Final answer:
The likely result of ineffective internal controls in the revenue process would be the authorization of unauthorized credit memos by Sales Department personnel, leading to a potential defalcation scheme.
Step-by-step explanation:
The ineffective internal control policies and procedures in the revenue process could lead to several issues. The most likely result would be Final authorization of credit memos by personnel in the Sales Department which could permit an employee defalcation scheme. This could potentially allow employees to misappropriate funds or assets for personal gain by issuing unauthorized credit memos. Moreover, fictitious transactions could be recorded, which would lead to an overstatement of revenues and an underreporting of inventory, rather than an understatement of revenues as indicated by option B.
In Noel's scenario, a sharp eye prevented a significant overpayment, which underscores the importance of effective internal controls. An employee noticed a considerable discrepancy and took immediate action by utilizing multiple communication channels to ensure that the issue was addressed promptly. Having such strong surveillance and response measures is a key aspect of a robust internal control system.
The most likely result of ineffective internal control policies and procedures in the revenue process is the recording of fictitious transactions. This could cause an understatement of revenues and an overstatement of receivables.
For example, if there are no proper controls in place, employees could create fictitious sales transactions and record them as legitimate revenue. This would inflate the company's financial statements, making it appear more profitable than it actually is.
Another possible result of ineffective internal controls is the omission of shipping documents, which could go undetected. This would cause an understatement of inventory, as the company would not have an accurate record of goods shipped.