Internal Control Over Financial Reporting

Question: Discuss about the Internal Control Over Financial Reporting. Answer: Introduction This study is based on the case study of Fruito, which deals with the fruits and vegetables selling to the local fruit shops as well as to the local restaurants and hotels. As the company has newly started the financial accounting system, this study guides the company in financial accounting by identifying the possible risks to the organizations and at the same time by providing the possible remedies to solve the risks of the company. This study aims to identify the risks involved in the ordering and receiving process at Fruito from the suppliers. Another aim of the study is to provide possible solutions to reduce the risks of the company. Risks identified during the process of ordering and receiving As Fruito is new in financial accounting, it may face several risks related to the accounting for ordering and receiving the stocks. These risks are as follows: Risk of inflation: If the inflation takes place, the suppliers of the company will not be agreed to supply the stocks at the previous price. Inefficiency risks: As the financial accounting system is new at the company, the employees are not accustomed with the system (Lin et al., 2015). Therefore, there is high chance of wrong entry while ordering and receiving the stocks. Risks of losing data: As the financial accounting system of the company is computerized, there is a risk of losing the data related to number of orders and their prices. Risk of complexity: The complexity of recording the entries of ordering and receiving the stocks will be high. Due to this, the reliability and accuracy of the ordering and receiving entries may be negatively affected (Fattahi, Hajipour Nobari, 2015). Risk of decrease in demand: If the demand for the products of Fruito decreases suddenly, then the company will not get enough time to communicate with the suppliers. Risk of damage: As the company deals with fruits and vegetables, there is high risk of damage while receiving the products from the suppliers. Risk of receiving wrong product: It may also happen that due to miscommunication, the supplier provides the products, which are not the actual demand of the company. potential impacts of the risks on the organizational process of Fruito Impact of Risk of inflation: This issue may increase the overall costs of the company and due to that the price level of the products sell by Fruito will also increase and as a result, it may lose some customers, who are not able to pay the high price (Ge et al., 2015). Impact of Inefficiency risks: Due to this risk, the accuracy of the accounting system will be hampered. Impact of Risks of losing data: If this risk takes place, then the total system will be hampered (Lin et al., 2016). Moreover, the validity of the accounting entries cannot be verified. Impact of Risk of complexity: Due to this risk, the company will receive number of orders that it has ordered previously but as the scenario changed, the stock level will increase (Yao, 2016). Impact of Risk of decrease in demand: This will lower the stock level of the company (Howard et al., 2016). Impact of Risk of damage: This will negatively affect the stock level of the company (Li, Zhang Tang, 2015). Impact of wrong product received: This risk may affect the stock level of the company and at the same time the company will be unable to meet the demand on time. Suggestions and approaches for reducing the risks In the above, it has been identified that there are several issues that can take place while ordering and receiving the stocks (Ge et al., 2015). However, these issues or risks can be solved with the help of the following recommendations: Solution for the risk of inflation: The Company must order in less quantity because if the quantity is less, then the level of cost increased due to inflation will also be low. Therefore, the company can manage the situation in a better way (Lin et al., 2015). Apart from this, the company may make a contract with the supplier regarding the price of the stocks, so that the supplier cannot increase the price even in inflation (Holmstr?m et al., 2016). Solution for the inefficiency risk: In order to solve the inefficiency risk, the management of the company must provide training to the employees. At the same time, the accounts manager must check the ordering and receiving entries at the end of each day (Li, Zhang Tang, 2015). Solution for the risk of losing data: The management at Fruito must check the records at the regular interval. This will help the management identifying any small mistake and at the same time, the management can identify any lose of data easily and immediately (Lin et al., 2016). Along with that, the management can maintain the rough record of every order and receive. These will be the alternate entries of every order and receive of stock. Solution for the risk of complexity: The management at Fruito can reduce the complexity risk by implementing easier financial accounting system, which can be handled easily. Apart from that, the company can recruit an efficient and experienced person for handling the ordering and receiving entries (Ge et al., 2015). Solution for the risk of decrease in demand: In order to manage this particular risk, the company will require to order in small quantity, so that it can avoid high level of stock when the demand is decreased. Apart from that, the company can conduct the regular survey in order to get the current information about the market demand (Howard et al., 2016). Solution for the risk of damage: In order to solve this risk, the company has to take care of the products while bringing those in the store house. Solution for the risk of receiving wrong products: This particular risk at Fruito can be solved by checking each order while placing the order to the suppliers. At the same time, the company can also solve this risk by placing the order before the stock comes at very low level, so that it get the time to change the order if any wrong products provided by the supplier (Ge et al., 2015). Conclusion In this above discussion, it can be identified that there are several types of risks that the management at Fruito may face while ordering and receiving the stocks or products. Some of these risks are risk of inflation, risk of damage, risk of inefficiency, risk of decrease in demand and many others. However, the study has also provided some recommendations, which may help the company reducing the level of these risks. Some of these solutions are maintaining a minimum level of stock, ordering at low quantity, and implementing simple system for ordering and receiving and maintaining the records of each transaction of ordering and receiving process. Reference list: Fattahi, P., Hajipour, V., Nobari, A. (2015). A bi-objective continuous review inventory control model: Pareto-based meta-heuristic algorithms.Applied Soft Computing,32, 211-223. Ge, W., Li, Z., Liu, Q., McVay, S. E. (2015). Does Internal Control Over Financial Reporting Curb Corporate Corruption? Evidence from China.Evidence from China (December 16, 2015). Holmstr?m, J., Smros, J., Disney, S. M., Towill, D. R. (2016). Collaborative supply chain configurations: The Implications for supplier performance in production and Inventory control. InDevelopments in Logistics and Supply Chain Management(pp. 27-37). 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