We would like to share examples of internal control deficiencies.
We hope that this case will help enhance your practical understanding of internal control requirements.
[ Inventory Closing: Handle Errors Quickly!
Verify Closing Details Thoroughly! ]
Cases of Failed Timely Validation and Reflection of Inventory Discrepancies
[Issue]
① System Control Defect
- Due to an SAP system error, inventory variance adjustment journal entries were not posted properly.
② Failure to Address System Errors in a Timely Manner
- Delays in identifying and verifying the causes of inventory discrepancies resulted in the failure to finalize inventory balances within the closing period
③ Cut-off Violation
- As inventory variances were not reflected in the current year's financial statements, there is a risk of distortion in inventory and cost of goods sold (COGS).
[Best Practice]
① Immediate Remediation and Inspection of System Errors
- To prevent delays in the closing schedule, clear requests should be made to the IT department for rapid escalation and timely response.
② Establishment of a cross-check mechanism
- Strictly establish an 'intensive inspection period' and 'deadline' between the Production and Accounting Departments to quickly identify causes and finalize quantities within the closing period.
③ Mandatory Manual Reconciliation Before Closing
- To detect omitted journal entries early due to system errors, it is necessary to manually reconcile the physical inventory count report with SAP records and reflect adjustments in a timely manner.
[Contact Us]
Please contact to the email below if you have any questions. hyeju.kim@hyundai.com (Accounting Policy Team Hyeju Kim Manager)
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