Reference no: EM132736625

Question: Note this question is from the Week 5 Tutorial]

Internal controls play an integral role in developing reliable financial records that facilitates the decision-making process. Further, a well-designed internal control system helps in preventing or detecting errors and fraud. Realising the importance of internal controls, the internal auditing department of Dynamic Sportswear periodically reviews the accounting records of the company to determine the effectiveness of the internal controls. During the latest review, the internal audit department found the following conditions:

1. There are occasional discrepancies between the daily bank deposits and the cash receipts.

2. One employee is preparing and approving the bad debt write-offs.

3. There are also occasional discrepancies between physical inventory counts and perpetual inventory records. Furthermore, alterations have been made to the physical inventory counts and to the perpetual inventory records.

4. The customer's records reveal that there are many customer refunds and credits.

5. Many original documents are missing or lost. However, there are substitute copies of all missing originals.

6. There is a substantial decrease in the gross profit percentage. This decrease is not explained.

7. Many documents are not approved.

Required: Describe the possible reasons for these identified conditions above (from 1. - 7.) and recommend effective internal control(s) for each condition.