ACC564 Homework Week 3 - ACC564 Chapter 6 7 Homework Week 3...

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ACC564 – Chapter 6 & 7 Homework Week 3 6.1 The information obtained suggests problems with the internal environment. a. Section 301 of the Sarbanes-Oxley Act of 2002 (SOX), which applies to publicly held companies and their auditors, requires audit committee members to be on the company’s board of directors and be independent of the company. That is not the case at Go-Go Corporation. The audit committee is responsible for overseeing the corporation’s internal control structure, its financial reporting process, and its compliance with related laws, regulations, and standards. The committee works closely with the corporation’s external and internal auditors. In fact, the Sarbanes Oxley Act requires audit committees to be responsible for hiring, compensating, and overseeing the auditors and for auditors to report all critical accounting policies and practices to the audit committee. b. The position of corporate treasurer involves managing cash and other financial assets. Though you may not have specific information linking the corporate treasurer to the prior fraud, this information should indicate a need to carefully examine the corporation's personnel policies and practices. c. This indicates a possible problem with management's philosophy and operating style, in that they seem willing to go to great lengths to "get their own way" with respect to an important financial reporting matter. d. The internal audit function should be organizationally independent of the accounting and finance functions. Internal audit could report directly to the audit committee of the board of directors rather than the financial vice president. e. The dominance of an organization's management by one or a few individuals is an aspect of management's operating style that indicates a problem with the internal environment, in that there is potential for this small group to override the internal control system. f. This indicates a possible problem with management's methods of monitoring performance. Subjective evaluation methods may not be as effective in detecting problems or in identifying good performance as objective measures that have been communicated to employees. g. This condition increases concern about management's philosophy and operating style, as mentioned in point 3 above. h. The written policy and procedures manuals appear to be limited to only three areas. A policies and procedures manual should contain much more than what is indicated. The manual should explain proper business practices, describe the knowledge and experience needed by key personnel, and list the resources provided to carry out specific duties. It should spell out management policy with respect to handling specific transactions and documents and the systems and procedures employed to process those transactions. It includes the organization’s chart of accounts and sample copies of forms and documents. The manual should be a helpful on-the-job reference for employees and a useful tool in training new employees.
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