1. What are the inherent limitations to Internal control are best described in the following cases?...

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1. What are the inherent limitations to Internal control are best described in the following cases? Justify your answer with sufficient explanation. (a) Ahmed is working as an accountant of GNM Company and in preparing the financial statements of the year ended December 31, 2020. Mr. Salim the General Manager of the GNM Company is going to complete his employment contract and wanted to get appreciation from the Board of directors so that he will be continued in his position. For this purpose, he instructed Ahmed to understate the total expenses and overstate the total sales to show higher profits for the company. (b) Mr. Khalid is a Director of GNM Company and he was assigned the task of appointing an accountant for the Company. Mr. Khalid appointed Mr. Husam as the Accountant of the company. Mr. Husam doesn't have adequate qualifications and experience in accounting field and Mr. Khalid didn't enquire about this information before Husam's appointment. Mr. Husam did lot of mistakes in entering transactions and maintaining accounting records and due to this reason, the preparation of financial statements was delayed. 2. Answer the following questions: (3 Marks) a) ABC Company is maintaining accounting records for cash and inventory and periodically comparing the actual cash and inventory available with the concerned accounting records to protect them from frauds by dishonest employees. Identify the control activity followed by ABC Company in this case. b) Mr. Ahmed, an auditor, would like to check whether the internal control procedures relating to inventory management especially inventory counting process at the end of the year. In this regard, he went to the stores of the company and looked into the process of inventory counting process conducted at the end the year. Identify the test of control performed by the auditor in this case. c) Mr. Aktam, an auditor, found suspect that there are some mistakes in Accounts Receivable records of Al Marai Company. He decided to prepare reconciliation statement which reconciles the accounts receivable records with customers' statements. Identify the test of control performed by the auditor in this case. 1. What are the inherent limitations to Internal control are best described in the following cases? Justify your answer with sufficient explanation. (a) Ahmed is working as an accountant of GNM Company and in preparing the financial statements of the year ended December 31, 2020. Mr. Salim the General Manager of the GNM Company is going to complete his employment contract and wanted to get appreciation from the Board of directors so that he will be continued in his position. For this purpose, he instructed Ahmed to understate the total expenses and overstate the total sales to show higher profits for the company. (b) Mr. Khalid is a Director of GNM Company and he was assigned the task of appointing an accountant for the Company. Mr. Khalid appointed Mr. Husam as the Accountant of the company. Mr. Husam doesn't have adequate qualifications and experience in accounting field and Mr. Khalid didn't enquire about this information before Husam's appointment. Mr. Husam did lot of mistakes in entering transactions and maintaining accounting records and due to this reason, the preparation of financial statements was delayed. 2. Answer the following questions: (3 Marks) a) ABC Company is maintaining accounting records for cash and inventory and periodically comparing the actual cash and inventory available with the concerned accounting records to protect them from frauds by dishonest employees. Identify the control activity followed by ABC Company in this case. b) Mr. Ahmed, an auditor, would like to check whether the internal control procedures relating to inventory management especially inventory counting process at the end of the year. In this regard, he went to the stores of the company and looked into the process of inventory counting process conducted at the end the year. Identify the test of control performed by the auditor in this case. c) Mr. Aktam, an auditor, found suspect that there are some mistakes in Accounts Receivable records of Al Marai Company. He decided to prepare reconciliation statement which reconciles the accounts receivable records with customers' statements. Identify the test of control performed by the auditor in this case.

Answer rating: 100% (QA)

a The control activity followed by ABC Company in this case is known as Reconciliation Reconciliation is a process of comparing the actual cash and in... View the full answer