Chapter 6

Risk assessment

Identification and management of risks.

Control environment

Executive management promotes ethics and integrity of its internal controls.

Control activities

Implementation of procedures to reduce risk of loss.

Information and communication

Reporting of control effectiveness.

Apply technological controls

Cash registers contain locked electronic files that keep records of each sale.

Divide responsibility for related transactions

The company divides responsibility for a transaction between multiple departments.

Maintain adequate records

To ensure equipment theft does not go undetected, detailed accounting records are kept.

Perform regular and independent reviews

The company's internal auditors frequently assess the performance of internal controls.

Separate recordkeeping from custody of assets

Prohibit the recordkeeper from having control over cash.

Establish responsibilities

Each cashier is designated a specific cash drawer and is solely responsible for cash in that drawer.

Invoice approval

A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.

Purchase order

A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.

Purchase requisition

A document used by department managers to inform the purchasing department to place an order with a vendor.

Receiving report

A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Voucher

An internal file used to store documents and information to control cash payments and to ensure that a transaction is properly authorized and recorded.

Invoice

A document prepared by the vendor that includes details such as the items sold, sales prices, terms of sale, and customer name.