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Internal Control and Risk Evaluation

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Internal Control and Risk Evaluation
Internal Control and Risk Evaluation A risk is the chance of a negative event occurring. Internal controls are policies and procedures set in place to reduce the occurrence of an associated risk. Risks are never entirely eliminated; however, internal controls help reduce the occurrence and balance the risk. This brief will discuss the risks of Kudler Fine Food’s current Accounting Information System (AIS). In addition, the internal controls designed to mitigate the risks. Furthermore, this brief evaluates the internal controls for the AIS. Last, this brief addresses other controls, outside of the AIS that Kudler’s may need. Identify Risks According to Hunton, Bryant, and Bagranoff (2004), “business enterprises face a variety of risks, including business, audit, security, and continuity risks.” Business risk means the company may not achieve its goals and objectives. A review of Kudler’s strategic plan will help determine the business risk. The adoption of the new Just-In-Time (JIT) inventory system would be an IT timing risk. An IT timing risk is an example of an internal business risk that Kudler would face. An audit risk is the likelihood that Kudler’s external auditor would make a mistake in his or her opinion of the financial statements. Audit risks are broken down further into inherent, control, and detection risks. Every business has inherent risk because doing business is risky in itself. Control risks are the likelihood the internal controls the company has in place would not prevent a material error. Detection risks are the likelihood the audit procedure would not detect material errors. Security risks involve data access and integrity. The AIS converts raw data into useful information. To ensure the data integrity, Kudler will need to control the risks associated with collecting and processing the data. By implementing the JIT inventory system and point of sale system, data is processed as soon as something


References: Bagranoff, N., Simkin, M., & Strand, C. (2008). Core Concepts of Accounting. (10th ed). New York: Wiley & Sons Hunton, J. A., Bryant, S. M., & Bagranoff, N. A. (2004). Core concepts of information technology auditing. New York: Wiley & Sons. University of Phoenix. (2010). Kudler Fine Foods Internet and Intranet Information. Retrieved from University of Phoenix, Virtual Business Portal, ACC542-Accounting Information Systems course website.

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