What is the role of the Sarbanes-Oxley Act of 2002 in relation to the types of internal controls used by corporations

ACC 290 Week 5 Assignment

Answer the following summary question: What is the role of the Sarbanes-Oxley Act of 2002 in relation to the types of internal controls used by corporations such as those illustrated in Exercises 7-4, 7-5, and 7-6?

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The board of trustees of a local church is concerned about the internal accounting controls pertaining

The board of trustees of a local church is concerned about the internal accounting controls pertaining to the offering collections made at weekly services. They ask you to serve on a three-person audit team with the internal auditor of the university and a CPA who has just joined the church. At a meeting of the audit team and the board of trustees you learn the following.

1. The church’s board of trustees has delegated responsibility for the financial management and audit of the financial records to the finance committee. This group prepares the annual budget and approves major disbursements but is not involved in collections or recordkeeping. No audit has been made in recent years because the same trusted employee has kept church records and served as financial secretary for 15 years. The church does not carry any fidelity insurance.
2. The collection at the weekly service is taken by a team of ushers who volunteer to serve for 1 month. The ushers take the collection plates to a basement office at the rear of the church. They hand their plates to the head usher and return to the church service. After all plates have been turned in, the head usher counts the cash received. The head usher then places the cash in the church safe along with a notation of the amount counted. The head usher volunteers to serve for 3 months.
3. The next morning the financial secretary opens the safe and recounts the collection. The secretary withholds $150 – $200 in cash, depending on the cash expenditures expected for the week, and deposits the remainder of the collections in the bank. To facilitate the deposit, church members who contribute by check are asked to make their checks payable to “Cash.”
4. Each month the financial secretary reconciles the bank statement and submits a copy of the reconciliation to the board of trustees. The reconciliations have rarely contained any bank errors and have never shown any errors per books.

Instructions
(a) Indicate the weaknesses in internal accounting control in the handling of collections.
(b) List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary, and (4) the finance committee.
(c) What church policies should be changed to improve internal control?


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5-54 If a company’s control risk is assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls

5-54 (Testing internal Controls) If a company’s control risk is assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls.

Required
a. For each of the following control activities, indicate the audit procedure the auditor would use to determine its operating effectiveness.
b. Briefly describe how substantive tests of account balances should be modified if the auditor finds that the control procedure is not working as planned. In doing so, indicate (a) what could happen because of the control deficiency, and (b) how the auditor’s tests should be expanded to test for the potential misstatement.

Controls
1. Credit approval by the credit department is required before salespersons accept orders of more than $15,000 and for all customers who have a past-due balance higher than $22,000.
2. All merchandise receipts are recorded on pre numbered receiving slips. The controller’s department periodically accounts for the numerical sequence of the receiving slips.
3. Payments for goods received are made only by the accounts payable department on receipt of a vendor invoice, which is then matched for prices and quantities with approved purchase orders and receiving slips.
4. The accounts receivable bookkeeper is not allowed to issue credit memos or to approve the write-off of accounts.
5. Cash receipts are opened by a mail clerk, who prepares remittances to send to accounts receivable for recording. The clerk prepares a daily deposit slip, which is sent to the controller. Deposits are made daily by the controller.
6. Employees are added to the payroll master file by the payroll department only after receiving a written authorization from the personnel department.
7. The only individuals who have access to the payroll master file are the payroll department head and the payroll clerk responsible for maintaining the payroll file. Access to the file is controlled by computer passwords.
8. Edit tests built into the computerized payroll program prohibit the processing of weekly payroll hours in excess of 53 and the payment to an employee for more than three different job classifications during a one-week period.
9. Credit memos are issued to customers only on the receipt of merchandise or the approval of the sales department for adjustments.
10. A salesperson cannot approve a sales return or price adjustment that exceeds 6% of the cumulative sales for the year for any one customer. The divisional sales manager must approve any subsequent approvals of adjustments for such a customer.


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