risk managment
smph01
ip3assignmentRiskManagement.docxSmith, a certified public accounting firm, was engaged to audit the financial statements of the Sky-is-the-Limit company. The company has its own IT installation. While obtaining an understanding of internal control, Smith found that Sky-is-the-Limit lacked proper segregation of the programming and operating functions. Smith analyzed the internal control surrounding the system to ensure that the corporate governance was being maintained, and he concluded that the existing compensating general control activities provided reasonable assurance that the objectives of internal control were being met.
Prepare a letter addressed to the board of directors that discusses the following:
· How is the separation of the programming and operating functions accomplished in a properly functioning IT environment?
· Explain the 3 subdivisions of information systems management, and discuss how they apply to this situation.
Financial Accounting
Ana Estevez
4/30/2018
Data Given
Direct Method
Cash Flow from operating activities:
Cash Receipts:
Received from sale of goods 930
Cash payments:
Paid for inventory (400)
Paid to employees (110)
Paid for other exp. (320)
Cash flow before adjusting Tax payment 100
Tax payments (70) 30
Cash flow from investing activities
Purchase of equipment (100)
Cash flow from financing activities
Cash received from common stock 120
Cash received in excess of par value 20
Cash received from notes 30
Interest paid (50) 120
Increase in cash during the year 50
Add: opening balance of cash 100
Closing balance of cash 150
Indirect method:
Particulars Detail Amount
Cash Flow from operating activities
Net Profit 115
Provision for income tax (deffered tax + Income tax provision) 85
Depreciation 100
Interest 50
Cash Flow before adjusting working capital adjustments 350
Increase in accounts receivables (200)
Increase in Inventory (250)
Increase in accounts payable 100
Cash Flows after adjusting working capital adjustments 0
Income tax paid (70) (70)
Cash Flow from investing activities
Purchase of equipment (100)
Cash flow from financing activities
Issue of common stock 140
Issue of notes payable 30
Interest Expense 50 220
Net increase in cash during the year 50
Add: Opening cash balance 100
Closing cash balance 150
A. Indirect method cash flow/cash flow statement:
a. What is the operational cash flow? 35
b. What is the investing cash flow? 100
c. What is the financing cash flow? 120
B. Direct method cash flow:
a. What is the operational cash flow? 30
b. What is the investing cash flow? 100
c. What is the financing cash flow? 120
C. What are the differences in the cash flow concepts and procedures between the direct and indirect methods? The main difference between the direct method and the indirect method involves the cash flows from operating activities, the first section of the statement of cash flows. (There is no difference in the cash flows reported in the investing and financing activities sections.) Under the direct method, the cash flows from operating activities will include the amounts for lines such as cash from customers and cash paid to suppliers. In contrast, the indirect method will show net income followed by the adjustments needed to convert the total net income to the cash amount from operating activities. The direct method must also provide a reconciliation of net income to the cash provided by operating activities. (This is done automatically under the indirect method.)
