CONTROL, AND CASH
Congress passed the Sarbanes-Oxley
Act of 2002 because of the Enron,
Worldcom, Tyco, Adelphia, and other fi-
nancial scandals of the early 2000s that
caused stockholders, creditors, and oth-
er investors to lose millions and in some
cases billions of dollars.
The purpose of Sarbanes-Oxley is to
restore public confidence and trust in
the financial statements of companies.
Internal control is broadly defined as the
procedures and processes used by a com-
pany to safeguard its assets, process infor-
mation accurately, and ensure compliance
with laws and regulations.
The five elements of internal control are
the control environment, risk assess-
ment, control procedures, monitoring,
The control environment is the overall
attitude of management and employees
about the importance of controls. Risk
assessment includes evaluating various
competitive threats, regulatory changes,
Control procedures are established to
business goals will be achieved. Moni-
toring is the evaluation of the internal
control system. Information and com-
feedback about internal control.
No. One element of internal control is not
more important than another element. All
five elements are necessary for effective
internal control. The accounting system
is an information system because it pro-
vides information for management’s use
in conducting the affairs of the business
and in reporting to owners, creditors,
and other stakeholders. It includes the
entire network of communications used
by the business.
The knowledge that job rotation is practiced
another’s job at a later date tends to discou-
rage deviations from prescribed procedures.
Also, rotation helps to disclose any irregular-
ities that may occur.
Authorizing complete control over a se-
quence of related operations by one individ-
ual presents opportunities for inefficiency,
sequence of operations should be divided so
that the work of each employee is automati-
cally checked by another employee in the
normal course of work. A system functioning
in this manner helps prevent errors and inef-
ficiency. Fraud is unlikely without collusion
between two or more employees.
To reduce the possibility of errors and em-
bezzlement, the functions of operations and
accounting should be separated. Thus, one
employee should not be responsible for
maintaining the accounts receivable records