The relationship between sales and cost of sales could easily be manipulated if the client does not have good internal controls and/or if the inherent risk of misstatement of the accounts is high. a. True b. False

Question

Jelly

Business

19 January, 13:10

The relationship between sales and cost of sales could easily be manipulated if the client does not have good internal controls and/or if the inherent risk of misstatement of the accounts is high. a. True b. False

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Answers (1)

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Jane Morales · Answer 1

a. True

Explanation:

Internal controls refer to the policies and rues implemented by management to keep a check on internal activities i. e those activities operating within an organization.

For instance, authority to issue purchase requisition note or biometric system of attendance to ensure there are no dummy entries and fake salary disbursements, in the name of dummy employees.

Internal controls serve as a medium to check fraud and to check their operational efficiency, an auditor conducts compliance procedures.

Inherent risks are those risks which cannot be eliminated irrespective of extent of audit procedures performed.

Sales and cost of sales reveal the profit earned. If internal controls are weak, the sales records might reveal lower sales than actual or the cost might be shown higher and discount from suppliers being pocketed.

Hence, the given statement is true.