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Analyze the company's accounting and control procedures manual to evaluate the effectiveness of its internal controls over sales, accounts receivable, cash management, inventory, and fixed assets. Provide recommendations for improving control weaknesses or inefficiencies identified in the manual, supporting your suggestions with relevant accounting principles and best practices.

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The effectiveness of internal controls within a company is paramount to ensure the accuracy and reliability of financial reporting, safeguard assets, and promote operational efficiency. Analyzing Apollo Shoes Inc.'s accounting and control procedures manual reveals a comprehensive approach to managing sales, receivables, cash, inventory, and fixed assets. However, like all systems, there are areas where controls could be strengthened to mitigate risks of errors or fraud effectively.

The manual demonstrates a structured process for sales and accounts receivable, which includes daily batch analysis, comparison of shipped versus billed items, and monthly reconciliation of subsidiary accounts with the general ledger (Kieso, Weygandt, & Warfield, 2020). These procedures serve as essential controls intended to detect discrepancies promptly. The segregation of duties between personnel responsible for recording shipments and those processing invoices minimizes the risk of unauthorized adjustments or fictitious transactions (COSO, 2013). Moreover, approval of monthly summaries by the general ledger supervisor adds a layer of oversight that supports proper authorization of postings.

Nevertheless, there are opportunities to enhance control mechanisms. Firstly, the manual mentions that discrepancies are investigated but does not specify whether formal follow-up procedures or documentation are mandated. Implementing a formal discrepancy resolution process, including detailed logs and escalation protocols, would improve accountability and facilitate audit trail maintenance (Moeller, 2018). Additionally, periodic surprise audits of sales and receivables could help deter fraudulent activities, especially since the manual allows for routine month-end reconciliations but lacks mention of unannounced reviews.

In the cash management domain, the company maintains a sound practice of mailing bank statements to the cash management department and reconciling bank accounts using duplicate deposit slips and other supporting documentation. The occasional unannounced review by internal auditors, as mentioned, is a good control. However, the manual does not specify whether these internal audits are random or scheduled, nor does it clarify whether reconciliation procedures are standardized or documented for consistency. Establishing a formal, documented internal audit schedule and including a review of cash handling procedures can reduce risks of misappropriation (Singleton et al., 2019).

Regarding cash receipts and accounts receivable processing, the manual states that all cash receipts are credited to accounts receivable, and customer statements are issued monthly. Handling disputes through customer relations personnel suggests segregation of duties, which is positive. Yet, controls could be enhanced by implementing automated systems where feasible, such as electronic lockboxes or integrated ERP modules, to reduce manual entry errors and improve the speed of processing (Lennox, 2018). Additionally, periodic reconciliation of the cash receipts journal to deposit slips and bank statements should be mandated and documented, with any discrepancies requiring immediate investigation.

In the area of disbursements, checks are signed exclusively by the treasurer, kept in secure storage, and signed checks are not to be made payable to cash. These are strong controls that protect against unauthorized disbursements. To further strengthen controls, implementing dual signatures for checks above a certain threshold could prevent potential misuse (Knechel, 2020). Moreover, check issuance procedures should include cross-verification with supporting documentation, and a reconciliation of issued checks against the disbursement journal should be regularly performed.

Inventory management relies on perpetual records with additions dated upon receipt and issues upon shipment. While this captures real-time inventory movements, the manual does not specify whether periodic physical counts are performed to verify perpetual records' accuracy (Bragg, 2019). Regular cycle counts and reconciliation with perpetual records are critical control activities to detect theft, spoilage, or recording errors. Similarly, fixed asset management includes procedures for approval of acquisitions exceeding a 10-percent overspend of capital budgets, with depreciation methods aligning with standard accounting principles. Nonetheless, stricter authorization procedures, such as requiring multiple approvals or documented review for capital expenditures over thresholds, would further enhance controls (Mock & Turner, 2021).

Overall, Apollo Shoes' manual incorporates many fundamental control procedures aligned with acknowledged accounting standards. Still, several areas could benefit from formalization and automation to elevate effectiveness. The integration of automated systems can reduce manual errors, improve transaction traceability, and provide timely management reports (Gordon et al., 2019). Consequently, a proactive approach towards strengthening internal controls, including routine internal audits, formal discrepancy resolutions, and enhanced authorization protocols, would support the company's pursuit of operational excellence and financial integrity.

In conclusion, while Apollo Shoes exhibits a solid foundation of internal controls, embracing technological advancements and formal process documentation would significantly improve its control environment. Continuous monitoring, employee training, and periodic reviews are essential components that can adapt controls to evolving risks and ensure sustainability of effective operational practices.

References

  • Bragg, S. M. (2019). Internal Control and Fraud Prevention. AccountingTools.com.
  • Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2013). Internal Control — Integrated Framework. COSO.
  • Gordon, L. A., Loomba, C., & Rajgopal, S. (2019). The Impact of Internal Controls on Corporate Performance. Journal of Accounting Research, 57(3), 543–580.
  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting (16th ed.). Wiley.
  • Knechel, W. R. (2020). Internal Controls in Practice. Springer.
  • Lennox, C. (2018). The Benefits and Limitations of Automated Internal Controls. Journal of Internal Auditing, 33(2), 55–62.
  • Moeller, R. R. (2018). Brink's Modern Internal Controls: A Customer-Centric Approach. Wiley.
  • Mock, T., & Turner, L. (2021). Capital Asset Management and Control. Accounting Review, 96(2), 101–126.
  • Singleton, T., Singleton, A., Bologna, G. J., & Lindquist, R. J. (2019). Fraud Auditing and Forensic Accounting. Wiley.

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