Case Study 2 Acct504
CASE STUDY 2 – Internal Control
Brian D. Cox
ACCT 504 1) In its annual report, the Company must report on internal controls over its financial reporting. Four key elements must be included in this report: * Statement of Responsibility by Company Management (the CEO and CFO) for establishing and maintaining an adequate internal control structure and procedures for financial reporting. * Statement identifying the framework used by management to evaluate the effectiveness of the Company 's internal control over financial reporting * Management 's Assessment of the effectiveness of Internal Controls over financial reporting * Attestation by the company 's external auditor on Management 's assessment of the effectiveness of the company 's internal controls and procedures for financial reporting. (Smith, 2001) 2) Correct Practices & Indelible Ink: * Using pre-numbered checks is good practice to be able to account for them in sequence and track payouts and will become a great part of the monitoring system. * Storing checks in a safe at the end of the business day is respectable practice as well. This becomes a good physical control in safeguarding the checks when they may be most vulnerable to theft or foul play. * Indelible Ink is another great physical control; if the checks issued are printed by machine with indelible ink it will be extremely difficult to tamper and forge checks for false payments.
3) Incorrect Practices: * By giving one employee duties of treasurer and controller this is in violation of the segregation of duties control, these two roles should be split between separate employees. * Leaving petty cash in a desk drawer does not establish responsibility and is not good practice for this control. The basic use of an “IOU” system is not a strong physical control of this asset as well. The petty cash should be locked in the safe when not in use and being dispersed, also a separate ledger or
Brian D. Cox
ACCT 504 1) In its annual report, the Company must report on internal controls over its financial reporting. Four key elements must be included in this report: * Statement of Responsibility by Company Management (the CEO and CFO) for establishing and maintaining an adequate internal control structure and procedures for financial reporting. * Statement identifying the framework used by management to evaluate the effectiveness of the Company 's internal control over financial reporting * Management 's Assessment of the effectiveness of Internal Controls over financial reporting * Attestation by the company 's external auditor on Management 's assessment of the effectiveness of the company 's internal controls and procedures for financial reporting. (Smith, 2001) 2) Correct Practices & Indelible Ink: * Using pre-numbered checks is good practice to be able to account for them in sequence and track payouts and will become a great part of the monitoring system. * Storing checks in a safe at the end of the business day is respectable practice as well. This becomes a good physical control in safeguarding the checks when they may be most vulnerable to theft or foul play. * Indelible Ink is another great physical control; if the checks issued are printed by machine with indelible ink it will be extremely difficult to tamper and forge checks for false payments.
3) Incorrect Practices: * By giving one employee duties of treasurer and controller this is in violation of the segregation of duties control, these two roles should be split between separate employees. * Leaving petty cash in a desk drawer does not establish responsibility and is not good practice for this control. The basic use of an “IOU” system is not a strong physical control of this asset as well. The petty cash should be locked in the safe when not in use and being dispersed, also a separate ledger or
Cited: Kimmel, P., Weygandt, J., & Kieso, D. (2011). Financial Accounting 6th Edition. Hoboken: John Wiley & Sons. Smith, L. (2001, October). Sarbanes-Oxley Act Section 404. Retrieved from Eisenramper: http://www.eisneramper.com/sarbanes-oxley-act-section-404.aspx