Fair Value Measurement Mandated Accounting Internal Control Weakness And Its Impact On The Functioning Of The Company

1.       Internal Control Weakness in the system

·         Effective internal controls are very important for the long-term sustainability of any business of the company. If the internal control is weak then the business will not be function well. In case of this new system there are certain errors that the company needs to take care of (Kusolpalalert, 2018).

·         No Segregation Of duties – One of the greatest weakness is that there is no segregation of duties between the members of the company. One person has been given all the authority to accept the order and authorize it, so this gives unprecedent power of authority and hence can lead to falsification of accounts for personal gains (Abbott & Kantor, 2017). The cashier has the authority to approve payments less than $10,000 and they are done through cheques printed through machines that are regulated by the cashier itself. Thus, they can misutilised the company’s fund because the management is not controlling the system and there is a major loophole in it.

·         Verbal Orders – In case of the special ordering system the major fault is that most of the orders are taken in verbal mode and there is no documentation for the same in the coming future. One thing that can be seen that this leads to no proof of the number of order received by the company. Hence the management should develop a system that would help in maintaining a record of the total number of orders received by the company (Alexander, 2016).

·         No Proper maintenance of books – One thing that can be noticed is that the company is not maintaining proper books, the books are getting debited and credited before the company is receiving the payment, where the accounts clerk files in the purchase order as paid on the due dates even though the same has not been approved by the authorities (Chariri, 2017). So, this might lead to discrepancy in the overall system of the management of the company. It will also lead to wrong representation of the accounts of the company and can provide a wrong picture to the investors of the company.

·         No porper way to manage the accounts – In case of the given company it can be seen that the orders for the company are divided into specific range and thus the accounting treatment is not proper when it comes to recording the transaction and the payments. It is a very different scenario that the company needs to deal with and thus it is important that more organized approach to be followed by the company.

2.       Impact of Internal control weakness on the functioning of the company

In case the internal control is weak, the company will find it very difficult to progress in the current times, it breaks the health of the company from it. It might lead to errors and falsification of the accounts that can cause huge lose to the management of the company. It can also led to huge losses and thus can cause downfall of the company in the long run. It can affect the major business step that has been taken by the company in the form of the special ordering system and can affect the overall audit trail with regards to the same (Dichev, 2017). It is very harmful for the long-term development of the company and for its various departments. It might affect the overall growth and development of the company for the longest time possible. So the management should take necessary steps that would help in removing the same and help the company to progress in the long run.

3.       Conclusion and Recommendations

Effective Internal Control Measures

·         Maintaining Proper Accounts – It is important that management of the company should properly document their orders so that there is a written proof with regards to it. It will be helpful for the future and providing a proper trail for the company in the long run. When orders are placed they should be properly documented along with the orders being received and the payment being discharged by the company. It will keep a trail on the number of orders received and discharged by the company (Kusolpalalert, 2018).

·         Keeping a check on the employees of the company – The cheques that are authorized by the cashier and the collector should be verified by third parties so that they can keep a check on the overall performance of the company and of the employees. In case they are falsifying then that can easily be caught by the company.

·         It is important that the management should authorize timely audit of the system so that all kind of weakness errors can be judged by the management of the company. It is important the auditors must apply the highest amount of due diligence possible for the success of the company (Maynard, 2017). Audit helps in finding any kind of errors that might be present in the system and helps the management to keep a check on it. Audit also helps in keeping a check on the employees of the company.

·         The management should also see to it that the purchase register of the company is timely audited and updated and all the orders that the received and paid should be updated by the company. There should be separate files for order received and order paid and once the overall payment is received by the company then the equipment account should be debited by the company.All the cash and bank related transactions should be checked without any faults.

4.       IT Practices

·         Development of technology has led to huge development in the IT related practices for any company. With this it has become easy for the companies to verify their internal controls and ascertain the best results from the same. In case the companies adopt IT related practices it would help in saving a lot of time and effort on part of the company and help them to deliver the best results in very less time. The company can also take help from IT experts on how they can introduce IT related practices for the company and can ascertain the best result for their company (Yadao, 2018). The various IT related IT practices for the company with respect to specific control measures are –·         Electronic Forms – These can be used as purchase forms, whenever any customer wants to place any order, they need to file in these forms. This will help in keeping a proof with regards to the number of orders received by the company and the total orders completed. It will also be helpful in the audit of the system.

·         Barcode Scanning – It is also an effective way of keeping a trail on the good received. All the products should be tagged and whenever they are dispatched they can be scanned this will help in keeping a trail on the total amount of orders that has been supplied by the company and the amount received in respect of it. It will give proper trail to the auditor of the company.

·         Electronic Fund Transfer- This is one of the easiest and fastest method of transferring funds in today’s time. It will help the company in keeping a record of the total amount received from the customers, there should not be any system of cash or cheques. Hence this will effectively reduce the chances of errors by the company in the coming future. It will also help in keeping a check on the overall functions of the cashier of the company and ensure proper segregation of the duties (Chron, 2017).

·         Electronic Data Interface – The company can go the digital way and use software to place their orders rather doing it in the manual way. This will help them to increase the total flow of operations and make it more easy and efficient for the long term business of the company. Development of software and application would be beneficial to the company in the long run.