Segregation of duties is an important internal control. However,this control is often a challenge for smaller businesses because they donot have sufficient staff. Normally, a segregation of duties deficiencyresults in either a significant deficiency or a material weakness in internalcontrol. For each segregation of duties deficiency identified as(1)–(6), complete the following three tasks:a. Indicate the risk to financial reporting that is associated with theinadequacy of the segregation of duties.b. Identify other controls that might mitigate the segregation ofduties risks.c. Identify possible tests of controls for the mitigating controlsselected in (b).The inadequate segregation of duty situations includes:1. The same individual handles cash receipts, the bank reconciliation,and customer complaints.2. The same person prepares billings to customers and also collectscash receipts and applies them to customer accounts.3. The person who prepares billings to customers does not handlecash but does the monthly bank reconciliation, which, in turn, isreviewed by the controller.4. The controller is responsible for making all accounting estimatesand adjusting journal entries. The company does not have a chieffinancial officer (CFO) and has two clerks who report to thecontroller.5. A start-up company has very few transactions, less than $1 millionin revenue per year, and has only one accounting person. The company’stransactions are not complex.6. The company has one computer person who is responsible forrunning packaged software. The individual has access to the computerto update software and can also access records.
Segregation of duties is an important internal control. However,
this control is often a challenge for smaller businesses because they do
not have sufficient staff. Normally, a segregation of duties deficiency
results in either a significant deficiency or a material weakness in internal
control. For each segregation of duties deficiency identified as
(1)–(6), complete the following three tasks:
a. Indicate the risk to financial reporting that is associated with the
inadequacy of the segregation of duties.
b. Identify other controls that might mitigate the segregation of
duties risks.
c. Identify possible tests of controls for the mitigating controls
selected in (b).
The inadequate segregation of duty situations includes:
1. The same individual handles cash receipts, the bank reconciliation,
and customer complaints.
2. The same person prepares billings to customers and also collects
cash receipts and applies them to customer accounts.
3. The person who prepares billings to customers does not handle
cash but does the monthly bank reconciliation, which, in turn, is
reviewed by the controller.
4. The controller is responsible for making all accounting estimates
and
financial officer (CFO) and has two clerks who report to the
controller.
5. A start-up company has very few transactions, less than $1 million
in revenue per year, and has only one accounting person. The company’s
transactions are not complex.
6. The company has one computer person who is responsible for
running packaged software. The individual has access to the computer
to update software and can also access records.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
