Now that you have identified the revenue-related internal control that relates to the five assertions (existence, completeness, accuracy or valuation, rights and obligations, and presentation and disclosure), the test of controls will need to be identified for each assertion and internal control.

For this assignment, you will write and submit 400–500 words that set specific tests of internal controls for the 5 internal controls related to management assertions that you identified for the Unit 4

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Running Head:

AUDIT

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AUDIT

Audit

Name

Course

March 17, 2020

AUDIT

Internal controls are the measures that seek to reduce threats where hazards are variables that hinder the accomplishment of a company’s objectives. An internal control structure inside an organization is an entire system network designed to provide fair confidence that the aims of the business can be accomplished. A myth about quality management is that it is being introduced to deter theft and mistake. A lack of sufficient control means the company’s risk assessment policy is unsuccessful (Clarke, 2017). To ensure that the internal controls are set efficiently, following must be included for the assertions:

Assertions

Definition

Internal Control

Existence

The reported assets and liabilities in the financial statements exist (Zhang, 2016).

To meet this assertion, the internal control that should be set in place would be a physical count of inventories. Thus, the number of human resource inventory that is recorded on the books must be physically counted to ensure that all the employees exist in the organization.

Completeness

The transactions to be reported is recognized in the financial statements of the reporting entity.

The completeness assertion of the human resource inventory can be met by setting the control of appointing an employee for entering all the payroll related to the human resource inventory on the books.

Accuracy or Valuation

The assets, liabilities and disclosures are recorded accurately or at the appropriate amounts (Mercer, 2017). Accuracy or valuation assertion ensures that the transactions that have been entered in the records are accurate and the assets and liabilities are measured and valued accurately.

This assertion is met by setting the internal control of segregation of duties. This is to ensure that the payrolls and other data are entered by different personnel so that the information is accurate. Segregation of duties reduces the risk of fraud as well since various personnel would be responsible.

Rights and Obligations

The rights of assets and obligations of the liabilities disclosed in the financial statements relate to the entity. This is the basic assertion that states that all the assets that are mentioned in the financial statements belong to the company (Clarke, 2017).

The rights and obligations assertion for human resource inventory would be to assert that the company has on board as many human resource personnel as it discloses in the books. This assertion can be controlled by management. The management must ensure that the company states the correct number of human resource inventory as it records in the book.

Presentation and Disclosure

Information disclosed in the financial statements of the reporting entity is understandable and appropriately presented.

Supervisory controls can be set to ensure that the assertion of presentation and disclosure is met. This means that the disclosure of information related to the human resource inventory is supervised and managed by a senior manager.

References
Clarke, I. (2017). What is an Assertion? How Management Assertions Relate to SOC Reports. Retrieved from linfordco.com: https://linfordco.com/blog/what-is-an-assertion/
Mercer. (2017). Internal Control. Retrieved from audit.mercer.edu: https://audit.mercer.edu/internal-control/
Zhang, E. (2016). The Importance of Internal Controls in Accounting. Retrieved from http://www.carrtegra.com/: http://www.carrtegra.com/2016/06/importance-internal-controls-accounting/