Tutorial Question 2

Question 1
Define the term internal control.

Question 2
Why is a strong control environment important? What factors are conducive to such
an environment?

Question 3
Discuss the objectives of internal control, noting procedures that could be used to achieve them.
Question 4
Discuss in detail the steps involved in the study of a firm’s internal control.

Question 5
A feature of internal control is considered weak if errors or fraud could occur as a result of the
feature’s existence. For each of the following situations indicate the error or fraud that could occur.
a) Copies of fully completed purchase orders are furnished to the clerks that count incoming
merchandise and fill out receiving reports.
b) The payroll supervisor disburses payroll cheque.
c) There is no reconciliation between the accounts receivable subsidiary ledger and the
general ledger control account.
d) No credit check is made before sales are made to customers.
e) Cancellation stamps are not placed on purchase invoices.
f) Payments are made by vendor monthly statements rather
g) Employees are paid in cash
h) The person that handles cash also approves account receivables write-offs.
i) Extensions on sales invoices are not checked by another person.
j) The cashier reconciles the bank statements.
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