...SUBJECT: Evaluation of Internal Controls Mr. Smith, We have completed our assessment of LBJ Company’s system of internal controls. In addition, our firm researched the regulation regarding publicly traded firms in order to provide you with the most current information. Securities and Exchange Commission. “Official U.S. Agency Web Site.” Web. 24 September 24, 2011. Publicly traded corporations are required to implement the guidelines of the Sarbanes-Oxley Act of 2002. This means that publicly traded companies must include a management report on the internal controls of the company. The annual report must include an attestation report from a registered public accounting firm. The executive officers and the board of directors Wilson 2 of LBJ Company are responsible for implementing and maintaining effective internal controls. Furthermore, the executive officers and board of directors of publicly traded companies must attest to the adequacy of the internal controls of the company. Failure to comply with the standards of SOX subjects LBJ Company, along with the executive officers and board of directors to severe penalties of fines and imprisonment. The five principles of internal control are the following: * Establishment of Responsibility * Segregation of Duties * Documentation Procedures * Physical Controls * Independent Internal Verification * Human Resource Controls The accountant’s decision to start using pre-numbered invoices...
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...Home Page» Business and Management Fi504 Practice Case Study 2 Internal Controls In: Business and Management Fi504 Practice Case Study 2 Internal Controls SUBJECT: Evaluation of Internal Controls Mr. Smith, We have completed our assessment of LBJ Company’s system of internal controls. In addition, our firm researched the regulation regarding publicly traded firms in order to provide you with the most current information. Securities and Exchange Commission. “Official U.S. Agency Web Site.” Web. 24 September 24, 2011. Publicly traded corporations are required to implement the guidelines of the Sarbanes-Oxley Act of 2002. This means that publicly traded companies must include a management report on the internal controls of the company. The annual report must include an attestation report from a registered public accounting firm. The executive officers and the board of directors Wilson 2of LBJ Company are responsible for implementing and maintaining effective internal controls. Furthermore, the executive officers and board of directors of publicly traded companies must attest to the adequacy of the internal controls of the company. Failure to comply with the standards of SOX subjects LBJ Company, along with the executive officers and board of directors to severe penalties of fines and imprisonment. The five principles of internal control are the following: * Establishment of Responsibility * Segregation of Duties * Documentation...
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...Case Study 2 FI504 Accounting and Finance for Managerial Use and Analysis Recommendations for LJB Company: Requirements for Going Public: A requirement of all publicly traded companies is to comply with the Sarbanes-Oxley Act of 2002. This means that LJB would be required to maintain a system of internal control. The controls must be reliable and effective, which the executives and Board of Directors must monitor. Also, an outside auditor must confirm that the control systems are sufficient. Although there will be additional work on both designing, testing and auditing of controls if LBJ decides to go public, but the control system may result in money and time saved in the long-term regardless. Good practices: LJB Company currently has some good practices I suggest they continue. The use of pre-numbered invoices allows for missing or undocumented invoices to be caught quickly. This practice is considered a documentation procedure under internal controls. Having two managers approve new hires helps ensure a good fit. It’s good that the accountant completes bank reconciliation. While using a bank is a form of control for cash, the reconciliation enables LJB to make sure there are no errors between what the bank and what they have on the books. Areas of Improvement: There are a number of practices by LJB that don’t deter fraud and would need to be changed before considering going public. Segregation of duties: The duties for handling assets...
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...Audit procedures which an auditor should perform when planning attendance at a Company stock take. 1.Review and planning: The auditor must review prior year’s working papers to enable himself to familiarize with the nature volume and location of inventories. Consideration must be made with regard to the controlling and recording procedures over inventory and the timing of the count. 2.Problem identification and reliance: The must identify problem areas in relation to the system of internal control and decide whether reliance can be placed on internal auditors. This also assists in risk assessment and timing audit procedures. 3.Risk and materiality: Assessment of inherent, control and detection risks is necessary for a comprehensive stocktaking audit programme and this will assist the auditor to establish materiality levels before undertaking the stock count. 4.Inventory held by third parties: Arrangement must be made to ensures that third party holding inventories confirms .Depending on materiality of the inventory held the auditor should also consider the integrity and independence of the third party and whether it is necessary to arrange for other auditors to observe the count or whether it is sufficient to obtain another auditor’s report on the adequacy of the third party’s systems or merely to inspect relevant documentation held at client place. 5.Expert assistance: Assessment must be made by the auditor regarding the nature of the...
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...Internal Control and Risk Evaluation Lola Knaff ACC 542 April 22, 2013 Anita Rodriguez Internal Control and Risk Evaluation The internal control and risk evaluation aspect of accounting is crucial to protect the business’ assets and resources. In addition, for publically traded companies it is mandatory for there to be internal control procedures. “Internal control describes the policies, plans, and procedures implemented by a firm to protect its assets” (Bagranoff, 2008, p. 240). The necessary procedures are in place to ensure the validity and efficiency of the data that the users input into the Accounting Information Software (AIS). The flowcharts reveal the pattern for the accounts receivable, accounts payable, inventory process, and payroll processes. Each process will generate many levels of risk factors that can be reduced by several internal control procedures. According to Hunton, Bryant, and Bagranoff (2004), the assessment of IT risks are by the managers and auditors to determine how to apply resources (p. 51). The cost-benefit analysis is crucial to ensure that the cost of the internal control to reduce the risk does not increase the monetary value of the control. The purpose of the internal control application is to create a smooth operating procedure that does not deter effectiveness and efficiency of the data. Along with the AIS internal controls, there are other controls that will assist in creating a trustworthy working environment...
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...School of Administrative Studies Faculty of Liberal Arts and Professional Studies York University Fall 2013 Course Outline AP/ADMS 4552 3.0 Section A and B Information Systems Audit Term: Fall 2013 COURSE: AP/ADMS 4552 3.0 Sections A and B Information Systems Audit Schedule First day of class: Section A: Wednesday, September 11, 2013 11:30 AM – 2:30 PM, Location: HNE 030 Section B: Thursday, September 12, 2013 7:00 PM – 10:00 PM, Location: HNE 032 REQUIRED COURSE TEXT/READINGS: • Hall, James A., (2011), Information Technology Auditing, 3e, Mason: South-Western Cengage Learning (Referred to as “IT Audit Text” in the Readings List for each class) • Additional material as listed in the course outline. This includes articles referenced by links, readings from books that were required for prerequisite courses, cases and assignment details posted on our web site. • CICA Assurance Handbook, as available online from York University library, (referred to as “Handbook” in the Readings List for each class). Selected readings are from: [Note this book is available on reserve at the business library in the Schulich building if you do not have a copy.] • Arens, A., R. J. Elder, M. S. Beasley and I. B. Splettstoesser-Hogeterp. 2011. Auditing: The Art and Science of Assurance Engagements, Canadian 11th Edition, Pearson Prentice Hall: Toronto. (Referred to as “Audit Text” in the Readings List) References for the 12th Canadian...
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...Adelphia Communications Corporation was a cable company, whose owners, John Rigas and his son Timothy,” were charged with bank fraud, securities fraud, and conspiracy.” (Reference #4) They were charged with all fifteen accounts of securities fraud. Another son of his was acquitted, as well as the former treasurer, Michael Mulcahey. “John and Timothy now face 30 years in prison because of the bank fraud charge.” (Reference #4) “They were charged with hiding over $2.3 billion dollars’ worth of debt in the company,” (Reference #4) as well as stealing from there investors. John became so greedy with the money he was taking, that his son became worried about it and tried to limit him to only taking out one million a month. The prosecution had two witnesses that they used in order to bring down the Rigas’, and they were Adelphia executives, James Brown and Karen Crosniak. They testified and tried to say that they weren’t aware of what they were doing, but ignorance of the law doesn’t mean you can get away with what you do. The effects of what they did have impacted the company so much that they had to move to a new location, and they operate under bankruptcy protection. There are many ethical issues that pertain to this issue, as well as many laws that were broken. First, what some call “creative accounting”, this is when a company tries to do something with their accounting reports to make the company look very profitable so that they can attract new investors. This is...
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...readable efficient organized CAFR that satisfied both generally accepted accounting principles and applicable legal requirements. The Certificate of Achievement is valid for one year only. The 2008 CAFR reflects that Metro Government continues to be financially strong and stable in a local economy. Metro Government is required to undergo annual single audit in conformity with the provision of the single Audit Act of 1984 and the Single Audit Act Amendments of 1996 and the US office of Management and Budget Circular A-133, Audits of State and local Government. It is the responsibility of the Metro Government to ensure that an adequate internal control structure is in place to ensure compliance with applicable laws and regulations related to Audit. As part of Metro Government’s single audit, tests are made to determine the adequacy of the internal control structure including portion related to federal financial...
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...EXAM COVER SHEET NOTE: This exam paper may be RETAINED by the student EXAMINATION DETAILS Course Code: Course Description: Date of exam: ACCT1111 Auditing and Assurance Services 28/10/2008 Start time of exam: 9:15 AM Duration of exam: 3hr 15min Total number of pages (incl. this cover sheet) 8 ALLOWABLE MATERIALS AND INSTRUCTIONS TO CANDIDATES 1. Write your full name and student number on each examination booklet together with the number of examination books used. Students must not write during reading time. 2. This is a CLOSED BOOK Exam. 3. Commence each question on a new page. Carry out the instructions on the front cover of the examination script book and the front of this exam paper. 4. Non text storing calculators are allowed. 5. Bi-lingual dictionaries are not allowed. 6. No electronic devices such as mobile phones, laptop computers, electronic dictionaries etc. are permitted to be taken into the exam room. 7. The examination paper contains the following questions: Section A ONE essay questions 25 marks Section B TWO short answer questions 15 marks Section C FIVE application questions 60 marks Totalling 100 marks 8. To obtain a pass in this course, candidates must achieve at least 50 marks overall and obtain at least 50% of the total marks on this examination paper. 9. Attempt ALL questions and all parts of questions. 10. No dictionaries are allowed in this examination unless duly authorised as a special consideration by the Course Coordinator...
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...Controls for Information Technology (IT) and Reporting and Evaluation Jami L. Valek ACC-544 January 28, 2013 Christine Errico Controls for Information Technology (IT) and Reporting and Evaluation Information Technology (IT) controls are activities that are specifically performed to ensure that business objectives are met through the use of people and systems. IT control objectives are related to the business enterprise’s confidentiality, integrity, availability of data, and the overall management of the IT functions. There are two types of IT controls: IT general controls, which are controls over the IT environment, computer operations, access to programs and data, program development and program changes; and IT application controls, which refer to transaction processing controls (“Information Technology Controls”, 2013). IT General Controls are the foundation of a company’s IT control structure. With IT General Controls, data that is generated can be deemed more reliable and assertion that systems are operating as intended is supported. IT General Controls usually include controls that are designed to: * Shape the corporate environment through control environment; * Ensure that changes are authorized and meet business requirements through changes in management procedures; * Protect the integrity of program controls through source code/document version controls procedures; * Ensure effective management of IT projects through software development life...
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...enforcement matters; therefore, insiders have the incentive to retain auditors to provide outside investors with assurance that expropriations are limited when raising external capital (Jensen and Meckling, 1976). Some financial instruments and transactions and very complex with values that can only be estimated; that’s why in most cases, auditors may rely on the internal controls. The Internal control system plays a key role in the success of the accounting system: it protects the business from abuse and fraud, ensures that the information received is accurate and timely, and assures that all regulatory requirements are being met. The internal control system is especially critical for private fund investors. Security Exchange Commission (SEC) mandates internal controls for publically traded companies while hedge funds and other private equity funds are exempts from the regulations that other investment vehicles face. Although better internal controls should decrease the likehood of fraud and the manipulation of reported performance, not all business that operate using private equity funds are likely to invest in internal controls because they are costly. Regardless of the cost, management is responsible for preparing the financial statements and the content of the financial statements while independent auditors are responsible for examining management’s financial statements and...
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...Shelley Stiles Week 2-HW P4-18 a. (1) The auditor must be without bias with respect to the client under audit. b. (3) involves the objective examination of and reporting on management- prepared statements. c. (1) maintain public confidence in the profession 4-19 a. (1) Contingent on approval of a bank loan b. (3) c. (3) 4-20 a. Violation of AICPA and SEC based on rules of independence, if pre-approved it is okay. b. Based on SOX and SEC rules internal auditing of a public company is prohibited. c. Prohibited under SOX and SEC d. AICPA rules of professional conduct, if pre-approved it is okay. e. With pre-approval it is allowed. Normally prohibited under SOX and SEC. f. According to the AICPA, this is allowed as long as the three requirements are met. 4-21 a. Violation of independence. It is not acceptable to provide management advisory services to a client you also perform bookkeeping and auditing services for. b. He does not take part in the audit. There is no violation. c. Violation of general standards d. Violation of integrity and objectivity e. Violation of Form of organization and name. f. no violation g. violation of confidentiality h. violation of acts discreditable. 4-22 a. indirect financial interest violation b. integrity and objectivity violation c. not a violation d. violation of independence e. unpaid fees violation of Rule 101 f. violation of independence g. not a violation h. violation of...
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...Running head: Internal Control and Risk Evaluation Internal Control and Risk Evaluation The purpose of this brief is to identify and analyze possible risks, internal control points, design internal controls, evaluate the application of internal controls and discuss other outside controls, that Kudler Fine Foods may need to upgrade the computer systems. Analysis of Risks of Computer Systems After reviewing the previous flowcharts it is recommended that Kudler Fine Foods automate more of its accounts payable, accounts receivable, inventory, and payroll processes and standardize these processes across all Kudler locations. Therefore, increased computer controls will be needed to ensure the security of data. Computer data could be compromised if proper computer controls are not in place. Risks include theft of confidential and sensitive information stored on computer servers such as company bank account information or personnel records of Kudler clientele and staff. If proper internal controls are not implemented breaches of sensitive data stored in folders that are accessible through the Internet will be exposed through file sharing software with the other Kudler locations. Identify risks and internal control points Identifying risks and internal controls are imperative when information systems are used extensively throughout the fundamental business processes. Information systems general controls are the policies and procedures that apply to all...
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... KAPLAN D A VI D KIR O N Accounting Fraud at WorldCom WorldCom could not have failed as a result of the actions of a limited number of individuals. Rather, there was a broad breakdown of the system of internal controls, corporate governance and individual responsibility, all of which worked together to create a culture in which few persons took responsibility until it was too late . — Richard Thornburgh, former U.S. attorney general1 On July 21, 2002, WorldCom Group, a telecommunications company with more than $30 billion in revenues, $104 billion in assets, and 60,000 employees, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Between 1999 and 2002, WorldCom had overstated its pretax income by at least $7 billion; a deliberate miscalculation that was, at the time, the largest in history. The company subsequently wrote down about $82 billion (more than 75%) of its reported assets.2 WorldCom’s stock, once valued at $180 billion, became nearly worthless. Seventeen thousand employees lost their jobs; many left the company with worthless retirement accounts. The company’s bankruptcy also jeopardized service to WorldCom’s 20 million retail customers and on government contracts affecting 80 million Social Security beneficiaries, air traffic control for the Federal Aviation Association, network management for the Department of Defense and long-distance services for both houses of Congress and the General Accounting Office. Background WorldCom’s origins...
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...agreement to review or audit a client’s financial statements) or begins audit, review, or attest procedures whichever is earlier: and (B) the professional engagement period ends when the audit client or the registered public accounting firm notifies the commission that the client is no longer that firm’s audit client. You might be able to write a contract that can say the audit engagement is only a year and you might get away with it for a year so you can own stock but then PCAOB will eventually catch you and change the rule. Sarbanes Oxley Act and SEC Provisions Prohibited Services Bookkeeping and other accounting services Financial information systems design and implementation Appraisal or valuation services Actuarial Services Internal Audit Outsourcing Management of human resource functions...
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