AE3: Identifying internal control failures

As an auditor, you have discovered the following problems with the accounting system control procedures at Sunrio Limited.

Required

Identify the internal control principle that was violated in each of the following separate situations. Recommend how the internal control procedures might be changed to avoid the problem in future.

a. Sunrio's losses due to bad debts have increased dramatically over the past year. In an effort to increase sales, the managers of certain stores have allowed credit sales to occur without proper review.

b. An accountant hid his theft of $200 from Sunrios bank account by changing the monthly reconciliation. Sunrio is small with only 5 staffs performing sales, accounting, purchases and customer care functions.

c. The inventory manager maintains the inventory records, counts the inventory and has unlimited access to the storeroom.

d. Receiving reports are sometimes completed days after shipments have arrived.