As the CPA of an audit firm, the YYZ Company, I realized that the weak internal control system had led to the non-recording of an adjusting entry. As a result, I identified some of the limitations of the internal control system. Some of those limitations include the broad application of the internal control system leading a weak internal audit system of control in the company. The system in the YYZ Company focuses on a variety of business issues. As a result, it fails to provide benefits for the companies. In addition to that, the internal control system does not have defined policies for each of the departments (Schroeder & Shepardson, 2016). As a result, the employees and the operational managers fail to maintain the focus on the proper applications of the internal control system audit.
Besides that, another limitation of the internal audit monitoring system is the fact that most of the business owners and the employees in the company learn concerning the operations of the control system while working with it. As a result, this makes it quite difficult for the owners of the company to manage (Dascălu, 2016). The weakness often causes a strain on the management ability of the corporation since most of the employees miss a critical entry since they are not aware on how to operate it. Thus, in the YYZ Company, it is quite difficult for the management to uphold a suitable business practice.
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Contrary to that, when implementing the internal controls, the management was not aware of the best internal control audit required in the corporation. The lack of knowledge made it difficult for the creation of sufficient safeguards that help in the protection of the financial, as well as, the business information in a company (Dascălu, 2016). In addition to that, the technical audits in the company are difficult to understand, and the expertise required helping in the comprehension of this technical audits are unavailable in the corporation. The inability of the company to educate its employees on the internal audit control systems has created inefficient operations in the company.
Some of the recommendations that I would offer to the YYZ Company to set up policies that govern the internal audit control systems to maintain their focus on the proper applications of the internal audit monitoring system. In addition to that, keeping a focus on the internal audit tracking system would help in bring some benefits to the company (Dascălu, 2016). Besides that, the employees in the company should undergo prior teaching before handling the internal audit control systems. For instance, in the YYZ Company, an adjusting entry was missed due to the weak nature of the control systems.
Training of the staff members would help in the reduction of human errors while dealing with the internal audits (Dascălu, 2016). Additionally, gaining knowledge on the use of the appropriate safeguards in the internal audit control system is critical for the company since the management will gain skills on how to protect the financial and the business information in the company. The management can gain skills through consulting the experienced people for advice on how to operate and manage the internal audits control system (Schroeder & Shepardson, 2016). Lastly, another recommendation in the safe usage of the internal audit control system is to get employees with skills involved with the operations of the internal control systems. As a result, this will boost efficiency in the operations of the control systems (Schroeder & Shepardson, 2016). As seen earlier, one of the primary limitations of the control systems in YYZ Company is the fact that the employees lack training in handling and operating the control systems. Therefore, this often leads to a human error that could be corrected through the selection of qualified personnel to manage the audits control system of the company.
The missing journal entry could have severe consequences to the financial statements of the enterprise. The problems emanating from missing a journal entry in the financial statements depends on the type of journal entry that was not recorded. Importantly, in a case where the journal entry missed was a reclassification of expense in the company transferred from one account, the consequences would not be that severe (Schroeder & Shepardson, 2016). In a case where a company deals with large amounts of finances, a missing journal entry would be harmful to a company audits. For instance, if the financial statements of a company have incorrectly stated balances, the misleading information could lead to future confusion in the company as it accounts for its finances. Moreover, the action could force the management to take measures and steps that would not have being undertaken of the journal entry were recorded.
Similar to that, if a certain amount of money paid to an account is not recorded in the financial problems, the company could experience serious problems (Schroeder & Shepardson, 2016). If a company lacks records on payments made to an account, they are likely to question the person that made the payments. As a result, this will leads to frictions between companies that would have otherwise been reduced by the inclusion of the journal entry into the financial statements (Schroeder & Shepardson, 2016). Therefore, this shows that the consequences of missing a journal entry rely on what is at stake after missing a journal entry. In addition to that, it is critical for the republishing of the financial statements after a discovery on a journal entry in noted in a company. Thus, this section shows that missing a journal entry leads to severe consequences in a company hence the need for the YYZ Company to focus on training their employees in operating the internal audit control systems to prevent instances of a missing journal entry.
References
Dascălu, D. E. (2016). External Assessment of Internal/Managerial Control. Valahian Journal Of Economic Studies , 7 (1), 15-22.
Schroeder, J. H., & Shepardson, M. L. (2016). Do SOX 404 Control Audits and Management Assessments Improve Overall Internal Control System Quality?. Accounting Review , 91 (5), 1513-1541. doi:10.2308/accr-51360
