07 - Accounting Information Systems, 8e1 SOLUTIONS FOR...

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Accounting Information Systems, 8e 1 SOLUTIONS FOR CHAPTER 7 Discussion Questions DQ7-1 Recently, the U.S. Federal government and the American Institute of Certified Public Accountants (AICPA) have taken aggressive steps aimed at ensuring the quality of organizational governance. What are these changes, how might they change organizational governance procedures, and do you believe that these actions will really improve internal control of business organizations? ANS. First, the U.S. Congress passed the Sarbanes-Oxley Act of 2002 (SOX). This groundbreaking legislation is intended to set the foundation for improved organizational governance. Most notably, SOX disallows auditors of public companies from performing most consulting services with their audit clients; establishes a Public Company Accounting Oversight Board (PCAOB) to watch over the auditing profession; requires CEOs and CFOs to sign quarterly and annual financial statements submitted to the SEC (by signing, the CEOs and CFOs are certifying that the financial statements are correct in all material respects); and, requires CEOs, CFOs, and independent auditors to sign an internal control report that details the presence and effectiveness of the company’s internal controls. The AICPA has developed a special portal on its Web site devoted to SOX implementation activities, enhanced its ethics enforcement process, and voiced its strong intention to further strengthen the independence of public auditors and integrity of all CPAs. Will these steps improve internal control of business organizations? [Let the students express and support their opinions. This should generate insightful discussions.] DQ7-2 “Enterprise Risk Management is a process for organizational governance.” Discuss why this might be correct and why it might not. ANS. Let’s look at the elements of the definitions of these two concepts side-by-side: Organizational Governance Enterprise Risk Management Comment A process. A process. Both are clear that governance is an ongoing endeavor. Effected by an entity’s board of directors, management, and other personnel. ERM explicitly places the responsibility for governance at the top of the organization.
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2 Solutions for Chapter 7 Organizational Governance Enterprise Risk Management Comment Organizations select objectives. Applied in strategy setting and across the enterprise. Both assert that strategy and objectives must be chosen first and be the basis for governance. Identify potential events that may affect the entity. ERM describes a process for establishing what processes (and controls) must be put in place, considering risk, to provide a reasonable assurance of achieving objectives. Although not part of the definition, monitoring is one of ERM’s eight elements. Manage risk to be within its risk appetite.
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07 - Accounting Information Systems, 8e1 SOLUTIONS FOR...

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