48.1 7 marker journal entries and IT controls

Question 1

When reviewing the accounting records for significant journal entries, it was noted that the yearend journal to record prepayments had been posted to the general ledger twice in error. The
journal entries had not been authorised or reviewed and IT controls do not prevent the posting of
journals with a reference number which is identical to an existing journal.

Answer 1

Deficiency
Journal entries are not authorised or reviewed.

Consequences
* Errors may be made in journal entries which would go undetected.
* This might result in a misstatement in the financial statements.
* Fraudulent entries could be made.

Recommendations
* All journal entries should be authorised before being entered into the accounting records.
* A report of all journal entries posted should be regularly reviewed for accuracy and prior
authorisation.
* Approval and review should be evidenced.
* Employees who are authorised to post journal entries should be restricted through the use
of passwords.

Question 2

When reviewing the accounting records for significant journal entries, it was noted that the year e nd journal to record prepayments had been posted to the general ledger twice in error. The
journal entries had not been authorised or reviewed and IT controls do not prevent the posting of
journals with a reference number which is identical to an existing journal.

Answer 2

Deficiency
There are no IT controls to prevent duplicate journal entries.

Consequences
* This may result in errors in the financial statements.
* Time and costs will be incurred to correct these errors.

Recommendations
* Journal entries should have a unique reference.
* IT controls should be introduced that alert users if they try to post a journal with a reference
identical to an existing journal entry.
* If IT controls are not possible, an exception report of duplicate journal entries should be
regularly reviewed and duplicates followed up and corrected.

Question 3

. Warrior has refused to pay the balance because it claims it did not
receive the goods. Viper does not retain evidence that goods have been dispatched from its
warehouse or received by its customers. The directors do not consider it necessary to make any
adjustments to the financial statements in respect of this matter.

Answer 3

Deficiency

No evidence of goods dispatched is retained.

Consequences
* Viper cannot keep track of customers’ orders and orders may be dispatched twice in error.
* There is no means to prove goods were received by customer.
* This reduces the likelihood of enforcing payment from customers and increases the risk of
disputes and bad debts.
* There will be a cost associated with attempting to recover receivables and a negative
impact on profits and cash flow.
* Orders may not be dispatched at all resulting in loss of customer goodwill.

Recommendations
* A goods dispatched record should be created in the warehouse. These should be
sequentially numbered and the sequence checked regularly for completeness.
* The customer should sign on delivery to acknowledge receipt of the goods and this record
should be retained by Viper.
* Despatch records should be matched to customer orders and a regular review should be
performed of customer orders to ensure goods have been dispatched.
* Customers should be provided with a copy of the signed despatch record in the event of a
dispute