Chapter 16, Problem 16.8RQ

To determine

Concept Introduction:

Internal control is a procedure designed by a company to ensure whether the company’s financial or operational process is done according to the company’s regulations/policies and helps to make operations more efficient and effective. The purchasing process is a part of internal control that allowed the audit to perform as per the guidelines of purchasing. The audit follows the rule of the purchasing process and ensures that all transaction recorded accordingly. The purchasing process included the guidelines of duties, delivery time, and prices to avoid the risks.

To describe: The transaction-related assertion for investment, key segregation of investment-related duties and possible error.

The main transaction assertions for investment are:

• Occurrence: occurrence refers the assertion towhether all business transactions were recorded correctly and this assertion is important for the business’s investments.
• Completeness: completeness refers the assertion to whether all transactions were recorded in a ledger account at the appropriate time and this is important to identify the period of the investment amount.
• Authorization: authorization assertion refers to whether all transactions were recorded after approvals. Through this assertion, the auditor can verify whether investments were authorized.
• Classification: this assertion refers to the classification of each account to whether all transactions were correctly recorded in the general ledger with a specific account name.

The key segregation duties and possible fraud or errors that can occur if this segregation is not present are mention below:

• Segregation of duty: The function of the initial stages of the investment process and the final approvals function should be separated from each other.
The error occurred: an error that can occur is that it increasing the possibility of fake entries or transaction.
• Segregation of duty: The function of general ledger entries should be separated from the function of maintaining the securities ledger.
The error occurred: an error that can occur in this duty is that a transaction related to securities can be misreported.
• Segregation of duty: Custody of securities function should be independent from each other or perform duty independently.
An error occurred: The error in this duty is the possibility of hiding the theft and manipulation can increase.
• Segregation of duty: The cash receipts function should be independent from the monitoring of the cash function.
Error occurred: The case of theft of securities error can occur in this duty.