LESSON 7 - 1 Internal Controls and the CPA Examination In...

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LESSON 7 Internal Control and Cash   Internal Controls and the CPA Examination In order to become a Certified Public Accountant (CPA), a person must first pass the uniform (that is, “uniform” or the “same” in all 50 states of the USA) CPA exam administered by the American Institute of Certified Public Accountants (AICPA). The CPA Exam tests concepts and procedures primarily in the following areas: 1. Financial Accounting and Reporting 2. Business Environment and Concepts 3. Regulation 4. Auditing and Attestation The “Financial Accounting and Reporting” section of the CPA exam covers many of the concepts and procedures taught in this Course. However, a good deal of Lesson 7 focuses on the subject of Internal Controls, which is included in the concepts tested in the “Auditing and Attestation” section of the CPA exam. For those of you who may be interested in becoming a CPA, the following link is provided that accesses the official site of the Texas State Board of Public Accountancy : http://www.tsbpa.state.tx.us/./exam-qualification/examination-overview.html In the above link, you can view information about the CPA Exam, including the requirements to be able to sit for the CPA Exam. The fact that Internal Controls are a prominent part of the CPA Exam is well justified, because Internal Controls provide the primary safeguards over businesses’ assets. Without Internal Controls, there would be inadequate safeguards over businesses’ assets, in which case neither the creditors who have lent money to companies, nor the shareholders who have invested in companies, could have assurance that the assets of the companies will persist and have an opportunity to grow. Safeguarding a company’s assets is the primary objective of Internal Controls. Internal control consists of all the related methods and measures adopted within a business to: 1. Safeguard its assets from employee theft, robbery, and unauthorized use; and 2. 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
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Not only a company’s physical assets (the plant property and equipment) but also its information assets need to be safeguarded. Today, virtually all enterprises’ business systems are computerized, and it is the information stored and processed on companies’ computer systems, and not the systems themselves, that are the more valuable assets. With the increasing use of computers in automating business and financial systems, accountants and auditors have placed increasing emphasis on (1) the general computer controls over their company’s computer system, and (2) the computerized controls in their ERP system, which normally includes the company’s Accounting Information System. Sarbanes-Oxley Act of 2002 and the PCAOB
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LESSON 7 - 1 Internal Controls and the CPA Examination In...

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