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Internal Audit Report for ABC Company

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Internal Audit Report for ABC Company
Internal Audit Report for ABC Company
Abstract
The purpose of this report is to notify the accounting department about an accounting error that was discovered in a recent audit. Because of a weak internal control system, an adjusting entry for prepaid insurance was not recorded for the first three months in the amount of $500 per month. This report will identify three limitations of the internal control system, it will identify and explain two examples of internal control procedures, find symptoms of a lack of internal control, and clarify the impact of the missing journal entries on the financial statements of the company.

Internal Audit Report for ABC Company
An internal control system is set in place to serve three purposes. First, it protects company assets. Second, it guarantees the honesty of financial information. Third, it safeguards customer information. The internal control system depends on five components to ensure these standards are met. These components include environmental control, risk assessment, procedures, monitoring, and communication. I will identify three limitations of internal control systems as well as identify and explain two internal control procedures. I will also find symptoms of a lack of internal control and explain how the missing journal entries impact the company’s financial statements.
Limitations of Internal Control Systems
It is difficult to maintain a perfect internal control system. The number of employees the company has may impede the company’s ability to efficiently segregate responsibilities, which compels the implementation of compensating controls to ensure that objectives are met. Such things as human error, misunderstandings, fatigue and stress may be the cause of journal entry errors. Employees should be encouraged to take vacation time that has been earned to improve operations. This helps to avoid stress and fatigue.
Sometimes the cost of applying a control can be expensive. However the cost should not
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