Question

Describe and illustrate the use of a bank reconciliation in controlling cash, & Describe the Sarbanes-Oxley Act of 2002 and its impact on internal controls and financial reporting.

Answer 1

Answers

The use of bank reconciliation in controlling cash

Bank reconciliation is a necessary process to identify potential errors, fraud or irregularities, and it enables the company to make proper adjustments to its cash-account balance. Bank reconciliation provides an independent, external record of a company's cash flows.

Most companies prepare a detailed cash budget that is reviewed and updated on a regular basis. The cash budget lays out projected cash inflows and outflows over a given time period as part of the company's cash-management plan.

The Sarbanes-Oxley Act of 2002 and its impact on internal controls

In the wake of the 2001-2002 Arthur Andersen accounting scandal and collapse of Enron and WorldCom, the government, the investors and the American public demanded corporate reforms to prevent similar future occurrences. Viewed to be largely a result of failed or poor governance, insufficient disclosure practices, and a lack of satisfactory internal controls, in 2002 Congress passed the Sarbanes-Oxley Act seeking to set standards and guarantee the accuracy of financial reports.

After a prolonged period of corporate scandals in the United States from 2000 to 2002, the Sarbanes-Oxley (SOX) was enacted in July 2002 to restore investors' confidence in the financial markets and close loopholes that allowed public companies to defraud investors. The act had a profound effect on corporate governance in the U.S. The Sarbanes-Oxley Act requires public companies to strengthen audit committees, perform internal controls tests, make directors and officers personally liable for accuracy of financial statements, and strengthen disclosure. The Sarbanes-Oxley Act also establishes stricter criminal penalties for securities fraud and changes how public accounting firms operate