to the leaders to aid them creating the decisions. All the information written and appeared on their report is believed to have a good calculation and satisfied the accounting standards. Through the deep understanding of the business corporate, the control can be given which will result in positive behavioral expectations. Accounting standards welcomes the various interventions such as the utilization of technologies for both managerial and financial accounting department and helping the accountants on their everyday tasks. The easy access on the accounting data such as the costing system is bound to follow the standards set in both domestic/international accounting and company objectives in order to relay the integrity and objectivity of the accounts (Brierley, 2004). It is already given that the accounting standards are effective only if the manager or the accountants followed the codes, rules, and/or regulations indicated and in return, can give the strategic control functions (Heeren, 2001; Tanner, 2007).

Methodology

The suggested method in the study is the comparative case studies in order to compensate the clichés created in the corporate world. The study can gain the various advantages in using the comparative case studies is the kind of method that can be used concerning the samples of studies particularly in accounting for there are bountiful of ideas and issues concerning the corporate practice and application of standards. By looking on the previous studies, the researcher/s can discover the various literature gaps with the accounting standards used in various areas.

References:

Brierley, J., (2004) “An Examination of the Costing Process in a Technology Center: Lessons for Management”, International Journal of Management, Vol. 21, No. 1.

Heeren, A., (2001) “Management Accounting for Sustainable Development”, Accessed 10 June 2010, from http://www.p2pays.org/ref/26/25585.pdf

Tanner, D., (2007) “Comparison of Management Accounting and Financial Accounting”, Introduction to Managerial Accounting, Accessed 10 June 2010, from http://www.unf.edu/~dtanner/dtch/ch1.pdf

Yayla, H., (2007) “Accounting and Language”, Accessed 10 June 2010, from http://www.cf.ac.uk/carbs/conferences/abfh07/yayla.pdf