Question

1. Identify the five components of a good internal control system. 2. "Internal control is concerned only with enhancing the accuracy of the accounting records." Do you agree? Explain. 3. Discuss how the Sarbanes-Oxley Act has increased the importance of internal control to top managers of a company. 4. What principles of internal control apply to most organizations? 5. How do documentation procedures contribute to good internal control? 6. What internal control objectives are met by physical controls? in internal control. 7. What principle(s) of internal control is (are) involved in making daily cash counts of over-the- counter receipts? 8. Assume that Kohl's installed new electronic cash registers in its department stores. How do cash registers improve internal control over cash receipts? 9. "To have maximum effective internal control over cash disbursements, all payments should be made by check." Is this true? Explain. 10. Explain how these principles apply to cash disbursements: (a) physical controls and (b) human resource controls. Weygandt, J. J., Kimmel, P. D., Kieso, D. E. (2017). Accounting Principles, 13th Edition. [[VitalSource Bookshelf version]]. Retrieved from vbk://9781119411017

Answer 1

1)  Internal control consists of the following five interrelated components

• Control Environment.
• Communication (and Information)
• Risk Assessment.
• Control Activities.
• Monitoring control

2)    Internal control is concerned not only with enhancing the accuracy of the accounting records but also with ensuring ethical practices being followed in accounting and thus internal audit or internal control also helps enhance the reliability of the accounting records along with the accuracy of the accounting.

3) The Sarbanes-Oxley Act changes management's responsibility for financial reporting significantly. The act requires that top managers personally certify the accuracy of financial reports. If a top manager knowingly or willfully makes a false certification, he can face between 10 to 20 years in prison. If the company is forced to make a required accounting restatement due to management's misconduct, top managers can be required to give up their bonuses or profits made from selling the company's stock. If the director or officer is convicted of a securities law violation, he can be prohibited from serving in the same role at the public company.

4)

The following internal control principles apply to most enterprises :

• Establishment of Responsibility. ...
• Segregation of Duties. ...
• Physical, Mechanical, and Electronic Controls – Physical controls relate primarily to the safeguarding of assets. ...
• Independent Internal Verification. ...
• Other Controls.

5)  A key element in internal control is the reporting of important company information. Documentation procedures strengthen internal control by specifying what information such reports must include, who is responsible for their preparation and who will receive the reports. Some reports contain confidential information, and the documentation procedure must specify which reports are sensitive and detail corresponding security measures

6)  For a control objective to be effective, compliance with it must be measurable and observable. Physical Safeguards & Security - The objective is to ensure that access to physical assets and information systems are controlled and properly restricted to authorized personnel.

7) principles mainly involved are creating a document trail, establishment of responsibilities, physically protecting assets,

8)  When kohl  have money transaction , it may receive cash immediately or several days or weeks later. A clerk receives the cash immediately over the counter, records it, and places it in a cash register. This usually ensures that the cashier enters the correct amount of the sale in the cash register. At the end of each day, reconcile the cash in each cash register with the cash register tape or computer printout for that register, there by increase internal control

9) true

Companies also need controls over cash disbursements. when  a company spends most of its cash by check, many of the internal controls for cash disbursements deal with checks and authorizations for cash payments. The basic principle of segregation of duties also applies in controlling cash disbursements, there by make transaction more accurate.

10)  Physical controls – limited access to petty cash etc

Segregation of duties(human resourse) – giving responsibility to sepater personel to perform various function cash disbursement