Reference no: EM133121510

Question - Mega-wholesales & Co. You are a lucky Accounting graduate who has just landed a dream job of auditor in KPMG in Indonesia. The company is impressive with your academic record and your performance in the interview. They believe that you are capable of working independently without any further training.

You are sent to assist to establish an internal control system of Mega-wholesales & Co based in Java, Indonesia. The company is family run business with 5 staff. It involves in Business to Business (B2B) business whereby it sells imported groceries to local retailers. They all work in family environment, meaning everybody does everything. For example, the same sales person sell the goods, take the cash and register it in the cash register, goes to the warehouse and dispatch the goods and record it in the dispatch record. Operating business in this manner is common in Indonesia because it is considered most effective way of running business.

The Owner/Manager Hong Lee is happy that sales are growing and margin is also improving due to strength of Indonesian Rupee against currency he imports groceries from. However, he is surprise to see the decrease in profit in his recent interim report. He is worried that there might have been the case of fraud and stealing.

His son Bong Lee, who is currently studying Diploma of Accounting in YSYS College, told him the need and importance of internal control system to reduce risk of fraud and stealing. Hong Lee aged with his son and contacted KPMG Indonesia to assist him to establish the internal control system.

Upon your arrival, you have met Hong Lee's son Bong Lee. He told you that he is currently doing internal control unit in his College and started asking a lot of questions. Given below are the 4 questions which you believe is very interesting and decided to answer.

Question 1 - Explain the term 'balancing risk and control'?

Question 2 - Control (or operating) environment is in one of the five interrelated components of the internal control. What is control environment and give at least 4 tips to enhance the Company's control environment?

Question 3 - Who is responsible for risk assessment and what method they can use to assess the risk?

Question 4 - Control activities generally include Approval, Authorization, Verification, Reconciliations, Reviews of performance, Security of assets, and Segregation of duties.

Briefly explain each of them and also specify which control activities are preventive? Which are detective? And which are possibly both? It would be great if you could also give me 2 examples of each control measure type.