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23 Cards in this Set
- Front
- Back
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Sarbanes-Oxley Act
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requires that a company develop sound principles of control over financial reporting and continually verify that these controls are working. The act specifically requires top
management to attest that the company’s internal controls are reliable and effective. In order to achieve and maintain the required level of control, all employees must be educated with regard to internal control principles and evaluated for compliance with expected procedures on a regular basis |
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Internal controls
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Policies and procedures a company uses to help protect assets from misuse, ensure information is complete and accurate and ensure laws and rules are followed.
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THREE OBJECTIVES OF AN INTERNAL CONTROL STRUCTURE
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1. Assets are safeguarded and used for business purposes
2. Business information is accurate 3. Employees comply with laws and regulations. |
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Employee Fraud
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the intentional act of deceiving an employer for personal gain
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5 ELEMENTS OF INTERNAL CONTROL
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Control environment
Risk assessment Control procedures Information & Communication Monitoring |
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Control environment
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is management & employee attitudes about importance of internal control
Includes management philosophy/Operating style, organizational structure, personnel policies, internal reviews. o For example, in a poor control environment, you have a dominating management staff that pressures employees to meet budgets and projections at all costs, regardless of circumstances. o A good control environment is established by a management that encourages employees to adhere to control policies and procedures and an employee code of conduct |
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Risk assessment
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identifies risks so management can take steps to control them.
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Competent personnel and personnel policies
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ncludes proper training and supervision, keep employees accountable, rotation of job duties, bonding of personnel, mandatory vacations, etc. Why? To ensure employees are honest, know their jobs, and find it difficult to steal
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Control procedures
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procedures to help safeguard the assets and ensure the reliability of the financial records, including:
* Competent personnel * Rotating duties * Mandatory vacations * Separating responsibilities for related operations * Separate operations * Custody of assets * Accounting proofs o Security measures o Monitoring the internal control system |
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Separation of duties
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Assign different employees responsibility for ARC - Authorizing transactions, Recording transactions, Custody of assets; Why? So that a mistake (honest or not) cannot be made without being seen by at least one other person
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Separation of operations, custody of assets and accounting
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reduces potential for fraud if separate these.
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Proofs and security measures
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authorization, approvals, reconciliations, bond employees etc; also included physical safeguards like protection of accounting records by using backup computer files and fireproof file cabinets. Companies have gone out of business because fire or theft destroyed their accounting records.
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Monitoring
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Need to monitor the system to detect weaknesses; internal, and external auditors
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Information and communication
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Gather and communicate appropriate information to assess and monitor internal controls.
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Cash
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money, coins, checks, currency, money orders, and money deposit
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CASH SHORT AND OVER
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* the cashier will not have the correct amount of cash in the register at the end of the shift.
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Cash Receipts
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To protect cash from theft when
Customers buy products, services Customers pay on account 1. Initially ring up sale on cash register; Customer should be able to see cash register amount rung up; give customer receipt. 2. Have cash register tape (some are computerized so will have info stored in a data base.) 3. Accountant records daily sales from tape. 4. Head cashier or Treasurer collects cash for deposit in bank. |
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WHAT IS ELECTRONIC FUNDS TRANSFERS (EFT)
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* Computerized transfer of funds rather than paper! No cash or checks. Better internal control; less costly; reduces late payments; speeds up processing of cash receipts and payments!
* Examples: Pay employees by using point-of-sale, direct deposit; debit cards etc |
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WHAT IS A VOUCHER?
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* When an expense or liability is incurred, we prepare a voucher.
* Voucher is a sequentially numbered form on which we document: 1. That we have verified ACCURACY and VALIDITY of the expenditure 2. That the expenditure has been AUTHORIZED for payment by management 3. The ACCOUNTS in which the expenditure is to be recorded * All supporting documentation (purchase order, invoice, receiving report) is attached to the voucher. * Voucher serves as "permission slip" to authorize payment for the expenditure later. Checks can be written ONLY for APPROVED and AUTHORIZED vouchers |
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Bank accounts control accounts by:
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Safeguarding cash
Providing double recording of cash transactions Providing comparison with business records |
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RECONCILIATION PROCESS
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Add deposits not recorded to bank balance
Deduct checks not paid from bank balance Add credit memos not recorded to company balance Deduct debit memos not recorded from company balance Correct all errors |
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PETTY CASH
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* A small amount of cash kept on hand to handle small expenditures that must be made by cash.
* The type of fund we cover is an IMPREST fund (meaning it is established for a fixed amount and periodically reimbursed to bring it back to this fixed amount). * Recorded in an account called Petty Cash; Petty Cash is an ASSET (often combined with Cash on Balance Sheet) |
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CASH EQUIVALENTS
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Includes
Money market mutual funds Commercial paper Certificates of deposit Government & municipal securities Corporate notes, bonds |
