Internal Controls and Corporate Codes of Conduct

Discussion Questions
Students Name
Institution of Affiliation
Question 1
It is not only large businesses that require internal controls, but small businesses as well. However, many small business do not have effective controls and, therefore, they have a higher exposure to fraud compared to large businesses. Some small businesses do not have internal controls at all. It is important for small businesses to design and implement effective internal controls to eliminate opportunities for theft and fraud. Internal controls as well help in preventing errors, as well as, identifying mistakes. Examples of internal controls from small businesses include documents controls. For example, many small businesses ensure a sequential numbering of checks. Another key control is the duty rotation, for example, amongst employees handling the petty cash. Segregation or duties, for example, receipting separately for the cash banked. Others include batch reconciliation and mandatory annual leaves, which gives the peers an opportunity to review the work of the employee going for the leave (CPA Australia, 2008).
Question 2
There are two categories of risk factors relating to the assets misappropriation. The first one is the assets’ susceptibility to misappropriation. This depends on the entity’s nature. Risk factors relating to assets susceptibility include high cash amounts on hand, easily convertible assets, for example, computer chips, as well as, features of the fixed assets, for example, small size and lack of ownership (Hydoski, 2014).
The second category is controls. Risk factors relating to controls include inappropriate management oversight, poor record keeping, poor segregation of duties, inadequate physical cash safeguards, and ineffective systems for authorization, as well as, approval of transactions. Poor management oversight as well is a key risk factor under this category. All these factors expose the entity’s assets to misappropriation thus the need for effective internal controls.
Question 3
Premature revenue recognition entails a move by an entity to record revenue from items whos...