Sarbanes-Oxley, Internal Control, and Cash

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Sarbanes-Oxley, Internal Control, and Cash

• Chapter 5

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Learning Objectives

• After studying this chapter, you should be able
  to
• Describe the Sarbanes-Oxley Act and its impact on
  internal controls and financial reporting
• Describe and illustrate the objectives and
  elements of internal control
• Describe and illustrate the application of
  internal controls to cash
• Describe the nature of a bank account and its use
  in controlling cash
• 
  (continued)

3
Learning Objectives

• After studying this chapter, you should be able
  to
• Describe and illustrate the use of a bank
  reconciliation in controlling cash
• Describe the accounting for special-purpose cash
  funds
• Describe and illustrate the reporting of cash and
  cash equivalents in the financial statements
• Financial Analysis Describe and illustrate the
  ratio of cash to monthly cash expenses in
  assessing the ability of a company to continue
  operating

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• Learning Objective 1

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

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Sarbanes-Oxley Act
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• Learning Objective 2

• Describe and illustrate the objectives and
  elements of internal control

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Objectives of Internal Control
____________ ____________
_______________ _______ ____ ___
____________ ____________
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Elements of Internal Control

• ______________
• ______________
• ______________
• ______________
• ______________

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Control Environment

• Three factors influencing a companys control
• environment are
• __________________
• __________________
• __________________

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Risk Assessment

• Identifies risks, so that ______ can take steps
  to control them

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Control Procedures

• Control procedures is one of the most important
  elements of internal control. It includes
• Competent personnel, rotating duties, and
  mandatory vacations
• Separating responsibilities for related
  operations
• Separating operations, custody of assets, and
  accounting
• Proofs and security measures

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Monitoring

• Locates ______ and improves ____ ______
• Includes on-going efforts and separate evaluations

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Information and Communication
_______ _________
____________
_______ _________
_______ _________
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Limitations of Internal Controls
_____ _______
______ / ____________
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• Learning Objective 3

• Describe and illustrate the application of
  internal controls to cash

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The Nature of Cash

• Coins
• Currency
• Checks
• Money Orders
• Money on Deposit

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Cash Received from Sales
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Cash Received in the Mail
_____ ______
Person Opening Mail
_____
______
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Cash Received by EFT
Company Bank
Customer Bank
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Control of Cash Payments
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• Learning Objective 4

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

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Nature of a Bank Account
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• Learning Objective 5

• Describe and illustrate the use of a bank
  reconciliation in controlling cash

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Bank Reconciliation
Must be _______
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Steps in the Reconciliation Process
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• Learning Objective 6

• Describe the accounting for special-purpose cash
  funds

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Special Purpose Cash Funds Petty Cash
Petty cash fund of 500 is established on August
1.
Replenished the petty cash fund on August 31.
There is no adjustment to Petty Cash when the
fund is replenished.
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• Learning Objective 7

• Describe and illustrate the reporting of cash and
  cash equivalents in the financial statements

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Financial Statement Reporting of Cash
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• Learning Objective 8

• Financial Analysis Describe and illustrate the
  ratio of cash to monthly cash expenses in
  assessing the ability of a company to continue
  operating

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Ratio of Cash to Monthly Cash Expenses

• Assesses the ability of a company to continue to
  operate when the company reports negative net
  cash flows from operations

________________
Ratio of Cash to Monthly Cash Expenses

________________
_________________
Monthly Cash Expenses

_________________
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Ratio of Cash to Monthly Cash Expenses
Year 2
Year 1
(52,537)
(29,062)
Net cash flows from operating activities
37,304
End of the year cash and cash equivalents
48,344
Year 1
Year 2
Monthly cash expenses
Ratio of cash to monthly cash expenses
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End of Chapter 5