Solutions-8th-Ch07 - Accounting Information Systems 8e1...

Accounting Information Systems, 8e
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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.
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

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Solutions for Chapter 7
Organizational Governance Enterprise Risk Management Comment
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.