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Internal Controll

In: English and Literature

Submitted By noura89
Words 1317
Pages 6
Study objective 2
Identify the principles of internal control activities.
Each of the five components of an internal control system is important. Here, we will focus on one component, the control activities. The reason? These activities are the backbone of the company’s efforts to address the risks it faces, such as fraud. The specific control activities used by a company will vary, depending on management’s assessment of the risks faced. This assessment is heavily influenced by the size and nature of the company.
The six principles of control activities are as follows.
• Establishment of responsibility
• Segregation of duties
• Documentation procedures
• Physical controls
• Independent internal verification
• Human resource controls
We explain these principles in the following sections. You should recognize that they apply to most companies and are relevant to both manual and computerized accounting systems.
Establishment of Responsibility
An essential principle of internal control is to assign responsibility to specific employees. Control is most effective when only one person is responsible for a given task.
To illustrate, assume that the cash on hand at the end of the day in a Safeway supermarket is $10 short of the cash rung up on the cash register. If only one person has operated the register, the shift manager can quickly determine responsibility for the shortage. If two or more individuals have worked the register, it may be impossible to determine who is responsible for the error. In the Feature Story, the principle of establishing responsibility does not appear to be strictly applied by Stephanie’s, since three people operate the cash register on any given shift.
Establishing responsibility often requires limiting access only to authorized personnel, and then identifying those personnel. For example,...

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