Case Analysis: Evaluation of New Phone Inc.’S Control Environment

In: Business and Management

Submitted By 1548algernon
Words 577
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Case Analysis
Evaluation of New Phone Inc.’s Control Environment

Strengths

• Integrity and Ethical Values – New Phone Inc.’s management has high integrity and an established code of conduct. Since the behavior of employees can often stem from poor ethical behavior by management, it is important that they display a high level of integrity and ethical values.
• Commitment to Competence – The Corporation has a reputation for hiring competent personnel which is vital for the success of the company.
• Management’s Philosophy and Operating Style – The Corporation’s management is somewhat conservative in terms of accounting principles and practices.

Weaknesses

• Board of Director or Audit Committee Participation – New Phone Inc.’s Board of Directors and Audit Committee are not very active, which is important to maintain good internal controls and accurate financial reporting. Generally, auditors report their findings directly to the audit committee, who in turn reports to the Board of Director. The audit committee is also responsible for identifying potential risks.
• Organizational Structure - New Phone Inc.’s organizational structure places the corporation at risk for unethical behavior by its upper management since it allows its individual divisions to operate autonomously. Managers are in a position to make decisions based solely on the performance of their division with little regard for the financial integrity of the entire organizational. In addition, there is little monitoring of the individual division unless they are underperforming. However, a department or division that is consistently performing at a high level should draw attention as well, since this could indicate manipulation of the financial data.
• Integrity and Ethical Values – Although New Phone Inc.’s management has high integrity, their decision to based management’s…...

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