Reference no: EM132661317

Authorization of transactions is considered a key role in most organizations. Authorizations should not be made by individuals who have incompatible functions:

1. Writing off old accounts receivable
2. Paying the employee for overtime 
3. Shipping goods on account to a new customer 
4. Temporarily investing funds in common stock investments instead of money market funds 
5. Rewriting the company's major computer programs for processing purchase orders and accounts payable (the cost of rewriting the program will represent one quarter of the organization's computer development budget for the year.

The following scenario describes the X Company with 25M revenue and approximately 300 employees. X company is a publicly listed company that first because listed 3 years ago. It has been hit hard by the recent pandemic and its sales dropped from 375M to 250M. It is barely profitable and is just meeting some of the most important debt covenants.

During the past year, the CEO and owner of 22% shares of the company has taken the following actions to reduce costs:

1. Laid approximately 75 factory workers and streamlined receiving and shipping to be more efficient.
2. Cut hourly wages by P50 per hour. 
3. Changed from big 4 audit firm to a regional audit firm, resulting to an additional audit savings of P300,000. This is the first public company audit for the new firm. 
4. Put a freeze on hiring despite the accounting's retirement of its assistant controller. This has required a great deal of overtime for most accounting personnel.

Required:

Problem 1: For each of the items above, identify whether the item would be considered (a) operational issue and not a weakness in internal control (b) a material weakness in internal control, and (c) a significant deficiency in internal control. Explain your answer.