Essential Internal Control Activities For Students ✓ Solved

Essential Internal Control Activities Student’s Name Insti

The internal control practices act as crucial of the strategic control systems are interdependent forms of activities set on an organization's standard working programs like Pluto Co. The methods are designed to protect the assets, lower the rate of errors appearance and ensure that the plans of the firm that is Pluto Co are running according to the required level of standards. While the strategic control systems set the standards and ways for measuring the operation, determine if the initial process corresponds to the expected standards of operation. Further, the control systems enhance performance effectiveness; control practices often lower the expected business performance hence declining the systems' efficiency.

However, the control systems' design needs management to equalize risk mitigation with performance efficiency (Njiru & Bunyasi, 2016). Moreover, a reduction in the control practices results in losses of the business organization. Additionally, all the business approaches subject to the effected optimization always possess two outcomes that are cost and benefits. The general view of all business organizations is not prone to misappropriation of resources, embezzlement of funds. Many business firms do have asses to misappropriation or corruption till their due occurrence.

Furthermore, through the internal control practices, propose mechanisms, rules and even ways implemented to enhance financial and accounting accountability. A stakeholder is an individual having a lively interest in the success of business activity. While formulating the business organization's business structures and programs, the firm’s stakeholders and their interests are highly considered. In our scenario, we have two companies: Pluto Furniture Co and Zodiac & Co and a stakeholder Mr. Thomas.

In most companies, most stakeholders are often interested in the firm's output. For Pluto Furnitures Co would have applied the procedures below to select the stakeholders according to their respective interests to the business. Three steps of identifying a stakeholder are: establishing the mission and vision of the firm; afterwards, identify the person to be consulted. Identify the key decision-makers, taking into consideration the impact of decisions on the stakeholders. Additionally, identify individual stakeholders’ power and influence on decision-making situations.

Moreover, these two categories of stakeholders should be considered during identification: we have a primary stakeholder and a secondary stakeholder. A primary stakeholder is a person who has a direct interest in the business (Bentley-Goode, Newton & Thompson, 2017). They are the direct beneficiaries of the company, that is, employees, among others. Secondary stakeholders are parties of a group of people that do not necessarily benefit from the business directly (Kivilä, Martinsuo & Vuorinen, 2017). A key stakeholder; is the party that influences the performance of the company.

The most typical stakeholders are customers, employees, investors, suppliers and vendors, communities, government and competitors. Internal control practices these are the policies and steps required by the business units to meet the expected objectives below: safeguarding the business assets-properly designed to protect assets from fraud or loss, enhance the reliability and integrity of financial information-internal control practices provides timely, accurate and full information, enhance compliance-ensure that the business or the company comply fully to the local laws and regulations affecting the performance of the business, promote efficient and effective operations-provision of Essential Internal Control Activities environment for effective operations and the final accomplishment of goals and objectives-the internal control practices establishes a mechanism for checking the achievements of operational goals.

Finally, internal control activities are the policies and ways and daily activities occurring within an internal control system. The two general activities are: Preventive actions are documentation and authority practices. Preventive control activities usually hinder undesirable activities from taking place. Detective control activities aim at identifying the unwanted occurrences, that is, reconciliation.

Paper For Above Instructions

Understanding the necessity of planning an audit and performing risk assessment is key to effective auditing practices, especially for Zodiac & Co. This understanding serves several critical functions that enhance the auditing process and its effectiveness.

Importance of Planning an Audit

Firstly, planning an audit lays the groundwork for achieving audit objectives. It involves setting clear goals and determining the resources necessary to meet those goals. By creating an effective audit plan, auditors can ensure that all areas requiring scrutiny are sufficiently covered (Eilifsen, Messier, Glover & Prawitt, 2010).

Secondly, risk assessment allows auditors to identify potential risks that could affect the financial statements of Pluto Furnitures Co. This identification enables auditors to tailor their procedures to focus on areas of highest risk, thereby increasing the efficiency of the audit (Brazel, Jones & Pate, 2013).

Assessment of Risks

Zodiac & Co must evaluate several risk factors in the noted scenario. For instance, the internal control environment at Pluto Furnitures Co seems weak, primarily due to the concentration of authority in Mr. Thomas. This situation poses significant risks of fraud since Mr. Thomas has unrestricted control over financial reporting processes. It is essential to review the impact of such concentrated power in audit planning.

Furthermore, issues such as unreconciled bank statements and the outsourcing of payroll duties to a service organization represent additional risks. These factors could impair the reliability of financial information. By understanding these risks ahead of the audit, Zodiac & Co can better prepare effective audit procedures to address vulnerabilities before they result in misstatements (Davis & Gendron, 2017).

Testing of Internal Controls

To employ internal control procedures effectively, Zodiac & Co should implement several controls aimed at both prevention and detection of potential errors and fraud. An effective strategy would involve segregation of duties, especially concerning financial transactions. This principle prevents one individual, like Mr. Thomas, from having full control of any transaction (Apostolou, Dorminey, Hassell & Watson, 2013).

Additionally, Zodiac & Co should perform tests of controls, such as examining the reconciliation procedures of bank accounts and the payroll verification processes, to evaluate the effectiveness of the internal controls in place. These tests can identify weaknesses and areas for improvement.

General Control Strategies

Turning to control strategies and stakeholder interests, it is essential for Pluto Furnitures Co to implement a robust control framework that aligns with stakeholder obligations. Primary stakeholders, such as employees and customers, are directly impacted by the operations and financial health of the company. Therefore, effective internal control systems must consider these stakeholders' interests to maintain trust and accountability (Baker, 2018).

Moreover, the obligation of management is to establish controls that ensure ethical operations, safeguard assets, and provide accurate reporting. Establishing practices that promote financial integrity is crucial as it reinforces stakeholder confidence and improves overall business sustainability.

In conclusion, robust internal controls are integral to the successful management of an organization. By performing risk assessments and understanding stakeholder interests, Zodiac & Co can facilitate effective audits, providing essential checks on financial practices at Pluto Furnitures Co.

References

• Apostolou, B. A., Dorminey, J., Hassell, J. M., & Watson, M. (2013). The Role of Internal Control in Corporate Governance. The CPA Journal, 83(5), 30-37.
• Baker, C. R. (2018). Stakeholder Theory and Corporate Governance: The Case of the Internal Control Environment. Corporate Governance: An International Review, 26(3), 190-203.
• Brazel, J. F., Jones, K. L., & Pate, L. E. (2013). The Influence of Risk Assessment on Audit Planning: Evidence from Experienced Auditors. Accounting Horizons, 27(1), 169-193.
• Davis, J. E., & Gendron, Y. (2017). The Role of Risk Assessment in Audit Effectiveness. Auditing: A Journal of Practice & Theory, 36(4), 165-185.
• Eilifsen, A., Messier, W. F., Glover, S. M., & Prawitt, D. F. (2010). Auditing and Assurance Services: A Systematic Approach. New York: McGraw-Hill/Irwin.
• Kivilä, J., Martinsuo, M., & Vuorinen, L. (2017). Sustainable Project Management through Project Control in Infrastructure Projects. International Journal of Project Management, 35(6), 1111-1121.
• Njiru, D. K., & Bunyasi, G. (2016). Effect of Internal Controls on Financial Performance of Water Companies in Kenya (A Case of Water Companies in Tana Water Services Board). American Journal of Finance, 1(1), 11-28.
• OECD. (2015). G20/OECD Principles of Corporate Governance. OECD Publishing.
• Singh, M., & Cader, H. (2019). Corporate Governance: The Role of Internal Controls. Business Horizons, 62(3), 423-433.
• Woods, M., & Aitken, D. (2019). The Internal Control Framework in Corporate Governance: A Critical Review. Journal of Business Ethics, 150(3), 579-595.