Mag’s Pie Shop is a rapidly growing baker and distributor of specialty pies for festive occasions. Mag’s CPA adviser keeps recommending that Mag install better internal controls over the business. Specifically, the CPA recommends that Mag separate the company’s recordkeeping function from the physical control of cash and other assets. The CPA also recommends that Mag use only preprinted and pre-numbered forms for all business transactions.
a. What is the purpose of internal controls? Be specific.
b. For each internal control suggested by the CPA, give one example of an unsatisfactory situation or event that the control would prevent.