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Understanding auditing and internal controls week 3 fin590

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Understanding Auditing and Internal Controls
University of Phoenix
FIN590
December 7, 2020

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UNDERSTANDING AUDITING AND INTERNAL CONTROLS 4
How do you design internal controls to reduce risk, potential failure points that can
put control at risk, and examples?
Every organization has an internal control to minimize the risk and prevent the
occurrence of fraud or irregularities. The system comprises of control environment, risk
assessment, control activities, information and communication, and monitoring activities
(Schandl & Foster, 2020). Some of the factors that should be considered during the designing
process are the objectives of the unit, goals of the organization, and associated risks and
materiality. Control can be put at risk due to poor communication and supervision by the
management team and inappropriate training of the team (Schandl & Foster, 2020). This could
result in poor implementation and inconsistent operation of the proposed internal control system.
Controls may stop if an employee does not have a clue of internal control procedures despite
having good intentions, hence disregarding its importance (Schandl & Foster, 2020). For
example, an appropriate review and scrutiny may not be followed before issuing paychecks in
order to meet the deadline.
Examples of different material weaknesses and significant deficiencies; compare
and contrast these two types.
A material weaknessis described as an internal control deficiency in reporting, for
example, the likelihood of misstatement of interim or statements of financial position of a
company (Frankenfield, 2019). The irregularity/fraud may not be detected in time or may not be
prevented. An example of a material weakness is the restatement of financial statements that
were formerly issued to reveal correction of a material statement (Frankenfield, 2019). On the
other hand, significant deficiency refers to a combination of deficiencies in internal control over
financial reporting that is less severe as compared to material weakness (Aobdia, et al., 2018).

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1 Understanding Auditing and Internal Controls University of Phoenix FIN590 December 7, 2020 UNDERSTANDING AUDITING AND INTERNAL CONTROLS 4 How do you design internal controls to reduce risk, potential failure points that can put control at risk, and examples? Every organization has an internal control to minimize the risk and prevent the occurrence of fraud or irregularities. The system comprises of control environment, risk assessment, control activities, information and communication, and monitoring activities (Schandl & Foster, 2020). Some of the factors that should be considered during the designing process are the objectives of the unit, goals of the organization, and associated risks and materiality. Control can be put at risk due to poor communication and supervision by the management team and inappropriate training of the team (Schandl & Foster, 2020). This could result in poor implementation and inconsistent operation of the proposed internal control system. Controls may stop if an employee does not have a clue of internal control procedures despite having good intentions, hence disregarding its importance (Schandl & Foster, 2020). For example, an appropriate review and scrutiny may not be followed before issuing paychecks in order to meet the deadline. Examples of different material weaknesses and significant deficiencies; compare and contrast these two types. A material weaknessis described as an internal control deficiency in reporting, for example, the like ...
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