FRK
CHAPTER 6: Internal control:
Debtors, creditors and cash
1. THEORY:
- Introduction
• An entity must have internal control measures in place to protect
its assets and to validate liabilities.
• Internal controls are mechanisms implemented to ensure the
integrity of information, promote accountability, and to
prevent fraud.
• Internal controls can be preventative (stop before it occurs) or
detective (uncover if it occurs).
- Internal control techniques
General:
• Use standardised source documents.
• Segregation of duties.
• Appoint staff with integrity.
• Job rotation.
Safeguarding of inventory:
• Regular inventory count.
• Access controls to storage areas.
• Segregation of duties.
Safeguarding of cash:
• Segregation of duties.
• Authorisation of payments.
• Reconciliation of bank account with bank statement.
, Safeguarding of debtors:
• Properly designed and numbered source documents.
• Segregation of duties.
• Check creditworthiness of customers.
• Regular communication with customers.
• Authorisation for adjustments to accounts.
• Reconciliation between control account and individual accounts.
Validity of creditors:
• Reconciliation of control account, individual accounts, and external
documents.
• Segregation of duties.
2. RECONCILIATION:
Internal control technique where:
• one system is compared to another system,
• to identify differences between the systems, and
• to account for any differences,
• so that the two systems contain the same transactions (and
same balances).
Ensures the accuracy and validity of financial information.
Assists in identifying fraudulent activities.
Prevents errors in the financial statements.
Compare balance of inventory account in
general ledger with balance according to
inventory count
Compare balance of debtors control account
in general ledger with balances of individual
accounts in subsidiary ledger
CHAPTER 6: Internal control:
Debtors, creditors and cash
1. THEORY:
- Introduction
• An entity must have internal control measures in place to protect
its assets and to validate liabilities.
• Internal controls are mechanisms implemented to ensure the
integrity of information, promote accountability, and to
prevent fraud.
• Internal controls can be preventative (stop before it occurs) or
detective (uncover if it occurs).
- Internal control techniques
General:
• Use standardised source documents.
• Segregation of duties.
• Appoint staff with integrity.
• Job rotation.
Safeguarding of inventory:
• Regular inventory count.
• Access controls to storage areas.
• Segregation of duties.
Safeguarding of cash:
• Segregation of duties.
• Authorisation of payments.
• Reconciliation of bank account with bank statement.
, Safeguarding of debtors:
• Properly designed and numbered source documents.
• Segregation of duties.
• Check creditworthiness of customers.
• Regular communication with customers.
• Authorisation for adjustments to accounts.
• Reconciliation between control account and individual accounts.
Validity of creditors:
• Reconciliation of control account, individual accounts, and external
documents.
• Segregation of duties.
2. RECONCILIATION:
Internal control technique where:
• one system is compared to another system,
• to identify differences between the systems, and
• to account for any differences,
• so that the two systems contain the same transactions (and
same balances).
Ensures the accuracy and validity of financial information.
Assists in identifying fraudulent activities.
Prevents errors in the financial statements.
Compare balance of inventory account in
general ledger with balance according to
inventory count
Compare balance of debtors control account
in general ledger with balances of individual
accounts in subsidiary ledger
