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Chapter 7 - Internal control and cash. This chapter include objectives: Explain the components of an internal control system, including its control activities and limitations; apply the key control activities to cash receipts and payments; prepare a bank reconciliation; explain the reporting and management of cash. | CHAPTER 7: INTERNAL CONTROL AND CASH LO 1: Explain the components of an internal control system, including its control activities and limitations. LO 2: Apply the key control activities to cash receipts and payments. LO 3: Prepare a bank reconciliation. LO 4: Explain the reporting and management of cash. LEARNING OBJECTIVES The systems adopted within a company to help it achieve: Reliable financial reporting Effective and efficient operations Compliance with relevant laws and regulations Also help prevent and detect errors, which cause unintentional misstatements An effective way to prevent and detect fraud Internal Control Good internal control systems have five primary components: Control environment Risk assessment Control activities Information and communication Monitoring activities Internal Control (Continued) Control activities include: Assignment of responsibility Segregation of duties Documentation Physical controls Review and reconciliation Control Activities Specific . | CHAPTER 7: INTERNAL CONTROL AND CASH LO 1: Explain the components of an internal control system, including its control activities and limitations. LO 2: Apply the key control activities to cash receipts and payments. LO 3: Prepare a bank reconciliation. LO 4: Explain the reporting and management of cash. LEARNING OBJECTIVES The systems adopted within a company to help it achieve: Reliable financial reporting Effective and efficient operations Compliance with relevant laws and regulations Also help prevent and detect errors, which cause unintentional misstatements An effective way to prevent and detect fraud Internal Control Good internal control systems have five primary components: Control environment Risk assessment Control activities Information and communication Monitoring activities Internal Control (Continued) Control activities include: Assignment of responsibility Segregation of duties Documentation Physical controls Review and reconciliation Control Activities Specific control activities used by a company will depend on: The risks it is facing, and management’s assessment The size and nature of the company Control Activities (Continued) An intentional act to misappropriate (steal) assets or to misstate financial statements Examples of misstatements: Recording expenses as assets Overstating useful lives of assets Recording revenues that do not exist Fraud What are some examples of control activities a movie theatre might have? Discussion Question Can only provide reasonable assurance that assets are safeguarded and records are reliable Limitations include: Cost / benefit considerations Human error Collusion Management override Limitations of Internal Control Cash is highly susceptible to theft What is cash? Coins, currency, cheques, money orders Money on hand or in bank General rule: if bank will accept for deposit, it is considered cash Cash Controls Over-the-counter, mail-in, and electronic funds transfer (EFT) receipts Internal control over cash receipts
