QUESTION:

1. Explain how the implementation of 6 physical control activities in achieving each of

objective in internal control, and give the example!
2. How the absence of 6 physical control will avoid the achievement of he objective of the
interal control, and give the example!

ANSWERS:

1. There are 6 types of physical control which are:

 Transaction Authorization
to ensure that the employees only take the authorize transaction, include the general
authorization or the specific authorization example:
 Segregation of Duties
is the assignment of various steps in a process to different people to eliminate the theft
and frraud. example like to separate who will recaive the goods, or who will maintains
inventory records and etc.
 Supervision
a compensation for lack of segregation that may build in a system, to supervise the
employees
 Accounting Records
an information that used to prepare and verify the financial statements to provide the
audit trail
 Access Control
to help tha safeguard by giving the physical access to them, example like the password or
access card and etc.
 Independent Verification
to review the batch total with the control accounts.

every physical control are very important to achieve the internal control objective.
There are four objectives of the internal control, Safeguard assets of the firm, Ensure
accuracy and reliability of accounting records and information, Promote efficiency of the
firm’s operations, and Measure compliance with management’s prescribed policies and
procedures.

Transaction Authorization
Transaction authorization is helping to safe the asset of the firm from the threat
like corruption and fraud, because the transaction authorization is a process of giving
permission to do the transaction. So the employees are only allowed to record the
authorized transaction. Example; transaction authorization leaves a notes that the
company can use to make a record so the company know all the transaction in their
company because they already have the record.
Transaction authorization also give the authorization number or code to confirm
the transaction to the merchant. All the transaction need to be approve by the
employee, so the transaction authorization also helps to ensure the accuracy and
reliability of the accounting records because the informations are already approved by
the employee and the employee have to responsible to this information. example; Mr
ahmad sign the purchase from the distributor, so the employee will record the
information and if there is a problem Mr ahmad need to responsible about the
transaction.
Every transaction authorization has its own code number which is very helpfull
to promote the efficiency of the firm's operations. because the company can easily
record and find the transaction by using the code. the company usually record it to the
system. example; PT A want to find the transaction on the beginning of the month, they
only need to put the code number and the transaction will be appear.
transaction authorization can help the company to measure compliance with
the management procedure. the management procedure is always want to increase the
company performance and to achieve the organization goals. Transaction authorization
helps the management to ensure the employees to follow the policies by only record
the authorized transaction so they have the responsibility to the information and also
the company can minimalize the fraud. example; the employees must to follow the
policies because they already sign the information so they cannot do anything they want
without following the rules.

Segregation of duties
Segregation of duties is very helping to achieve the internal control objective,
segregation duties helps to saveguard the firm's assets by separating the transaction to
a groups from each division. so the firms can easily track the problem. example; the
company find a threat, because of segregation duties the company can easily find
where's the problem exactly.
By separating each job to different person some information need to be confirm
by each people so the information accuracy and reliability is valid because it's already
passed by more than one person. example; one of them need to approve, the other
person have to holding the stock, and the other person need to purchase and sell the
goods. when there is a transaction both of them have their own notes and if they are
comparing the notes it must be the same.
 Segregation of duties is a physical control that separate job to each people, so it
is very efficient. Because the job will be more structued and errorless. example; Adi jobs
is approving, Ida jobs is holding the stock, and Dina jobs is selling and purchasing. every
of them have their own reports by their division, so the firm can easily to access the
reports that the firm wants.
It also helps to measure compliance with the management policies and
procedures by organize the the different job to different people so it can easily maintain
the internal control because it's already structured. example; the management can
easily watching over their employees because they are already seperated to do some
job so the employees are more controled.

Supervision
Supervision is one of the most important physical control, the supervisor need to
supervise their employees job. It can safeguard the firms assets by checking the system
it is already safe or not. example; if there is someone who watching or supervise the
organization, the bad guy must be scared to steal or cheating. The supervisor also helps
to find out did the information or the records are accurate or not. the supervisor will
watch every data or transaction that recorded by the employee. Example; if there is an
error the supervisor will report it to the employee to fix it. The efficiency will be increase
because the supervisor will remain the employee to follow the SOP, so the operation
will be more efficient. example; Rudy is a supervisor, one of the employee are very lazy.
As a supervisor Rudy will warn the employee.
To measure compliance with the management policies and procedure there must be
someone to watch over the organization. Because it's a human habbit to avoid the rules.
Example; Mr Baba is not following the management procedure, so the supervisor need
to warn him to follow the procedure.

Accounting Records
Accounting records means to report all of the transaction, it helps to safeguard
the firms assets by records and reports all the transaction that already authorized. The
record must be recorded honestly and correctly so it can minimalized the threat.
Example; as an accountan they need to report all the transaction, if the transaction is
not valid they will not record it.
Accounting records also helps to measure the accuracy and reliability of the
information, because when doing the accounting records they need to know if the
information is valid or not. so the information will be double checked. Example; the
information from the previous division are different, so the accountan will cross check
the transaction.
 It also promote the efficiency of the firms operation by giving a report about all
the transaction to the top manager, so they can deside what should they do to increase
their performents easily, Example; the accountant report the financial statement which
is the company health is not good, so the manager will easily determine the weakness
by seeing the reports.
Accounting records has record all the transaction and where the transaction
came from, so the transaction has a footprint. Which is it help to measure compliance to
the procedure, because the employees will not do a bad things and follow the
procedure, if they dont , the manager might warn them or even cut them.

Access Control
To keep the company safe, every company must have an access control to
safeguard their assets. The access control helps the firms to separate the access of the
information from the firms. Example; The supervisor can access all data from every
division but the employees from production division only can access data from the
production division only.
The access control also help to ensure the accuracy and reliability because the
information is cannot be change by the other division except the following divisions. The
information also sign by the employee that have the access . Example; when the
company want to make sure the information, they already have the one who will
responsible
The firms operation efficiency also affected by the access control, because access
control manage the capacity of each employee to access the information. So they are
only focus on their division. Example; the employee's from marketing division are only
allowed to access the sales data and stock data so they will be more focused on their job
because the data is already collected by the previous steps.
To measure compliance with management’s prescribed policies and procedures
access control makes all the organization following the rules, because in every decicion
making have the procedure from the top manager to the bottom. So its mean that all
the employees had to follow it, because the access control give them a limitation.
Example; the employees need to follow steps by steps from the low manager to top
manager to reporting and make a decision because of the access control that limite
them.
 Independent Verification
When the firms want to safeguard their assets they need to do this physical
control, because every transaction or report must be checked by physical not only by
the data so it can minimalize the fraud. Independent verification can be done by the
independent auditors so the report is honest. Example; the transaction records that the
company buy 100 unit avanza @100 rupiah, so the physic of avanza must be 100 not 90
if it is different then it will be a question mark.
Independent verivication ensure the accuracy and reliability of the information,
because independent verivication will verify between the data and the reality. So the
information will be more reliable. Example like the previous case, they need to verify
the report is it same with the actual or not.
Independent verivication also helps the firms to promote the efficiency because
the firms will be more efficient when they are going to calculate their actual inventory
or the other things, because there's already verified by someone.Example; the firms
want to calculate their asset, they dont worry because the data is already verified so
they will reduce the time.
independent verification help the management policies and procedure to be
obeyed by the employee, because the employee will be caught if they do something
wrong because there is someone who will check all of the things. Example; when
someone is doing fraud it will be caught so they need to follow the rules.
2. If there is no physical control what will happen to the internal control objectives? Of
course the Internal control objective will not achieved because we need to do the
physical control to achieve the objectives. Physical control is the implementation of
security measures in a defined structure used to deter or prevent unauthorized access.

How if if there's no physical control to achieve safeguard of firms assets:

If there is no transaction authorization there will be a threat and fraud, because
the transaction is not authorized, it means no one is approved or responsible to that
transaction. There are no code number or anything else that provide the transaction.
Example; Mr Adi rembourse the gas fuel by telling the nominal but with any bill so the
company didnt know the truth.
If there is no segregation duties the transaction is not separated per division but
all of them are merge into one. There's also only one division that doing all the job, which
is make the firms hard to protect their assets because it is really hard to find the problem
or the threat if they are not separated. Example; the company are going to check the
data, but the data is not structured so it is easy for the employee to cheat.
If there is no supervision then there is no one will control the employees work.
Supervision is very important because supervision will supervise the performance of the
organization. If no one supervise the firm, the employee's are easily to make fraud.
Example; the employees are not making the report correctly but there are no one
monitor their job, so the company will be harmed.
If there is no accounting records then how the company know about their sales
or their financial statements. If there is no one records the transaction then there is no
footprint about the sales or the purchasing. So the firms assets will be harmed. Example;
the firms are selling goods and purchasing goods, but one day the supplier said that the
firms is not yet pay off the accounts payable. the firms can't defend them selves because
there are no records.
If there is no access control, everyone can access to all data and the firms assets is
not save. the firms is lack of security, so the firms health might be not good. Example;
every employee can access the data, if there is a problem or threat the company will be
hard to cure the threat.
If there is no Independent verification like independent auditors verify the firms,
no one will check the physical and only use the data, the firms may be bankrupt because
of the poor internal control. their assets may decrease. Example; the company didnt use
any independent auditors to verify the reports, the employee may reports the fake
reports.
How if there's no physical control to achieve Ensure accuracy and reliability of
accounting records and information:
If there is no transaction authorization then how we can get the accurate and
reliable information, its not wise to trust the information without any authorized or the
person that will responsible about the information. It will affect the accountant when
reporting the transaction. Example; when the accountant report the transaction it might
be not valid and once again the company will be harmed.
If there is no segregation of duties the job will be not separated and work by one
division. The job must be more many and hectic that causes more errors than separate it
into some division. Example; Mr A reports his data, but actually the data is wrong but
there is no one can help to make sure that the data is right or wrong.
If there is no supervision means there is no one will supervise or monitor the
organization. So it might be some mistakes comes from the reports because the
supervisor should be the one who supervise them if its right or wrong. Example; when
the accountant report the data there are no one will check it is right or wrong.
If there is no accounting records it means the accuracy and reliability is not
checked because when the accountant make the accounting records they should make
sure that the data is valid but if there is no accounting records then it might be mistaken.
if there is no Access control the firms will be hard to determine that the
information is accurate or not because every person in the company can input the data
without any limitation, if there is someone who had a bad plans to change the data, every
body in the company will receive a wrong data.
If there is no independent verification there is no one will make sure thee
accuracy and the reliability of the data. the independent verification must be from the
unrelated accounting company to the firm so it can report honestly. Example; The
company get the reports that their assets are decreasing but the data is actualy fake and
there is no one that cross checked the data.

How if there's no physical control to achieve Promote efficiency of the firm’s

operations:

If there is no transaction authorization the company will be harder to organize the

data, the transaction authorization give us the information about the merchant the date
and also the buyer. Transaction authorization provide a code number that help the
company to reorganize their data to be structured. Example; when the company want to
find a data they will be take a more time.
If there is no segregation of duties the company will be harder to collect the
information because the data is random and not structured. because segregation of
duties divide and separate some job into some division. Example; when the company
want to find a data they need to check it one by one which is take a longer time.
If there is no supervision the employees are not monitored and they might work
as they want not by what shoud they do based on the procedure, so the operation's is
not efficient because they might not stick to the SOP.
If there is no accounting records, the firms will have a trouble when they want to
know about the reports about their inventory, sales, purchasing , and the financial
statements. thats mean that the company cant directly look into the financial statement
to improve the performance, so they may need more time. Example; the company want
to calculate the production cost, but they dont have any data so they might take a long
time to calculate it.
If there is no access control the activity in the company will be very hectic because
everybody can access all the data without any access control. the system may be very
slow because everybody is entering the system. Example; A,B,C,and D are accessing the
system in the same time, the system maybe lag because to many people access the
system.
If there is no independent verification the company eficiency might be low
because the independent verivication help to calculate and check all of the reports that
really helpfull to company when collecting and calculate the data. Example; the company
that use the independent auditors are more efficient than the company that do not use
the independent auditors because there is might be a mistake that can take a long time
to reveal it.
 ACCOUNTING INFORMATION SYSTEM I
INTERNATIONAL CLASS B
Mr. James Situmorang Drs., Ak., MBA., MM., CA.

ASSIGNTMENT 1

VINCENT ALVIN VALERIAN

201850062