WRD_ch08_SV - 8-18Sarbanes-Oxley, Internal Control, and...

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Unformatted text preview: 8-18Sarbanes-Oxley, Internal Control, and CashStudent Version9-2Describe the Sarbanes-Oxley Act of 2002 and its impact on internal controls and financial reporting.18-28-3Sarbanes-Oxley Act of 2002 requires companies to maintain strong and effective internal control.18-4Internal controlis broadly defined as the procedures and processes used by a company to:1.Safeguard its assets.1.Process information accurately.1.Ensure compliance with laws and regulations.18-5Describe and illustrate the objectives and elements of internal control.28-58-61.Control environment2.Risk assessment3.Control procedures4.Monitoring5.Information and communicationManagement 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 Control28-71.Managements philosophy and operating style2.The companys organizational structure3.The companys personnel policiesFactors That Influence the Control Environment28-81.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 Procedures28-92MonitoringMonitoring the internal control system is used to locate weaknesses and improve controls.Monitoring often includes observing employee behavior and the accounting system for indicators of control problems.8-10Edwin C. Bliss , Employee Theft, Boardroom Reports,July 15, 1994, pp. 562Warning Signs of Internal Control ProblemsExhibit 4(continued)8-112Warning Signs of Internal Control Problems(continued)Edwin C. Bliss , Employee Theft, Boardroom Reports,July 15, 1994, pp. 561. Missing documents or gaps in transaction numbers (could mean documents are being used for fraudulent transactions)....
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WRD_ch08_SV - 8-18Sarbanes-Oxley, Internal Control, and...

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