1. Unit 11
October 22, 2017

2. Basic Information Concepts
Accuracy
Precision
Timeliness
Relevancy
Validity
Completeness
Occurrence
Integrity

3. Financial Statements

4. ARE PROVIDED TO OUTSIDERS
Assertions
Existence/Occurrence
Completeness/Period
Valuation/Allocation
Rights/Obligations
Presentation/Disclosure
Management is assumed to make these five assertions about the financial statements
ANY AND EVERY TIME
Financial Statements
ARE PROVIDED TO OUTSIDERS

5. Auditors gotta audit….

6. Page 233: The role of the auditor
1. Examine the financial statements and underlying accounting records
2. Assume legal/professional responsibility to the public as well as the client.
3. Determine if statements are materially correct, not absolutely correct.
4. Express an opinion as to whether the financials adhere to GAAP.
5. Maintain confidentiality, except for legal obligations to report fraud and malfeasance.

7. Management Assertions
MANAGEMENT is responsible for the accuracy and reliability of the financial statements.
The Sarbanes-Oxley Act of 2002 is very clear and unambiguous.
Management must design, implement, operate, maintain, and monitor an Internal Control System.

8. Review Basic Information Ideas
Accuracy
Precision
Timeliness
Relevancy
Validity
Completeness
Occurrence
Integrity
RELIABILITY
PREVENT
DETECT
CORRECT

9. Management Assertions
MANAGEMENT is responsible for the accuracy and reliability of the financial statements.
Management must also periodically test the
Internal Control System,
and report the results
of those tests
in the Annual Report
Management must
design,
implement,
operate,
maintain,
monitor,
an Internal Control System.

10. Function of Control Activities
Preventive controls
Detective controls
Corrective controls

11. DEFINITION OF INTERNAL CONTROL
Internal control is broadly defined as a process,
effected by an entity's
Board of Directors, Management and other personnel,
designed to provide reasonable assurance
regarding the achievement of objectives
in the following categories:
Effectiveness and efficiency of operations.
Reliability of financial reporting.
Compliance with applicable laws and regulations.
(From the 2013 Update of the
COSO 1992 Internal Control Integrated Framework)

12. Objectives of the Internal Control System
Promote accuracy and reliability of accounting records, info, and statements
Promote efficiency and effectiveness of the organization’s operations
Measure compliance with laws, regulations, management policies and procedures

13. Components of the Internal Control System
Control Environment
Risk Assessment
Control Activities
Communication and Information
Monitoring
COSO Integrated Framework of Internal Control, 2013

14. COSO Cube

16. Common Control Activities
Using Documents and Records
Pre-numbered Documents and check-off lists
Segregation of Duties, Checks and Balances
Written policies and procedures
Authorizations and Chain of Command, Responsibility
Background checks, drug tests, employment policies
Employee Training Programs
Performance Evaluations, feedback, quick accountability
Bonding of Employees
Mandatory vacations
Employee Termination procedures
Mandatory Use of Technology
Physical Security

17. Enterprise Risk Management
COSO ERM Framework
Enterprise Risk Management
Internal Control
GOVERNANCE BODIES
BOARDS OF DIRECTORS
RISK CONTROL OFFICERS
MANAGEMENT
ACCOUNTANTS
AUDITORS

18. Questions about internal control?

19. Cash Cash Receipts (money coming in)
Cash Disbursements (money going out)

20. Cash
Cash Receipts (money coming in)
Remittance
Advice
Checks

21. Cash
Cash Receipts (money coming in)
Remittance
Advice
Checks
$7,238

22. Cash Cash Receipts (money coming in) Remittance Checks Advice
Deposit Slip
Endorsement

23. Cash
Cash Receipts (money coming in)
Checks
Deposit Slip

24. Cash
Cash Receipts (money coming in)
Deposit Receipt

25. Cash
Cash Receipts (money coming in)

26. Cash Cash Receipts (money coming in)
Cash Disbursements (money going out)
Signature Card

27. Cash Cash Receipts (money coming in)
Cash Disbursements (money going out)

28. BANK RECONCILIATION Cash Cash Receipts (money coming in)
Cash Disbursements (money going out)
BANK RECONCILIATION

29. Actual Cash Balance
BANK RECONCILIATION

30. Actual Cash Balance TO ADJUST THE BANK BALANCE
SUBTRACT Outstanding Checks
ADD Deposits in Transit
– = $6889
Outstanding Checks
Deposits-in-Transit

31. Actual Cash Balance TO ADJUST THE BOOK BALANCE
ADD Interest Earned
SUBTRACT Service Charges
SUBTRACT Returned Items
Actual Cash Balance
TO ADJUST THE BANK BALANCE
SUBTRACT Outstanding Checks
ADD Deposits in Transit
– = $6889
– 20 – 435 = $6889

32. Actual Cash Balance TO ADJUST THE BOOK BALANCE
ADD Interest Earned
SUBTRACT Service Charges
SUBTRACT Returned Items
Actual Cash Balance
TO ADJUST THE BANK BALANCE
SUBTRACT Outstanding Checks
ADD Deposits in Transit
– = $6889
– 20 – 435 = $6889

33. Actual Cash Balance TO ADJUST THE BOOK BALANCE ADD Interest Earned
SUBTRACT Service Charges
SUBTRACT Returned Items
Actual Cash Balance
– 20 – 435 = $6889

34. Actual Cash Balance TO ADJUST THE BOOK BALANCE ADD Interest Earned
SUBTRACT Service Charges
SUBTRACT Returned Items
Actual Cash Balance
– = $6889

35. Questions?

36. Summary Internal Control Controls on cash Sarbanes-Oxley Act
Three functions of internal control activities (prevent, detect, correct)
Five components of the Internal Control System
Three objectives of the Internal Control System
Examples of Internal Control Activities
Controls on cash
Segregation of duties
Documentation
Bank Reconciliation
Adjust the bank balance (by subtracting outstanding checks and adding Deposits-in-Transit)
Adjust the book balance (by making adjusting entries to record Interest Earned, Bank Fees, and NFS items)
Compare the adjusted balances and investigate differences.

37. CASH $700 $700 $20 $16 $400 $400 $16 $20 Payable to David Fordham
Interest
Expense
Service Revenue
$16
$20

38. Payable to
David Fordham
$700
$20
$16
$400

39. Questions?
Don’t forget Homework 11