Internal Control and Cash

Exercises

In Poletti Co$.\text{'}$s financial statements, the management assesses the company's

internal controls. The company produces the assessment every year in its annual

financial statements. Who else must make a report on the effectiveness of internal

controls?

The passing of Sarbanes$-$Oxley caused companies to strengthen their internal controls.

Which of the following relate to internal controls? Answer yes or no for $a,b,$ and $c.$

a$.$ Ensuring compliance with local laws and regulations

b$.$ Processing information accurately

c$.$ Safeguarding the liabilities

Sarbanes$-$Oxley attempts to do which of the following? Answer yes or no for $a,b,$ and c$.$

a$.$ Reduce fraud and theft

b$.$ Increase bonuses for employees

c$.$ Restore investor and creditor confidence

To which of the five elements of internal controls does each of the following relate?

a$.$ Investigating missing documents or gaps in transaction numbers

b$.$ Separating responsibilities for related operations

c$.$ Personnel policie:

d$.$ Taking necessary actions to minimize risks

e$.$ Hiring employees with the necessary skills required for the job.

f$.$ Using pronouncements from the FASB to prepare financial statements

The purchasing director of a manufacturer works to find materials at the best prices.

Although the director's responsibilities are adequately separated to avoid theft and

fraud, he mistakenly writes down the wrong discount taken by a supplier. To which

limitation of internal controls does this relate?

Stop$-$a$-$Second is preparing its assessment of internal controls for the annual financial

statements. The managers verify the employees have sufficient segregation of duties

and supervision. However, because the company is quite large, all lower$-$level

employees cannot be supervised at all times to ensure that theft and fraud does not

occur. To which limitation of internal controls does this relate?

ASC requires that all cashiers receive a cash drawer with exactly $$40$ before each shift.