ACCT2019 ch07.ppt - 7 Sarbanes-Oxley Internal Control and...

7-1
7
Sarbanes-Oxley,
Internal Control,
and Cash
Principles of Financial and Managerial Accounting, 10e
OR Principles of Corporate Financial Accounting, 10e
Reeve Warren Duchac

Sarbanes-Oxley, Internal Control, and Cash
1
Describe the Sarbanes-Oxley Act of 2002
and the impact on internal controls and
financial reporting.
2
Describe and illustrate the objectives and
elements of internal control.
3
Describe and illustrate the application of
internal controls to cash.
After studying this chapter, you should be able to:
7-
2

Sarbanes-Oxley, Internal Control, and Cash (continued)
5
Describe and illustrate the use of a bank
reconciliation in controlling cash.
6
Describe the accounting for special-
purpose cash funds.
7
Describe and illustrate the reporting of
cash and cash equivalents in the financial
statements.
4
Describe the nature of a bank account
and its use in controlling cash.
7-
3

9-4
Describe the Sarbanes-
Oxley Act of 2002 and its
impact on internal controls
and financial reporting.
1
7-4

7-5
The Sarbanes-Oxley Act of 2002
(referred to simply as Sarbanes-
Oxley ) applies only to companies
whose stock is traded on public
exchanges. Its purpose is to restore
public confidence and trust in the
financial statements of companies.
1
Sarbanes-Oxley Act of 2002

7-6
Sarbanes-Oxley requires
companies to maintain
strong and effective
internal control .
1
Sarbanes-Oxley Act of 2002

7-7
Internal control is broadly defined as
the procedures and processes used by
a company to:
1. Safeguard its assets.
2. Process information accurately.
3. Ensure compliance with laws and
regulations.
1
Sarbanes-Oxley Act of 2002

7-8
1

7-9
Describe and illustrate
the objectives and
elements of internal
control.
2
7-
10

7-10
2

7-11
Employee fraud is the
intentional act of
deceiving an employer
for personal gain.
2
Objectives of Internal Control

7-12
1. Control environment
2. Risk assessment
3. Control procedures
4. Monitoring
5. Information and communication
Management is responsible for designing and
applying five elements of internal control to
meet the three internal control objectives.
These elements are as follows:
Five Elements of Internal Control
2

7-13
Elements of Internal Control
Exhibit 2
2

7-14
The control environment is
the overall attitude of
management and employees
about the importance of
controls.
2
Control Environment

7-15
1. Management’s philosophy
and operating style
2. The company’s organizational
structure
3. The company’s personnel
policies
Factors That Influence the
Control Environment
2

7-16
2

7-17
1. Competent personnel, rotating, duties,
and mandatory vacations.
2. Separating responsibilities for related
operations.
3. Separating operations, custody of assets,
and accounting.
4. Proofs and security measures.
Control Procedures
2

7-18
Exhibit 3 Internal Control Procedures
2

7-19
Monitoring the internal control
system is used to locate
weaknesses and improve
controls.