Chapter 5Chapter 5

Sarbanes-Oxley, Internal Sarbanes-Oxley, Internal Control, and CashControl, and Cash

Sarbanes-Oxley, Internal Sarbanes-Oxley, Internal Control, and CashControl, and Cash

Learning ObjectivesLearning Objectives

After studying this chapter, you should be able to… Describe the Sarbanes-Oxley Act of 2002 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 for controlling

cash 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

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

Learning Objective 5Learning Objective 5

Describe and illustrate the use of a bank reconciliation in controlling

cash

Bank Statement Reconciliation

Steps in the Reconciliation Process

Learning Objective 6Learning Objective 6

Describe the accounting for special-purpose cash funds

Special Purpose Cash Funds – Petty Cash

Learning Objective 7Learning Objective 7

Describe and illustrate the reporting of cash and cash equivalents in the

financial statements

NetSolutions - Sales Transactions

End of Chapter 5End of Chapter 5