Professional Documents
Culture Documents
and
Internal
Controls
Internal Control consists of...
all the related methods and measures adopted
within a business to:
– safeguard its assets
• Employee and external theft, unauthorized use
– enhance accuracy and reliability of accounting
of its accounting records.
• Mistakes, errors, intentional misrepresentations
As of 2002, required by law in the
Sarbanes-Oxley Act (SOX)
The
The 66 IC
IC PRINCIPLES
PRINCIPLES
1.
1. Establish
Establishresponsibility
responsibilitycenters
centers
Make
Makeindividuals
individualsor
or specific
specificgroups
groupsaccountable
accountable
for
for specific
specifictasks
tasksunder
under their
their control
control
Example:
• One cashier per register.
• At end of shift, agree cash
received to register tape.
• If differences, cashier is
responsible.
2.
2. Segregate
Segregateemployee
employeeduties.
duties.
Don’t
Don’t allow
allowonly
onlyone
oneperson
person totohave
haveboth:
both:
-- Physical
Physicalcustody
custodyof
of asset
asset
-- Record
Record transactions
transactions related
relatedtotoasset
asset
Includes
Includesseparating
separating aaseries
seriesof
of related
relatedactivities.
activities.
Goal
Goalisistotohave
havemany
manyemployees
employeesinvolved
involvedso sononoone
one
can
canexecute
execute and
andcover
coverup
up an
anerror
errorororirregularity.
irregularity.
Example:
• Cashier forwards register
tape to accountant.
• Accountant records in
Cashier books but never has Accountant
access to cash.
3.
3. Independent
IndependentInternal
Internal verification
verification
Periodic
Periodicmanagement
management review
review
Supervision
Supervisionof
of daily
dailyactivities
activities
Example:
• Supervisor agrees
cashier’s tapes-cash-
accounting entries
Review-verify
• Supervisor reconciles
bank deposits to
books
Cashier Accountant
4.
4. Documentation
Documentationto toprovide
providean an audit
audit trail
trail
Provide
Provide verifiable
verifiableevidence
evidence ofof transactions
transactions
Pre-number
Pre-numberand andaccount
account for
for all
allitems
itemsin in sequence
sequence
Originators
Originatorsand
and reviewers
reviewers sign-off
sign-off to toindicate
indicate
responsibility
responsibility
Matching
Matching of
of related
related documents,
documents, time time stamp
stamp andand
secure
secureafter
after all
alltransaction
transactionprocessing
processingisiscomplete
complete
Examples:
Examples: Sales
SalesandandPurchase
Purchaseorders,
orders, invoices
invoices
Receiving
Receiving&& shipping,
shipping, bills
billsof
of lading
lading
Change
Changelogs logs
Material
Materialtransfer
transfer requests
requests
5.
5. Physical,
Physical, mechanical
mechanical and and electronic
electroniccontrol
control
over
over assets,
assets, Data
Datasecurity
security
Examples:
Examples: Password
Passwordaccess
access
Locks,
Locks, guards,
guards, alarms
alarms
Data
Databack-up
back-up
Virus
Virusprotection
protection
Anti-theft
Anti-theft systems,
systems, scanners
scanners
Limited
Limited authorized
authorizedcheck
checksigners
signers
5.
5. Others
Others
Examples:
Examples: Bonding
Bondingof of employees,
employees, background
background
checks,
checks, rotation
rotation of
of duties,
duties, required
requiredvacations,
vacations,
approved
approvedvendor
vendorlists
listsand
andprices,
prices, internal
internal and
and
external
externalindependent
independent audits,
audits, etc,
etc, etc
etc
Reporting Cash
• Cash and Cash Equivalents
– Readily convertible to known
amount of cash. Examples:
• Treasury bills
• Commercial paper
• Money Market Funds
Reporting Cash
• Restricted Cash
- Cash set aside for special
purpose
- Non-current asset if not
to be used within a year
Use of a Business Bank account...
• allows for better separation of business versus
personal transactions (especially sole proprietor)
• provides a double record of all bank
transactions
– one by the business
– one by the bank
• Requires monthly reconciliation of bank
account
– Identifies errors, missing items on books or bank
BALANCE PER BANK BALANCE PER BOOKS
+ DIT 2200.