CS Professional · Internal and Forensic Audit · Special Points relating to Internal Audit in various Entities
An internal auditor reviewing a small trading entity with a two-person accounts team wants to compensate for limited segregation of duties. Which compensating control is most effective?
The best compensating control is an independent bank reconciliation, prepared by someone who does not handle receipts and reviewed by the owner, with unusual items followed up. Management oversight offsets limited staff in small entities, whereas the cashier reconciling or fewer approvals weakens control.
- AAllowing the cashier to prepare the bank reconciliation for speed
- BHaving the owner independently review the bank reconciliation prepared by someone who does not handle receipts, with unusual items followed upCorrect
- CReducing the number of approvals required
- DRelying on year-end stock count only
Explanation
In small entities, owner or management oversight is the standard compensating control. An independent person reconciling the bank statement and the owner reviewing it detects misuse of cash. Letting the cashier reconcile defeats independence, and fewer approvals or only a year-end count weaken control.
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