Reference no: EM132973082

Cash and Internal Control Scenario

• Cash control is critical to any given management to ensure the smooth functioning of the business (Porter & Norton, 2018). Various tools make it possible to manage cash control by the administration. One of the vital tools is the cash flow statement which gives an extensive summary of cash and its equivalents that leave and enter the company. Also, cash budgets are critical in managing cash by the management due to their capabilities of estimating cash flows over some time. The annual cash balances for Bank of America for 2020 and 2019 are $36.4B for the former and $30.1B for the latter. In the context of interpretation, Bank of America has both positive cash balances for the specified years. Economists regard positive cash balances as beneficial for any business firm as they help squander debts when called upon (Faleye, 2004). Thus, Bank of America is comfortably growing its cash reserves.
• The management of a business organization has the responsibility of ensuring it establishes internal controls. Maintaining internal controls is not easy, mainly if the management lacks appropriate policies and procedures that gear toward the primary objective. One of the main incentives of establishing internal controls is the need to maintain the effectiveness of risk management systems (Fadzil et al., 2005). For example, a business firm operating in an electronics industry subscribed to the policies and procedures established to manage its internal controls. In their practice, it was mandatory to authorize any transaction by ensuring it aligned with the management's intent. In this regard, joined by record-keeping and safeguarding, there was proper control of the firm's assets by limiting access to outsiders.

Problem 1: How is the cost-benefit criterion important in the implementation of internal control?