Chapter 8_Lecture_Summer_2010

Chapter 8_Lecture_Summer_2010 - Chapter 8 Study Objectives...

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1. Define internal control. 2. Identify the principles of internal control. 3. Explain the applications of internal control principles to cash receipts. 4. Explain the applications of internal control principles to cash disbursements. 5. Describe the operation of a petty cash fund. 6. Indicate the control features of a bank account. 7. Prepare a bank reconciliation. 8. Explain the reporting of cash. Chapter 8 Study Objectives Chapter 8 Study Objectives
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Methods and measures adopted to: 1. Safeguard assets. 2. Enhance accuracy and reliability of accounting records. Reduce risk of: a. Errors (unintentional) b. Irregularities (intentional) Internal Control Internal Control Under the Sarbanes-Oxley Act, all publicly traded U.S. corporations are required to maintain an adequate system of internal control.
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Companies must develop principles of control over financial reporting. continually verify that controls are working. Internal Control Internal Control The Sarbanes-Oxley Act The Sarbanes-Oxley Act Independent auditors must attest to the level of internal control. SOX created the Public Company Accounting Oversight Board (PCAOB) .
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Measures vary with size and nature of the business. management’s control philosophy. Internal Control Internal Control Principles of Internal Control Principles of Internal Control
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ESTABLISHMENT OF RESPONSIBILITY Control is most effective when only one person is responsible for a given task. Internal Control Internal Control Principles of Internal Control Principles of Internal Control For example, only one cashier should operate a cash register during a shift. Cash is then reconciled at the beginning and end of the shift.
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Internal Control Internal Control Principles of Internal Control Principles of Internal Control SEGREGATION OF DUTIES Related duties should be assigned to different individuals. Record-keeping separate from custody. For example, the cashier should not update the accounting records.
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Internal Control Internal Control Principles of Internal Control Principles of Internal Control DOCUMENTATION PROCEDURES Companies should use prenumbered documents and all documents should be accounted for. Documents are forwarded to accounting department promptly. For example, checks have sequential numbers. Missing check numbers are investigated.
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Internal Control Internal Control Principles of Internal Control Principles of Internal Control PHYSICAL, MECHANICAL, AND ELECTRONIC CONTROLS Physical Mechanical and Electronic
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Internal Control Principles of Internal Control Principles of Internal Control INDEPENDENT INTERNAL VERIFICATION 1. Records periodically, on a surprise basis, verified by an employee who is independent (i.e. Internal Audit Department). 1.
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Chapter 8_Lecture_Summer_2010 - Chapter 8 Study Objectives...

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