Econ 3b Midterm II Review

Econ 3b Midterm II Review - Chapter 7 Internal...

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Chapter 7 Internal Control—Safeguard its assets from employee theft, robbery and unauthorized use; and enhance the accuracy and reliability of its accounting records by reducing the risk of errors (unintentional mistakes) and irregularities (intentional mistakes and misrepresentations in the accounting process) 1) Sarbanes-Oaxley Act a. Passed in 2002, SOX imposes more responsibilities on corporate executives to ensure internal controls are reliable. b. In addition, independent outside auditors must attest that the internal control is at the standard of SOX 2) Principles of internal control a. Establishment of responsibility i. Control is most effective when only one person is responsible for a given task 1. Transfer of cash register drawers b. Segregation of duties i. The work of one employee should, without a duplication effort, provide a reliable basis for evaluating the work of another employee 1. The responsibility for related activities should be assigned to different individuals a. Related activities include ordering supplies, paying for supplies, selling supplies, billing 2. The responsibility for record keeping for an asset should be separate from the physical custody of that asset a. The custodian of the asset is not likely to convert
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Econ 3b Midterm II Review - Chapter 7 Internal...

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