Use COSO's Internal Control Framework to Develop an Internal Control

question 52

Essay

Use COSO's internal control framework to develop an internal control plan for Homemade Craft Company based on the following narrative.Focus your plan on internal controls for the sales/collection process.Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens.The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets.Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences.Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold.A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system.The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity.HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment.All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price.For example, if a product costs $100 to buy, HCC sells it for $125.The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

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Definitions:

Values and Principles

Are the fundamental beliefs and ethical guidelines that govern an individual's or organization's actions and decisions.

Honesty

The quality of being truthful, transparent, and free from deceit in one's actions and communications.

Ethics

The branch of philosophy dealing with morals, values, and principles that govern individual or group behavior.

Legal

Pertains to laws or the structure of rules that are enforced through social or governmental institutions to regulate conduct.