CS Professional · Internal and Forensic Audit · Special Points relating to Internal Audit in various Entities
Mehta & Sons, a partnership firm in Surat, has three partners, and the managing partner alone approves purchases, signs cheques and records the entries in the books. The internal auditor is asked for the most significant control weakness. Which one is it?
The most significant weakness is the lack of segregation of duties. One partner approves purchases, signs cheques and records entries, so no independent check exists and errors or fraud can go undetected. Audit committees and company secretaries are not applicable to partnership firms.
- AAbsence of a formal partnership deed registered with the Registrar of Firms
- BLack of segregation of duties because one person authorises, handles cash and records transactionsCorrect
- CFirm not having an audit committee
- DFirm not appointing a company secretary
Explanation
When one individual authorises, executes and records transactions, errors or fraud can occur and stay concealed. Segregation of duties is the basic control that is missing. Audit committees and company secretaries are company-law concepts and do not apply to a partnership firm, so options 3 and 4 are not relevant weaknesses. Registration of a firm is not the main control gap here.
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