there
- operations are effective and efficient
- compliance with laws and regulations
- financial reporting is reliable
What does SOX stand for??
Sarbanes-Oxley Act
faces management to be engaged with respect to its internal controls
section 404!
The ____________ has become the standard for understanding what good internal controls look like.
COSO Framework
¨policies and procedures top management establishes to help insure that its objectives are met.
control activities
Top management of publicly-traded corporations have an increased responsibility for a system of internal controls that ensures the reliability of the financial statements.
SOX
collection of environmental factors that influence the effectiveness of control procedures (element of internal control)
control environment
the three objectives of internal control:
safeguarded assets, accurate information, compliance with laws and regulations
¨reduces the likelihood that records could be used to conceal irregularities (intentional misstatements, theft, or fraud) and increases the likelihood that irregularities will be discovered.
segregation of duties
check issued and recorded by the business that has not been ‘‘cashed’’ by the recipient of the check
outstanding check
Management must produce an internal control report acknowledging responsibility for 1) establishing and maintaining an adequate internal control system and procedures for financial reporting and 2) assessing the effectiveness of these controls.
Section 404
Section 404 of SOX requires two things:
1. statement of management's responsibility to establish and matin controls
2. an assessment of the effectiveness of its internal controls
requires physical protection of the assets through, for example, fireproof vaults, locked storage facilities, keycard access, and antitheft tags on merchandise
safeguarding
Principalexecutive and financial officers must certify that they are responsible for establishing and maintaining the system of internal control over financial reporting.
Section 302
there are five elements of internal control....
1. control environment
2. risk assessment
3. control activities
4. information and communication
5. monitoring
¨Procedures are designed to identify, analyze, and manage strategic risks and business process risks.
risk assessment
the overall integrity, attitude, awareness, and actions of everyone in the business concerning the importance of control
tone at the top
a _________ fund may be used to pay for items such as stamps or a cake for an employee birthday party.
petty cash
possible threats to the organization’s success in accomplishing its objectives and are external to the organization.
strategic risks
arise out of the internal processes of the company—specifically, how the company allocates its resources to meet its objectives.
business process risks
3 key cash controls
1. bank reconcilian
2. cash over and short
3. petty cash funds
three steps of operating cycle
1. purchase inventory and other assets
2. sell or use assets
3. collect from customers
an amount received and recorded by the business, but which has not been recorded by the bank in time to appear on the current bank statement
deposit in transit
adjusted bank balance =
bank balance+deposits in transit-outstanding checks
war
EAGLE