For Each of the Independent Cases Below, Identify the Principle

question 161

Essay

For each of the independent cases below, identify the principle of internal control that is violated, and recommend what should be done to remedy the violation.
1. In order to save money, Regal Company has decided to drop its property insurance on assets; and stop bonding the cashiers who handle about $10,000 in cash each day.
2. Halton Company records each sale on a preprinted invoice. Since sometimes invoices are damaged in the process of being prepared, the invoices are not prenumbered, but the sales clerk writes the next number onto each invoice.
3. Marion Company is a very small business. Bob Lepley, one of the two office clerks, opens the mail each day and removes the cash receipts that come in the mail. Bob then records the receipts in the cash records and the customer's account and deposits the cash in the bank.
4. Gerald McNichols, the owner of McNichols Company prides himself on hiring only the most competent employees. McNichols believes that since these employees are highly competent and to show that he trusts them completely, he feels there is no need for anyone to check up on the employees' performance.
5. Service Products is a small business with only 3 accounting employees. Each employee is well-trained and so can perform any of the accounting tasks, including handling cash receipts and cash disbursements, and preparing the bank reconciliation.

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Definitions:

Indirect Method

A way to report net cash flow from operating activities in the statement of cash flows by starting with net income and adjusting for non-cash transactions.

Crown Property

Assets owned by the monarch or government of a realm, particularly in commonwealth countries, often including lands, buildings, and heritage assets.

Statement Of Financial Position

A financial statement that shows the assets, liabilities, and equity of a company at a specific point in time, providing a snapshot of its financial condition.

Fair Market Value

The price that an asset would sell for on the open market, under current market conditions, between willing and knowledgeable parties.