CHAPTER 16

INTERNAL CONTROL
AFFECTING ASSETS
 INTERNAL CONTROL OVER CASH
TRANSACTIONS
Most of the processes relating to cash handling are the
responsibility of the finance department, under the
direction of the treasurer. These processes include
handling and depositing cash receipts; signing checks;
investing idle cash; and maintaining custody of cash,
marketable securities, and other negotiable assets. In
addition, the finance department must forecast cash
requirements and make both short-term and, long-
term financing arrangements.
 IDEALLY, THE FUNCTIONS OF THE FINANCE DEPARTMENT AND THE ACCOUNTING
DEPARTMENT SHOULD BE INTEGRATED IN A MANNER THAT PROVIDES ASSURANCE
THAT:

All cash that should have been received was in fact received, recorded
1 accurately and deposited promptly.

Cash disbursements have been made for authorized purposes only and
2 have been properly recorded.

Cash balances are maintained at adequate, but not excessive, levels by

3 forecasting expected cash receipts and payments related to normal
operations. The need for obtaining loans for investing excess cash is thus
made known on a timely basis.
 A DETAILED STUDY OF THE BUSINESS PROCESSES OF THE COMPANY IS
NECESSARY IN DEVELOPING THE MOST EFFICIENT CONTROL PROCEDURES, BUT
THERE ARE SOME GENERAL GUIDELINES TO GOOD CASH HANDLING PRACTICES
IN ALL TYPES OF BUSINESS. THESE GUIDELINES FOR ACHIEVING INTERNAL
CONTROL OVER CASH MAY BE SUMMARIZED AS FOLLOWS:

Do not permit any one employee to handle a transaction from beginning

1 to end.

Separate cash handling from record keeping.

2

Centralize receiving of cash to the extent practical.

3
 A DETAILED STUDY OF THE BUSINESS PROCESSES OF THE COMPANY IS
NECESSARY IN DEVELOPING THE MOST EFFICIENT CONTROL PROCEDURES, BUT
THERE ARE SOME GENERAL GUIDELINES TO GOOD CASH HANDLING PRACTICES
IN ALL TYPES OF BUSINESS. THESE GUIDELINES FOR ACHIEVING INTERNAL
CONTROL OVER CASH MAY BE SUMMARIZED AS FOLLOWS:

Record cash receipts on a timely basis.

4

Encourage customers to obtain receipts and observe cash register totals.

5

Deposit cash receipts daily.

6
 A DETAILED STUDY OF THE BUSINESS PROCESSES OF THE COMPANY IS
NECESSARY IN DEVELOPING THE MOST EFFICIENT CONTROL PROCEDURES, BUT
THERE ARE SOME GENERAL GUIDELINES TO GOOD CASH HANDLING PRACTICES
IN ALL TYPES OF BUSINESS. THESE GUIDELINES FOR ACHIEVING INTERNAL
CONTROL OVER CASH MAY BE SUMMARIZED AS FOLLOWS:

Make all disbursements by check or electronic funds transfer, with the

7 exception of small expenditures from petty cash.

Have monthly bank reconciliation prepared by employees not

8 responsible for the issuance of checks or custody of cash. The completed
reconciliation should be reviewed promptly by an appropriate official.

Monitor cash receipts and disbursements by comparing recorded

9 amounts to forecasted amounts and investigating variances from
forecasted amounts.
POTENTIAL MISSTATEMENTS - CASH RECEIPTS

Description of Misstatement

-Recording fictitious cash receipts

Internal Control Weakness or
Factors that Increase the Risk of
the Misstatement
Example
-Lack of segregation of duties of
-Fraud: Overstating cash receipts
the functions of access to cash and
on the books by transferring cash
record keeping; no effective
between bank accounts without
review of bank reconciliations.
appropriate recording of the
transfer to cover up an
embezzlement of cash.
POTENTIAL MISSTATEMENTS - CASH RECEIPTS

Description of Misstatement
Internal Control Weakness or
-Failure to record receipts from Factors that Increase the Risk of
cash sales the Misstatement

-Inadequate supervision of
Example cashiers; failure to encourage
customers to obtain cash receipts.
-Fraud: A cashier fails to ring up
and record cash sales and
-Inadequate controls for
embezzles the cash.
reconciling cash register tapes and
accounting records; inadequate
-Error: A bookkeeper accidentally
controls for reconciling bank
omits the recording of the receipts
accounts
from one cash register for the day.
POTENTIAL MISSTATEMENTS - CASH RECEIPTS

Description of Misstatement
-Failure to record cash from Internal Control Weakness or
collection of accounts receivable Factors that Increase the Risk of
the Misstatement
Example
-Fraud: A cashier embezzles cash -Lack of segregation of duties
payments by customers on receivables, between personnel who have
without recording the receipts in the
access to cash receipts and those
customers' accounts.
who make entries into the
-A bookkeeper accidentally who has access accounts receivable records.
to cash receipts embezzles cash collected
from customers and writes off the related
-Inadequate reconciliations of
receivables.
subsidiary records of accounts
-Error: A bookkeeper accidentally fails to receivable with the general ledger
record payment on a receivable. control account.
POTENTIAL MISSTATEMENTS - CASH RECEIPTS

Description of Misstatement
-Early (late) recognition of cash Internal Control Weakness or
receipts"cutoff problems" Factors that Increase the Risk of
the Misstatement
Example
-Ineffective board of directors,
-Fraud: Holding the cash receipts
audit committee, or internal audit
journal open to record next year's
function; "tone at the top" not
cash receipts as having occurred
conductive to ethical conduct;
in this year.
undue pressure to show improved
financial position.
-Error: Recording cash receipts
based on bod information about
-Failure to list and deposit cash
date of receipt.
receipts on a timely basis.
 POTENTIAL MISSTATEMENTS - CASH
DISBURSEMENTS
Description of Misstatement
Internal Control Weakness or
-Inaccurate recording of a Factors that Increase the Risk of
purchase or disbursement. the Misstatement
-Inadequate segregation of duties of
Example record keeping and preparing cash
-Fraud: A bookkeeper prepares a disbursements, or check signer does not
check to himself and records it as review and cancel supporting
having been issued to a major documents.
supplier.
-Ineffective control for matching invoices
with receiving documents before
-Error: A disbursement is made to pay
disbursements are authorized.
an invoice for goods that have not
been received. -Ineffective accounting coding
procedures may result from incompetent
-Disbursements for travel and accounting personnel, inadequate chart
entertainment are improperly included of accounts, or no controls over the
with merchandise purchases. posting process.
POTENTIAL MISSTATEMENTS - CASH RECEIPTS

Description of Misstatement

-Duplicate recording and payment

of purchases
Internal Control Weakness or
Factors that Increase the Risk of
the Misstatement
Example
-Ineffective controls for review
-Error: A purchase is recorded
and cancellation of supporting
when an invoice is received from a
documents by the check signer.
vendor and recorded again when a
duplicate invoice is sent by the
vendor.
POTENTIAL MISSTATEMENTS - CASH RECEIPTS

Description of Misstatement

-Unrecorded disbursements
Internal Control Weakness or
Factors that Increase the Risk of
the Misstatement
Example
-Ineffective control over record
-Fraud: In conjunction with
keeping for and access to cash.
recorded (but deposited) cash
receipts, an employee writes and
chases on unrecorded check for
the identical amount.
 INTERNAL CONTROL OVER FINANCIAL
INVESTMENTS
The most important group of financial investments, consists of
marketable stocks and bonds because they are found more
frequently and usually are of greater peso value than the other kinds
of investment holdings. Other types of investments often
encountered include commercial paper issued by corporations,
mortgages and trust deeds, and the cash surrender value of life
insurance policies. The internal auditors also must be concerned
with derivatives that are used to hedge various financial and
operational risks or for speculation.
 INTERNAL CONTROL OVER FINANCIAL
INVESTMENTS
Derivatives are financial instruments that "derive" their value from
other financial instruments, underlying assets, or indexes. For
example, a simple derivative would involve a commitment by a
company to purchase a commodity at a certain price at some point
in the future. Other derivatives are much more complex, involving,
for example, relationships between fluctuations in European interest
rates and the price of copper.
 THE MAJOR ELEMENTS OF ADEQUATE INTERNAL
CONTROL OVER FINANCIAL INVESTMENTS INCLUDE
THE FOLLOWING:
Formal investment policies that limit the nature if investments in
1 securities and other financial instruments.

An investment committee of the board of directors that authorizes and

2 reviews financial investment activities for compliance with investment
policies.

Separation of duties between the executive authorizing purchases and

3 sales of securities and derivative instruments, the custodian of the
securities, and the person maintaining the records of investments.
 THE MAJOR ELEMENTS OF ADEQUATE INTERNAL
CONTROL OVER FINANCIAL INVESTMENTS INCLUDE
THE FOLLOWING
Complete detailed records of all securities and derivative instruments
4 owned and the related provisions and terms.

Registration of securities in the name of the company.

5

Periodic physical inspection of securities on hand by an internal auditor

6 or an official having no responsibility for the authorization, custody, or
record keeping of investiments.
 THE MAJOR ELEMENTS OF ADEQUATE INTERNAL
CONTROL OVER FINANCIAL INVESTMENTS INCLUDE
THE FOLLOWING

Determination of appropriate accounting for complex financial

7 instruments by competent personnel.
In many concerns, segregation of the functions of
custody and record keeping is achieved by the use of an
independent safekeeping agent, such as a stockholder,
bank or trust company. Since the independent agent has
no direct contact with the employee responsible from
maintaining accounting records of the investments in
securities, the possibilities of concealing fraud through
falsification of the accounts are greatly reduced. If
securities are not placed in the custody of an
independent agent, they should be kept in a bank safe-
deposit box under the joint control of two or more of the
company's officials.
Joint control means that neither of the two custodians
may have access to the securities except in the presence
of the other. A list of securities in the box should be
maintained in the box, and the deposit or withdrawal of
securities should be recorded on this list along with the
date and signatures of all persons present. The safe-
deposit box rental should be in the name of the
company, not in the name of an officer having custody of
securities.
Complete detailed records of all securities and derivative
instruments owned are essential to satisfactory control.
These records frequently consist of a subsidiary record for
each security and derivative instrument, with such
identifying data as the exact name, face amount or par value,
certificate number, number of shares, date of acquisition,
name of broker, cost, terms and any interest or dividend
payments received. Actual interest and dividends should be
compared to budgeted amounts, and significant variances
should be investigated. The purchase and sale of investments
often is entrusted to a responsible financial executive, subject
to frequent review by an investment committee of the board
of directors.
 POTENTIAL MISSTATEMENTS - FINANCIAL
INVESTMENTS
Description of Misstatement

-Misstatement of recorded value of

investments
Internal Control Weakness or
Factors that Increase the Risk of
the Misstatement
Example
-Inadequate accounting manual;
-Error: Failure to record changes
incompetent accounting
in market values of investments.
personnel.

-Fraud: Misstatement of the value

-Ineffective board of directors,
of closely held investment.
audit committee, or internal audit
function; not conducive to ethical
conduct; undue pressure to meet
earnings targets.
 POTENTIAL MISSTATEMENTS - FINANCIAL
INVESTMENTS
Description of Misstatement

-Unauthorized investment
transactions
Internal Control Weakness or
Factors that Increase the Risk of
the Misstatement
Example
-Inadequate segregation of duties
-Fraud: An employee with access
of record keeping for and custody
to securities coverts them for
of securities.
personal use.
 POTENTIAL MISSTATEMENTS - FINANCIAL
INVESTMENTS
Description of Misstatement

-Incomplete recording of
investments
Internal Control Weakness or
Factors that Increase the Risk of
the Misstatement
Example
-a. Inadequate accounting manual;
-Error: Failure to record derivative
incompetent accounting.
agreements which are embedded
personnel.
in other agreements.
-b. Inadequate monitoring by
internal auditors.
 INTERNAL CONTROL OVER
RECEIVABLES
Accounts receivable include not only claims against
customers arising from the sale of goods or services, but
also a variety of miscellaneous claims such as loans to
officers or employees, loans to subsidiaries, claims
against various other films, claims for tax refunds and
advantages to suppliers.
 SOURCES AND NATURE OF
NOTES RECEIVABLE
Notes receivable are written promises to pay certain
amounts at future dates. Typically, notes receivable is
used for handling transactions of substantial amount;
these negotiable documents are widely used. In banks
and other financial institutions, notes receivable
usually constitutes the single most important asset.
 INTERNAL CONTROL OF
ACCOUNTS RECEIVABLE AND
REVENUE
To understand internal control over accounts
receivable and revenue, one must consider the various
components, including the control environment, risk
assessment, monitoring, the (accounting) information
and communication system, and control activities.
 CONTROL ENVIRONMENT
Because of the risk of intentional misstatement of revenues, the
control environment is very important to effective internal control
over revenue and receivables. Of particular importance is an
independent audit committee of the board of directors that monitors
management's judgments about revenue recognition principles and
estimates, as well as an effective internal audit function.
Management should establish a tone at the top of the organization
that encourages integrity and ethical financial reporting. These
ethical standards should be communicated and observed throughout
the organization. Also, incentives for dishonest reporting, such as
undue emphasis on meeting unrealistic sales or earnings targets,
should be eliminated.
 POTENTIAL MISSTATEMENTS
REVENUE/RECEIVABLES
Description of Misstatement Internal Control Weakness or
Factors that Increase the Risk of
-Recording unearned revenue the Misstatement
-Ineffective board of directors, audit
Example committee, or internal audit function; undue
-Fraud: Recording fictitious sales without pressure to meet earnings targets. "top
receiving a customer order or shipping the management action" not conductive to ethical
goods. conduct.

-Intentional over shipment of goods. -Ineffective billing process in which billing is

not tied to shipping information.
-Errors: Recording sales based on the receipt
of orders from customers rather than the -Ineffective controls for testing invoices, or
shipment of goods. ineffective input validation checks and
computer reconciliations to ensure the
-Inaccurate billing and recording of sales. accuracy of databases.

-Recording cash that represents a liability (e.g.,

-Inadequate manual; accounting incompetent
receipt of a customer's deposit) as revenue.
accounting personnel.
 POTENTIAL MISSTATEMENTS
REVENUE/RECEIVABLES
Description of Misstatement Internal Control Weakness or
Factors that Increase the Risk of
-Early (late) recognition of the Misstatement
revenue "cutoff error
-Ineffective board of directors, audit
Example committee, or internal audit
function; not conducive to ethical
-Fraud: Holding the sales journal conduct; undue pressure to meet
open to record next year's sales as sales targets.
having occurred in the current
year. -Ineffective cutoff procedures in the
shipping department.
-Errror: Recording sales in the
wrong period based on incorrect
shipping information.
 POTENTIAL MISSTATEMENTS
REVENUE/RECEIVABLES
Description of Misstatement Internal Control Weakness or
Factors that Increase the Risk of
-Recording revenue when the Misstatement
significant uncertainties exist
-Ineffective board of directors, audit
Example committee, or internal audit function;
not conducive to ethical conduct;
-Fraud: Recording sales when the undue pressure to meet sales targets.
customer is likely to return the
goods. -Aggressive attitude of management
toward financial reporting;
-Errror: Recording sales when the incompetent chief accounting officer.
customer's payment is contingent
upon the customer receiving
financing or selling the goods to
another party (e.g., consignment
sales).
 POTENTIAL MISSTATEMENTS
REVENUE/RECEIVABLES
Description of Misstatement Internal Control Weakness or
Recording revenue when Factors that Increase the Risk of
the Misstatement
significant services still must be
performed by seller -Ineffective board of directors, audit
committee, or internal audit function;
Example not conducive to ethical conduct;
undue pressure to meet sales targets.
-Fraud: Recording franchise revenue
when the franchises are sold even -Aggressive attitude of management
though an obligation to perform toward financial reporting;
significant services still exists. incompetent chief accounting officer.

-Errror: Amount of revenue earned

on franchises is miscalculated.
 POTENTIAL MISSTATEMENTS
REVENUE/RECEIVABLES
Description of Misstatement Internal Control Weakness or
Factors that Increase the Risk of
-Overestimation of the amount of
the Misstatement
revenue earned.
-Ineffective board of directors, audit
Example committee, or internal audit function;
-Fraud: Misstating the percentage of not conducive to ethical conduct;
completion of several projects by a incompetent individuals involved in
construction company using the the estimation process.
percentage-of completion method
revenue recognition. -Aggressive attitude of management
toward financial reporting;
-Overestimating the percentage of incompetent personnel involved in
completion on projects by a the estimation /accounting process.
construction company using the
percentage-of- completion method of
revenue recognition.
 INTERNAL CONTROL OVER NOTES RECEIVABLE

As previously stated, a basic characteristic of effective control consists of the

subdivision of duties. As applied to notes receivable, this principle requires that:

The custodian of notes receivable not have access to cash or to general

1 accounting records.

The acceptance and renewal of notes be authorized in writing by a

2 responsible official who does not have custody of the notes.

The write-off of defaulted notes be approved in writing by responsible

3 officials and effective procedures adopted for subsequent follow-up of
such defaulted notes.
 INTERNAL CONTROL OVER
INVENTORIES AND COST OF GOODS
SOLD
The interrelationship of inventories and cost of goods sold makes it
logical for the two topics to be considered together. The controls
that assure the fair valuation of inventories are found in the
purchases (or acquisition) cycle. These controls include procedures
for selecting vendors, ordering merchandise or materials, inspecting
goods received, recording the liability to the vendor, and authorizing
and making cash disbursements. In a manufacturing business, the
valuation of inventories also is affected by the production (or
conversion) cycle, in which various manufacturing costs are
assigned to inventories, and the cost of inventories is then
transferred to the cost of goods sold.
SOURCES AND NATURE OF INVENTORIES AND
COST OF GOODS SOLD
The term inventories is used in this chapter to include:

goods on hand ready for sale, whether the merchandise of a trading

1 concern or the finished goods of a manufacturer;

goods in the process of production; and

2

good to be consumed directly or indirectly in production, such as raw

3 materials, purchased parts, and supplies.
 INTERNAL CONTROL OVER
INVENTORIES AND COST OF GOODS
SOLD
The importance of adequate internal control over inventories and
cost of goods sold from the viewpoint of both management and the
auditors can scarcely be overemphasized. In some companies,
management stresses controls over cash and securities but pays little
attention to control over inventories. Since many types of
inventories are composed of items not particularly susceptible to
theft, management may consider controls to be unnecessary in this
area. Such thinking ignores the fact that controls for inventories
affect nearly all the functions involved in producing and disposing of
the company's products.
 POTENTIAL MISSTATEMENTS -
INVENTORY/COST OF GOODS SOLD
Description of Misstatement
Internal Control Weakness or
-Misstatement of inventory costs Factors that Increase the Risk of
the Misstatement
Example
-Ineffective board of directors, audit
-Fraud: Intentional misstatement of committee, or internal audit function; "tone
production costs assigned to inventory. at the top" not conductive to ethical
conduct; undue pressure to meet earnings
-Intentional misstatement of inventory targets.
prices.
-Ineffective cost accounting system; failure
to update standard costs on a timely basis.
-Error: The assignment of direct labor
costs, direct material costs, or factory -Ineffective input validation controls on the
overhead to inventory items is database of inventory costs; ineffective
inaccurate. supervision of the personnel that enter the
costs on the final inventory schedule.
-Erroneous pricing of inventory.
 POTENTIAL MISSTATEMENTS -
INVENTORY/COST OF GOODS SOLD
Description of Misstatement
Internal Control Weakness or
-Misstatement of inventory Factors that Increase the Risk of
quantities
the Misstatement
Example
-Ineffective physical controls over
-Fraud: Items are stolen with no
inventories.
journal entry reflecting the theft.

-Ineffective board of directors, audit

-Inventory quantities in locations not
committee, or internal audit function;
visited by auditors are systematically
overstated.
"tone at the top" not conducive to
ethical conduct; undue pressure to
-Errors: Miscounting of inventory by meet earnings targets.
personnel involved in physical
inventory. -Ineffective controls or supervision
of physical inventory.
 POTENTIAL MISSTATEMENTS -
INVENTORY/COST OF GOODS SOLD
Description of Misstatement
Internal Control Weakness or
-Early (late) recognition of purchases Factors that Increase the Risk of
"cutoff problems".
the Misstatement
Example
-Ineffective board of directors, audit
-Fraud: Intentional recording of
committee, or internal audit
purchases in the subsequent period.
function; "tone at the top" not
conducive to ethical conduct; undue
-Error: Recording purchases of the
current period in the subsequent pressure to meet earnings targets.
period.
-Ineffective accounting procedures
that do not tie recorded purchases to
receiving data.
 INTERNAL CONTROL OVER PROPERTY, PLANT
AND EQUIPMENT
The term properly, plant and equipment includes all tangible assets with a service life of
more than one year that are used in the operation of the business and are not acquired for
the purpose of resale. Three major subgroups of such assets are generally recognized:

Land, such as properly used in the operation of the business, has the
1 significant characteristic of not being subject to depreciation.

Buildings, machinery, equipment and land improvements, such as fences

2 and parking lots, have limited service lives and are subject to
depreciation.

Natural resources (wasting assets), such as oil wells, coal mines, and
3 tracts of timber, are subject to depletion as the natural resources are
extracted or removed.
Acquisitions and disposals of property, plant and
equipment are usually large in dollar amount, but
concentrated in only a few transactions. Individual
items of plant and equipment may remain unchanged
in the accounts for many years.
 INTERNAL CONTROL OVER PLANT AND
EQUIPMENT
The amounts invested in plant and equipment represents a large
portion of the total assets of many industrial concerns. Maintenance,
rearrangement and depreciation of these assets are major expenses
in the income statement. The total expenditures for the assets and
related expenses make strong internal control essential to the
preparation of reliable financial statements. Errors in measurement
of income may be material if assets are scrapped without their cost
being removed from the accounts, or if the distinction between
capital and revenue expenditures is not maintained consistently.
The losses that inevitably arise from uncontrolled methods of
acquiring, maintaining, and retiring plant and equipment are often
greater than the losses from fraud in cash handling.
In large enterprises, the auditors may expect to find an annual plant
budget used to forecast and control acquisitions and retirements of
plant and equipment. Many small companies also forecast
expenditures for plant assets. Successful utilization of a plant budget
presupposes the existence of reliable and detailed accounting
records for plant and equipment. A detailed knowledge of the kinds,
quantities and condition of existing equipment is an essential basis
for intelligent forecasting of the need for replacements and additions
to the plant.
OTHER KEY CONTROLS APPLICABLE TO PLANT
AND EQUIPMENT ARE AS FOLLOWS:
A subsidiary ledger consisting of a separate record for each unit of property. An
1 adequate plant and equipment ledger facilitate the auditor's work in analyzing
additions and retirements, in verifying the depreciation provision and maintenance
expenses, and in comparing authorizations with actual expenditures.
A system of authorization requiring advance executive approval of all plant and
2 equipment acquisitions, whether by purchase, lease or construction. Serially
numbered capital work orders are a convenient means of recording authorizations.

A reporting procedure assuring prompt disclosure and analysis of variances

3 between authorized expenditures and actual costs.
OTHER KEY CONTROLS APPLICABLE TO PLANT
AND EQUIPMENT ARE AS FOLLOWS
An authoritative written statement of company policy distinguishing between
4 capital expenditures and revenue expenditures. A dollar minimum ordinarily will
be established for capitalization; any expenditures of a lesser amount automatically
classified as charges against current revenue.
A policy requiring all purchases of plant and equipment to be handled through the
5 purchasing department and subjected to a standard routine for receiving,
inspection and payment.

Periodic physical inventories designed to verify the existence, location and

6 condition of all property listed in the accounts and to disclose the existence of any
unrecorded units.
OTHER KEY CONTROLS APPLICABLE TO PLANT
AND EQUIPMENT ARE AS FOLLOWS
A system of retirement procedures, including serially numbered retirement
7 work orders (bottom), stating reasons for retirement and bearing appropriate
approvals.
POTENTIAL MISSTATEMENTS-INVESTMENTS IN
PROPERTY, PLANT AND EQUIPMENT
Description of Misstatement
-Misstatement of acquisitions of Internal Control Weakness or
property, plant and equipment Factors that Increase the Risk of
the Misstatement
Example
-Undue pressure to meet earnings
-Fraud: Expenditures for repairs and targets.
maintenance expenses recorded as
property, plant and equipment -Inadequate accounting manual;
acquisitions to overstate income. incompetent accounting personnel.

-Error: Purchases of equipment

erroneously reported in maintenance
and repairs expense account.
POTENTIAL MISSTATEMENTS-INVESTMENTS IN
PROPERTY, PLANT AND EQUIPMENT
Description of Misstatement
-Failure to record retirements of Internal Control Weakness or
property, plant and equipment. Factors that Increase the Risk of
the Misstatement
Example
-Inadequate accounting policies, e.g.,
-Error: An asset that has been replaced failure to use retirement work orders.
is discarded due to its lack of value,
without an accounting entry.
POTENTIAL MISSTATEMENTS-INVESTMENTS IN
PROPERTY, PLANT AND EQUIPMENT
Description of Misstatement
-Improper reporting of unusual Internal Control Weakness or
transactions. Factors that Increase the Risk of
the Misstatement
Example
-Inadequate accounting manual;
-Error: A "gain" recorded on an incompetent accounting personnel.
exchange of nonmonetary assets that
lacks commercial substance.
THANK YOU
AND
GOD BLESS!