Learning Objective 1Learning Objective 1

Describe the Sarbanes-Oxley Act of 2002 and its impact on internal controls and financial reporting

Sarbanes-Oxley Act of 2002

Learning Objective 2Learning Objective 2

Describe and illustrate the objectives and elements of internal control

Objectives of Internal Control

Elements of Internal Control

• Control environment• Risk assessment• Control procedures• Monitoring• Information and communication

Control Environment

Risk Assessment

Identifies risks so management can

take steps to control them

Control Procedures

Monitoring

• Locates weaknesses and improves control effectiveness

• Includes on-going efforts and separate evaluations

Information and Communication

Risk Risk AssessmentAssessment

ControlControlEnvironmentEnvironment

MonitoringMonitoring

ControlControlProceduresProcedures

Limitations of Internal Controls

Human ElementsHuman Elements Cost / Benefit of SystemCost / Benefit of System

Learning Objective 3Learning Objective 3

Describe and illustrate the application of internal controls to cash

The Nature of Cash

• Coins

• Currency

• Checks

• Money Orders

• Money on Deposit

Cash Received from Sales

Cash Received in the Mail

Remittance AdviceRemittance Advice

Person Opening MailPerson Opening Mail

CheckCheck DepositDeposit

Cash Received by EFT

Company BankCompany BankCustomer BankCustomer Bank

Control Over Cash Payments

VoucherVoucher

Check issued toCheck issued tovendorvendor

Approved voucher Approved voucher entered to Systementered to System

Invoice, Invoice, Purchase Order, andPurchase Order, and

Receiving ReportReceiving Report

Learning Objective 4Learning Objective 4

Describe the nature of a bank account and its use for controlling cash

Nature of a Bank account and its use for controlling cash

Bank Statement Reconciliation

Steps in the Reconciliation Process

NetSolutions - Sales Transactions

End of Chapter 5End of Chapter 5