Question

1. Sarbanes-Oxley Internal Control Report

Using Wikipedia (www.wikipedia.org), look up the entry for Sarbanes-Oxley Act. Look over the table of contents and find the section that describes Section 404.

Section 404 requires management's internal control report to:

a.State the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.

b.State the responsibility of auditors for establishing and maintaining an adequate internal control structure and procedures for financial reporting.

c.Contain an assessment, as of the end of the issuer's fiscal year, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.

d."State the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting." and "Contain an assessment, as of the end of the issuer's fiscal year, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting."

e.None of these choices are correct.

2. Internal Controls

Jimmy Pace has recently been hired as the manager of Jittery Jon’s Coffee Shop. Jittery Jon’s Coffee Shop is a national chain of franchised coffee shops. During his first month as store manager, Jimmy encountered the following internal control situations:

a. Jittery Jon’s Coffee Shop has one cash register. Prior to Jimmy’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Jimmy made one employee on each shift responsible for taking orders and accepting the customer’s payment. Other employees prepare the orders.

I   with Jimmy's method of handling this situation because Jimmy has   the internal control principle of assignment of responsibility and   the internal control principle of segregation of duties.

b. Because only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Jimmy expects each cashier to balance the drawer to the penny every time—no exceptions.

I   with Jimmy's method of handling this situation because Jimmy has   the internal control principle of segregation of duties.

c. Jimmy caught an employee putting a case of 1,000 single-serving tea bags in her car. Not wanting to create a scene, Jimmy smiled and said, “I don’t think you’re putting those tea bags on the right shelf. Don’t they belong inside the coffee shop?” The employee returned the tea bags to the stockroom.

I   with Jimmy's method of handling this situation because he has   the internal control principle of safeguarding of assets.

Answer 1

Answer: 1

Section 404 requires management and the external auditor to report on the adequacy of the company’s intern controls over financial reporting. The report must affirm the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.

hence, the answer is... a.State responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.

Answer: 2

a.

Agree. Jimmy has made one employee responsible for the cash drawer in accordance with the internal control principle of assignment of responsibility.

In addition, Jimmy has segregated the operations (preparing the orders) from the accounting (taking orders and payments).

b.

Disagree. It is commendable that Jimmy has given the employee a specific responsibility and is holding that employee accountable for it. However, after the cashier has counted the cash, another employee (or perhaps Jimmy) should remove the cash register tape and compare the amount on the tape to the cash in the drawer. Also, Jimmy’s standard of no mistakes may encourage the cashiers to overcharge a few customers in order to cover any possible shortages in the cash drawer.

c.

Disagree. Stealing is a serious issue. An employee who can justify taking a box of tea bags can probably justify “borrowing” cash from the cash register.