Response to Classmates Discussions

Week 4 - Discussion Forum 1

Guided Response: Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.

There two of my classmate’s discussion that need responded to. Lisa Schreiner and Jason Stack

Lisa Schreiner

Controlling cash is a significant practice in any business for providing a sound basis of financial reporting. Financial figures including cash, measure liquidity and security for investment and financing opportunities. Cash Management tools available are a segregation of duties, making timely deposits, reconciling the bank accounts, controlling access to check stock and cash, and utilizing lock boxes for payment processing (Babcock-Hyde, 2017). All of these tools minimize the risk of theft by employees, maintains an outlook on cash flow, and provides management with actionable data for decision-making purposes.

Starbucks reflects a cash and cash equivalents balance of $2.7M for 2019 (Starbucks, 2020). In reviewing the Statement of Cash Flows, net cash provided by operating activities stands at $5M for 2019 (Starbucks, 2020). Operating cash generated is not sufficient enough to cover short term liabilities at $6.2M for 2019 (Starbucks, 2020). In this case, I do not believe Starbucks has enough cash to support a growing and expanding business.

There are two types of internal controls, administrative and accounting. Management’s responsibility to establish overall basic internal administrative controls is to ensure that corporate objectives will be met, the business operates efficiently, and financial statements are accurately reported (Porter & Norton, 2018). Establishing accounting controls protects assets and ensures the financial results published are reliable (Porter & Norton, 2018). Procedures, according to Porter and Norton (2018) include:

· Proper authorizations

· Segregation of duties

· Independent verification

· Safeguarding of assets and records

· Independent review and appraisal

· Design and use of business documents

A real life experiences in my current workplace where basic controls are in place consist of Journal Entries in the general ledger must include supporting documentation and are approved by a party other than the entry operator, bank accounts are reconciled monthly with review and upper level approval, and contract and invoice payment approvals follow a work stream protocol from request, to legal approval, budget approval, and management approval depending on spending levels.

References

Babcock -Hyde, J. (2017, February). Internal controls checklist. CPA Practice Advisor, 6. https://www.cpapracticeadvisor.com/ (Links to an external site.)

Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). https://www.cengage.com (Links to an external site.) (Links to an external site.)

Starbucks, Inc. (2020). 2019 Annual Report. https://investor.starbucks.com/financial-data/annual-reports/default.aspx  (Links to an external site.)   

Jason Stack

Cash and Internal Controls

            Cash and cash equivalents are a vital part of any business from the smallest Mom and Pop shop to global organizations. Its uses span throughout the business from procuring raw materials used to manufacture goods, purchasing office supplies to aid in administrative work, or exchanged for a good or service provided. Porter and Norten (2018) suggest that cash equivalents are limited to investments that are readily convertible to known amounts of cash and must have an original maturity to the investor of three months or less (pg. ). Some of the more common examples of some cash equivalents are personal checks, cashier checks, certified checks, or even transactions from a savings account. Therefore, cash being a preferred medium of exchange, it is imperative for businesses to have a structured method of accounting for managing and tracking it.

            The most basic form of tracking cash used for business transactions is to reconcile its banking statements. For most businesses, a more structured method is required to manage the flow of cash and cash equivalents, which incorporate an internal control system. Porter and Norten (2018) state that an internal control system consists of the policies and procedures necessary to ensure the safeguarding of an entity’s assets, the reliability of its accounting records, and the accomplishment of its overall objectives. Additionally, the Sarbanes–Oxely Act of 2002 mandated that organizations follow a structured internal control system for accounting and reporting financials. Some of the most common internal control procedures include proper authorizations, segregation of duties, independent verification, safeguarding of assets and records, independent review and appraisals, and the design and use of business documents (Porter & Norten, 2018, pg. ). Since its enactment in 2002, the Sarbanes-Oxley Act is a mandated structure for publically traded companies, but also private companies must adhere to portions of SOX.

            At the end of 2016, Gerdau had about 5 billion in cash and cash equivalents, but since that time they have held steady around the 2.5 to 2.8 billion mark. It feels that the 2.5 billion is a comfortable amount of cash and cash equivalent to supply its facilities with working capital while keeping inventory and raw material in balance. Also, I can see the internal control systems at work each day at Gerdau. A perfect example is going through the process of ordering parts and listing all the different segregation of duties. As I stated in week one introduction, one of the more corrupt acts that I have seen is the manipulation of this process. When management can order, receive, and pay for goods and services that never actually happen to cheat the system is one of the main reasons SOX has such strict guidelines. With the many layers of segregation of duties, SOX is a deterrent to used to discouraging dishonesty.  

 

Reference

Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to

            debits and credits (10th ed.). https://www.cengage.com