AC$499-4$: Financial Reports: Evaluate financial reports.

Instructions Summary:

Recall that in Units $2$ and $3,$ you completed the accounting cycle for Dustin Larkin of Quixote Consulting. Quixote Consulting is a part$-$time consulting business that recently moved from Dustin$$s home into rented quarters.

Assume that you are the internal auditor for the business and you have to evaluate the internal control procedures that have been implemented in the business.

There are three objectives of internal control:

Assets are safeguarded and used for business purposes,

Business information is accurate, and

Employees comply with laws and regulations.

The five elements of internal control are:

The control environment,

Risk assessment,

Control procedures,

Monitoring, and

Information and communication.

If you owned a business, you would expect your employees to:

Work to achieve the business goals and objectives you establish.

Use business assets $($such as machinery or automobiles$)$ only for legitimate business purposes and avoid wasting business resources.

Record accurate data regarding business transactions so you could accurately judge how well your business is doing.

Refrain from stealing your cash, supplies, inventory, or property, plant, and equipment.

In theory, you should be able to expect these things. In practice, however, you must establish an internal control framework to make sure your business objectives are achieved, assets are protected from theft and misuse, and financial data are recorded accurately.