Question

Answer all questions with a 5 or more sentences each. You cannot cite anything from the internet it must be written in your own words, the video we saw, or the textbook only. Use 12 pt font and double space. Your cover page should have your name, the professor name, the class name, and date. Due date is May 12 ^th.

1.What does section 404 of the Sarbanes-Oxley Act require? What is the meaning of internal control? What are the five components of internal control? What are the four types of control activities?

2.What are the main purposes of internal controls over cash receipts?

3.What is the main purpose of internal controls over cash payments?

4.What is a voucher system?

5.In a voucher system, each recorded purchase is supported by what five documents?

6.What is the purpose of canceling the voucher and supporting documents when a payment is made?

Answer 1

1. (a) Sarbanes- oxley Act Section 404: Section 404 of Sarbanes- Oxley Act is "Assessment of internal control". The section requires management and the external auditor to report on the adequacy of the company's internal control on financial reporting (ICFR).

(b) Internal control: Internal controls are methods put in place by a company to ensure the integrity of financial and accounting information, meet operational and profitability targets, and transmit management policies throughout the organization.

(c) Five compnents of internal control: The five components of internal control system are:

• The control environment
• The entity's risk assessment process
• The information system
• The control activities
• The monitoring of controls.

(d) Four types of control activities:

• Performance review
• Information processing controls.
• Physical controls
• Segregation of duties.

2. Purpose of internal controls over cash receipts: Main purposes of internal controls over cash receipts are the following:

• To ensure that all cash received by the cashier in the company or entity is accounted for so that cash embezzlement can be checked for.
• The accounting books of the entity are up to date and each and every cash receipt is accounted for so that the auditor of the entity gives a true and fair view.
• To ensure that the checker and the maker of the cash receipts is not the same person as the chances of fraudulent activities increases in case both are the same.
• To ensure that the bank account statement and bank account maintained by the company show the same balance, because if the cash/bank receipts are not accounted for, there will be a difference.

3. Purpose of internal controls over cash payments: Main purposes of internal controls over cash payments are the following:

• To ensure that all cash paid by the cashier in the company or entity is accounted for so that cash embezzlement can be checked for.
• The accounting books of the entity are up to date and each and every cash payment is accounted for so that the auditor of the entity gives a true and fair view.
• To ensure that the checker and the maker of the cash payments is not the same person as the chances of fraudulent activities increases in case both are the same.
• To ensure that the bank account statement and bank account maintained by the company show the same balance, because if the cash/bank payments are not accounted for, there will be a difference.

4. Voucher System: A voucher system sets up a procedure that helps a company to stop fradulent withdrawals of cash by employees and other persons or entities outside the organisation by verifying, approving and recording each and every cash withdrawal and cash disbursement.

For example, if the company wants to purchase raw materials, the voucher system in this case will work as follows: First the workers in assembly line will notify the purchasing department that raw material is required, for this they will issue a purchase request. Once, the purchasing department verifies and approves the request, it will be sent to the ordering department, after this the ordering department will send the vouchers to receiving department, and then after the shipment is received, the necessary vouchers will be sent to each department.