Accounting

1. Running head: INTERNAL CONTROL SYSTEMS 1
Internal Control Systems
Student’s Name
University Affiliation

2. INTERNAL CONTROL SYSTEMS 2
Task 1
Inherent limitations of internal control systems
Internal control systems are designed in most case to give guidelines on how accounting
activities should be done to ensure compliance with auditing standard board principles and
guidelines. Even though companies try what they could to ensure accordance with accounting
and auditing profession working guiding principles, there is some inherent limitation of internal
control systems that affect the effectiveness of the policies and guidelines (Wangerin, 2017).
Human judgment
Human judgment and perceptions are some of the main factors that majorly affect the
effectiveness of internal control systems. Even though companies use more resources to train
and assign employees to perform different tasks, the knowledge acquired through professional
training and training and orientation by the company does not sufficiently influence the
reasoning and personal judgment about different situations. In cases where a company has
numerous financial activities which result into a lot of checks flowing in and out the company,
accounting staffs may not carefully assess all cheques and payment methods to determine
whether they authentic or fake (Leitch, 2016). Consequently, this might contribute to failure to
comply with professional guiding principles that require accounting staffs to strictly follow all
professional guidelines when performing any activity to ensure compliance with the policies
and guidelines of Accounting Standard Board of conducting auditing activities.
Management judgment
Management decisions sometimes affect the operation of an organization. Often the
management of the company chooses to assume some important activities which should be
handled with great care. For instance, in most cases, the top management may adopt some low-
risk exposure that results in losing some non-current assets by introducing ongoing control
systems and inspection of no-current assets (Leitch, 2016). In doing so, the management can

3. INTERNAL CONTROL SYSTEMS 3
end up implementing some policies that do not conform to the internal control systems that
should be implemented as per the International Accounting Standard Board guidelines. For
instance, in the case of Amazing (Pvt) Limited, the management might have performed some
policies that aim at cost-cutting that may have led to failing to document and communicate to
all employees useful that contribute to erroneous updates and cut off issues.
Collusion and managerial override
Managerial override is another critical inherent limitation the adversely affect the
effectiveness of internal control systems in an organization in most case. In most cases,
managers alone cannot make decisions to override accounting internal control systems of a
company whether the intention of doing that is for fraudulent purposes or is for other reasons
(Lee, 2019). For instance, the top management may encourage some employees to bypass some
accounting steps as a way of cost cutting or to override some internal controls to manipulate
financial information. Similarly, in the case of Amazing (Pvt) Limited, the procedures for
updating the sheet system which is not documented or communicated to the management might
be due to management override to manipulate financial information to encourage fraudulent
activities.
Appropriate internal controls systems for Amazing (Pvt) Limited
Usually, the management of companies set up the various internal control system to
help on coordination and running all activities to improve organizational performance. In
setting internal control regarding the management of accounting activities, the management of
a company should ensure that policies and procedures established to guide how to running
accounting activities conforms to the guidelines of the Generally Accepted Account standards.
In the case of Amazing (Pvt) Limited, the company should adopt the following internal controls
to promote the smooth running of all organization as well as eliminating or reducing various
deficiencies that the company is currently encountering.

4. INTERNAL CONTROL SYSTEMS 4
First, to ensure effective communication in the company, the management should put
in place useful information and communication internal controls to promote a smooth running
of all organizational activities. Adoption of helpful information and communication systems
will enable Amazing (Pvt) Limited to find possible solutions to deficiency where the procedure
for updating the timesheet system is not documented and communicated correctly to staff thus,
resulting in erroneous updates and cut off issues. Nevertheless, the management should ensure
that policies and principles put in place are standard can solve the problems that the company
is currently facing (Aladejebi, 2017).
Secondly, the company should implement ongoing monitoring and evaluation
techniques to help in assessing and supervising how various accounting and non-accounting
activities of the company should be performed. Usually, monitoring and evaluation play an
integral part in a company to ensure that all organizational operations are performed according
to guiding principles and procedures (Arwinge, 2015). Similarly, adoption of continuous
monitoring and evaluation of activities will help to eliminate that deficiency of failing to check
between the authorized copies of relevant documents and what to be entered to the system.
On the other hand, the management of Amazing (Pvt) Limited should ensure that strong
passwords with unique codes are set in all departments. Having different passwords in each
department will ensure that there is limited access to confidential accounting and non-
accounting information, thus reducing the intention of practicing fraudulent activities
(Arwinge, 2015). Having different passwords and usernames in each department in the
company will ensure that employees only access information and data which are within their
control to block all avenues of illegal activities. For instance, setting different passwords and
usernames will assist in solving the deficiency at Amazing (Pvt) Limited, where the login to
the system has the same username and password used by all employees.

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Besides, the adoption of control activities measures by the management will aid in
promoting a smooth running of activities. The management of companies can do this by setting
policies and procedures of doing all activities, both accounting and non-accounting, to facilitate
a smooth running of activities (Arwinge, 2015). Also, companies should do this by increasing
business continuity through a continuous backing of confidential data. Similarly, the
management of Amazing (Pvt) Limited need to implement such measures to ensure that all
organizational activities are complete. For instance, this will assist Amazing (Pvt) Limited to
eliminate the deficiency where approval of timesheets is not in the system but is on the hard
copy of the timesheet.

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References
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Enterprises in the UK.
Arwinge, O. (2015). Internal control: A study of concept and themes. Pearson Education, Inc.
Bragg, S. M. (2016). Cost accounting fundamentals. Colorado, CO: Accounting Tools.
Cheng, Q., Goh, B. W., & Kim, J. B. (2018). Internal control and operational
efficiency. Contemporary Accounting Research, 35(2), 1102-1139.
Effah, A. (2011). An evaluation of internal financial controls in public hospitals: A case study
of Regional and Municipal Hospitals, Sunyani and District Hospital, Bechem (Brong-
Ahafo) (Doctoral dissertation).
Lee, G. J. (2019). Internal Control Strategies for Compliance with the Sarbanes-Oxley Act of
2002.
Leitch, M. (2016). Intelligent internal control and risk management: designing high-
performance risk control systems. Routledge.
Mulyani, S., & Arum, E. D. (2016). The Influence of Manager Competency and Internal
Control Effectiveness Toward Accounting Information Quality,".
Rekiat, O. M. I. F. O. (2016). Evaluation of Effectiveness of Internal Control System in Small
Business Organisations in the Ekiti State of Nigeria. Evaluation, 8(31).
Wangerin, D. (2017). M&A due diligence, post‐acquisition performance, and financial
reporting for business combinations. Contemporary Accounting Research.