Accruals Quality and Internal Control †Free Samples to Students

Question: Discuss about the Accruals Quality and Internal Control. Answer: Introduction: Sarah Roberts is a fruit seller and she has the practice to account for all cash sale at the end of the day in the cash register. She is of the opinion that generally employees are too busy in serving the customers and they dont account for the sale in the cash register and puts them in their pockets. Sarah believes that sale is not decreased but the amount collected from sales at the end of the day has decreased. Proper separation of duties: Correct Segregation of duties plays a vital role for cash security. Improper separation of duties encourages unethical cash practices. The main idea behind this is that it is less likely for two employees to collude to commit fraud as compared to one employee (Mektub and Ussahawanitchakit, 2015). The person collecting the cash from selling the goods should be different from the person who is entering the cash in cash register. Generally, when a large amount of money is transferred from one place to another two people are called to keep a check on it (Smith, 2015). It eliminates or reduces the threat of external theft. Moreover, Sarah should also restrict the number of employees who can access cash. This accessibility to cash should be confined to only a few employees. Use proper physical control for cash management: Physical control over cash means how cash is handled in the organization. The thumb rule is that lesser the cash in premises lesser the probability of embezzlement of cash (Sadgrove, 2016). Sarah should try to keep cash at a different location such as a bank. She should follow a practice that whenever the amount of cash exceeds a certain limit then the amount which is exceeding should be deposited into the bank. Many commercial banks now provide cash collection services directly from the customer. Only the money which is required to operate the business smoothly should be available on the premises. Define Cash processes and keep Cash procedures current: Cash procedures should be clearly defined to the employees of the organization (Collier, 2009). Correct cash procedures give a clear cut idea to the employees about the due diligence of the owners and managers. If any cash procedures are changed then they should be defined and made understood to the owners of the process. Surprise check by the owner: Sarah should surprisingly check the cash balance periodically. This control will keep an employee who is committing fraud on toes. If Sarah observes any embezzlement at the time of audit she can easily found the culprit and can throw him away out of the organization. This control will not only reduce the chances of embezzlement but also will create the chances of eliminating this problem completely (Doyle, Ge and McVay, 2007). Surprise check is the best control to be placed in the case of cash embezzlement because there is no time defined that when checks will be done so one who is committing frauds in the organization can be identified. Review and authorization of expense reimbursement: If Sarah has authorized certain employees to make payments to third parties for the services then these payments should be reviewed at regular intervals. This control will assist Sarah in observing that whether inflated payments are being done to the third party or not. And also Sarah should determine a threshold up to which employee can make payments to third parties. It will also help Sarah to assess the authenticity of evidence produced in supporting of expenses made. This control will also increase the profitability of the organization. Expense reports submitted by the employees should also be confirmed by third parties periodically (Altamuro and Beatty, 2010). It will help the organization to assess whether excess payment is done to the third party or not. Safeguarding and reconciliation of petty cash: Petty cash represents the amount which is held by the organization, primarily used for small day-to-day expenses. Improper Petty cash reflects or indicated management approach to internal control and the organizations control environment. To strengthen this processes surrounding petty cash, sequentially number vouchers should be made along with disbursement date, amount, purpose and name of the employee. A further employee who has custody of petty cash should also maintain a reconciliation of petty cash fund. Access to petty cash should also be confined to certain employees only and petty cash box should always be locked. Lastly to test the compliance of the procedure Sarah should check or review it periodically. Conclusion Above mentioned controls should be placed by Sarah Roberts to curb the current situation. She should not perform this checks one time. She should follow the practice to check these controls periodically. This is a continuous and unending process. Sarah should also change controls according to the changing situations. References Altamuro, J. and Beatty, A., 2010. How does internal control regulation affect financial reporting?.Journal of Accounting and Economics,49(1), pp.58-74. Collier, P.M., 2009. Fundamentals of risk management for accountants and managers. Routledge. Doyle, J.T., Ge, W. and McVay, S., 2007. Accruals quality and internal control over financial reporting.The Accounting Review,82(5), pp.1141-1170. Mektub, R. and Ussahawanitchakit, P., 2015. Accounting governance and organizational image: An empirical study of ISO 14000 manufacturing businesses in Thailand.The Business Management Review,7(1), p.335. Sadgrove, K., 2016.The complete guide to business risk management. Routledge. Smith, S.S., 2015. Accounting, governance and stakeholder reporting, and economic value creation.The Journal of Applied Business and Economics,17(2), p.76.