ACC 290 (Principles of Accounting 1) Week 5 Complete A+
ENexus
week_5.zipWeek 5/ACC 290 Week 5 DQ1(What is the Control Environment).docx
Week 5 DQ1
What is the control environment? How does the control environment affect a company’s internal controls? What are the negative and positive elements of a control environment? What are two examples of strong and weak internal controls in organizations where you have worked or have first-hand knowledge?
The control environment is the basis of the entire control system that the organization is establishing. The control environment is the value that is placed on integrity and the knowledge that unethical activity will not be tolerated. It is management’s responsibility to express behavior and attitude that enforces this ethical behavior. The control environment affects the internal control by setting a basis of control activities that safeguard assets, enhance accounting reliability, increase efficiency of operations, and compliance with laws and regulations. The negative elements of a control environment are that strict adherence must be applied continuously. Sometimes employees become overworked and underpaid and this is cause for concern because their level of carelessness goes up. Other times people might become slack in their duties over time. Some of the positive elements of a control environment are that responsibility does not lie on one person but many. Each part of a process requires several people to handle it therefore offering little opportunity to do wrong. Other positives are the process of that accountability is established and understood by each individual. An example of a weak internal control I witnessed was in a friend’s tanning bed business. The friend worked during the day and outlined how she expected her teenage employee’s to behave through policies and procedures. To my friends face the employees were the picture of a model employee but when she left in the evenings to go home and let them finish out the night the trouble would begin. The employees were letting all their friends tan for free, selling them tanning products and pocketing the cash. My friend finally put up a camera and goodness was she shocked at what was happening after she left for the evening. A strong control system that I have knowledge of is the system where I presently work. Our everyday policy is outlined in who does what – no procedure is ever fully completed by just one person. For example, my student employees run the registers, I prepare the deposit, another person drops off the deposit, and the final person reconciles the transactions. If I were to do another procedure then I would not be allowed to do the one I am doing now. It is just simply separation of duties so that one person does not hold all of the control or responsibility.
References Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
Week 5/ACC 290 Week 5 DQ2 (Key Internal Controls ).docx
Week 5 DQ2
How would you describe the key internal controls that should be in place to protect cash in a cash rich environment such as a merchandiser?
The controls that should be in place to protect a merchandiser in a cash rich environment are –
Establishment of responsibility
Segregation of duties
Documentation procedures
Physical controls
Independent internal verification
Human resource controls
The establishment of responsibility authorizes who handles the registers. The segregation of duties means that each independent duty associated with the process is separated therefore the same person does not complete to related tasks in a row. One person runs the register, another processes the deposit, another person verifies the deposit, and another reconciles the amounts by comparing receipts with deposits. Documentation procedures include mail receipts, deposit receipts, and cash register tapes and these items are used to document or backup the information that is presented. Physical controls include physically placing cash or deposits in a safe and limiting who has access to certain procedures. Independent internal verification controls are used as another step to verify that the sales that were made were actual counts, through the inventory manager providing physical counts, the deposit clerk providing deposit receipts, and another person comparing the two for accuracy. Human resource controls would include a required time for employees to take vacations, a rotational shift for employees in duties, and a background check to check for fraudulent past activities.
References Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
Week 5/ACC 290 Week 5 DQ3(Sarbanes-Oxley Act of 2002).docx
Week 5 DQ3
What is the Sarbanes-Oxley Act of 2002? Why did it come about? How have the new rules in the Sarbanes-Oxley Act of 2002 affected the way accounting departments and companies operate? What are some positive outcomes from these changes?
The Sarbanes-Oxley Act (SOX) requires that all publicly traded U.S. corporations are required to sustain a satisfactory structure of internal controls. In addition to internal controls each organization must be able to confirm their compliance by an independent outside audit. SOX came about because of public outrage to lack of corporate integrity and accounting dishonesty. Major corporations such as Enron and WorldCom were dishonestly reporting accounting figures to investors and such dishonesty led to the major losses in investor’s money. SOX requirements have improved corporate honesty in reporting because their required practices increase corporate and financial responsibility, increase financial disclosure, and fight against fraudulent activities. SOX requirements build trust between investors and clients through compliance activities and controls. The creation of SOX has been beneficial to businesses because it has brought changes that improve corporate transparency, improvement of internal controls, and created more trust between the general public and the large organizations. SOX has also forced organizations to provide reliable and accurate financial statements. By requiring that an outside and unrelated accounting firm verify the information accuracy; SOX is eliminating any risk that might have come from a conflict of interest from a firm that has a stake in the organization. It has also caused upper management to take responsibility for corporate activities therefore creating the environment for ethical behavior.
References Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
Week 5/ACC 290 Week 5 Learning Team Assignment Financial Reporting Problem, Part 2.docx
Financial Reporting Problem, Part II
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Running head: FINANCIAL REPORTING PROBLEM |
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Financial Reporting Problem, Part II
PepsiCo is a highly known beverage distributor. The cola started in the late 1800s in a drugstore, and its original name was “Brad’s Drink.” In 1898, cola introduced “Brad’s Drink” to the market. Then, later change the name to Pepsi. It is a large company that has numerous assets and liabilities. Many investors and creditors would be willing to work with this company because they run a good business.
Currents assets are very significant to companies like PepsiCo. In the balance sheet, “current assets are assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer. For most businesses, the cut off for classification as current assets is one year from the balance sheet date” (Kimmel, Weygandt, & Kieso, 2011, p. 49). The company can use these assets to support its routine operations. For example, the company can use the assets to pay their current expenses.
The common type of current assets consist of cash, marketable securities, inventory, accounts receivable, prepaid expenses and additional liquid assets that the company can quickly convert into cash. However, according to Kimmel, Weygandt, and Kieso, 2011, companies normally arrange their current assets in the order in which they anticipate to convert them into cash. Therefore, the proper order for a company to have its assets listed under the current assets is as follows: “cash, (2) short-term investments (such as short-term U.S. government securities), (3) receivables (notes receivable, accounts receivable, and interest receivable), (4) inventories, and (5) prepaid expenses (insurance and supplies)” (Kimmel, Weygandt, & Kieso, 2011, p. 50).
PepsiCo register its assets in the proper order under their current assets. First on the list are its cash and cash equivalents, which is anything that can immediately turn into cash. Some examples of cash and cash equivalents are money, paper checks, money orders, gift certificates, and gift cards. The second type of assets is the short-term investments. These investments accounts hold bonds and stocks that the company can liquidate reasonably fast. The third asset listed is the net receivables. The net receivable is full amount of money PepsiCo’s customers owed minus the amount that the company does not expect to receive from its clients. The next on the list is the company’s inventory. Inventory is second to last on the list mainly because the company has to sell its supplies and certain products may take time to sell. Then other current assets locate last on the list. This account contains non cash value assets, such as account receivable and prepaid expenses.
In general, PepsiCo classify its assets in the following order. First it has its current assets listed with the total current assets; followed by long-term investments, property plant and equipment, goodwill, intangible assets, accumulated amortization, other assets, deferred long-term asset charges, and total assets (Yahoo Finance, 2011).
A company’s cash equivalents are its short-term investments. These investments are highly liquid and can easily be converted to cash (Stock Analysis on Net, 2011). The short-term investments are so near maturity, usually three months or less, they have a minimal risk of changes in value because of changes in interest rates (Stock Analysis on Net, 2011). Compensating balance arrangements that do not legally restrict withdrawal use of cash amounts also qualify as cash equivalents (Stock Analysis on Net, 2011). PepsiCo reported $5,943,000 in cash and cash equivalents in its most recent reporting period (Yahoo Finance, 2011). Its short-term investments were in the amount of $426,000 in 2010.
The total current liabilities reported at the end of PepsiCo’s most recent annual reporting period was, $15,892,000 (Yahoo Finance, 2011). This included the accounts payable and short/current long-term debt. Accounts payable accounted for $10,994,000. This is the amount the company owes to suppliers that they have not yet paid. They bought supplies on credit and received an invoice to be filed. The invoice will be paid at a later date and removed from the file. Short/current long-term debt made up the other $4,898,000. This is the portion of long-term debt that must be paid in the next 12 months. Say PepsiCo borrowed from their financial institution. The loan is set to be paid back in 10 years. This is year number four on paying back the loan. The company record portion of the loan paid this year under the short/current long-term debt.
Current liabilities are bills the company owes to creditors and suppliers within a short time, usually 12 months. For the previous accounting period ending as December 26, 2009, PepsiCo had a total of $8,756,000 in total current liabilities (Yahoo Finance, 2011). The total current liabilities encompass accounts payable, payables accrued, accrued expenses, and notes payable/short-term debt. The biggest current liability is accounts payable, which is the money owed to venders for goods or services provided to the company. Of the total current liabilities from 2009 the account payable was the most with $8,292,000. Notes payable/short-term debt has total of $464,000.
The information that has been gathered is useful to employees, investors, and any potential creditors. The company can use this information in various ways depending upon the individual or group reviewing the information. In the case of labor unions, employees can use this information as a collective bargaining agreement (CBA) with management in discussing their compensation, promotions, and ranking within the company. Employees, also review financial statements to stay aware of the stability and profitability of their employer. With this information employees can assess the ability of the company to provide retirement benefits and employment opportunities. Prospective investors review the information gathered from PepsiCo financial statements to assess the viability of investing in PepsiCo. Creditors such as banks and other lending companies will use the information from PepsiCo financial statements to determine whether or not to lend PepsiCo fresh working capital or extend debt securities such as long-term bank loans and debentures. Vendors that extend credit to PepsiCo will use the financial statement to determine the creditworthiness of PepsiCo.
In conclusion, this paper is a summation of the financial standing for PepsiCo, Incorporated. It states details of why the assets are in proper order, how PepsiCo classify its assets, the definition of cash equivalents, the current liabilities for the recent annual reporting period, and current liabilities for the previous annual reporting period. It also provides how and why potential creditors, investors, and employees may use the information that has been gathered to make important financial decisions.
PepsiCo, Inc. (PEP)
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Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
Stock Analysis on Net. (2011). Cash and Cash Equivalent, At Carrying Value. Retrieved from
http://stock-analysis-on.net
Yahoo Finance. (2011, June). PepsiCo, Inc. (PEP). Retrieved from http://finance.yahoo.com/q/bs?s=PEP&annual
Week 5/ACC 290 Week 5 Learning Team Reflection Summary.docx
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Running head: REFLECTION SUMMARY |
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REFLECTION SUMMARY |
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The team members’ knowledge continues to grow. Week five mainly covered the effect of the Sa Sarbanes-Oxley Act of 2002 on internal controls.
The Sarbanes-Oxley Act of 2002 was put into place because of shady accounting practices. One of the biggest accounting scandals was the Enron scandal in 2001. Enron was one of the largest producers of natural gas and electricity. To the outside world, it was the company to invest in. It mostly started in November 1997. Enron bought out a partner’s share in a company called JEDI (Time Specials, 2011). They sell it to a firm they created called Chewco that an Enron manager would run (Time Specials, 2011). This is how Enron begins to hide their debt. In November 2001, Enron admits to accounting errors that inflated income by $586 million since 1997, and on December 2, 2001, Enron filed for bankruptcy (Time Specials, 2011). The Securities and Exchange Commission discovered accounting scandals and lies from Enron and its accounting firm Arthur Anderson, which causes investors to lose billions (Ponzio, 2007).
Therefore, the Sarbanes-Oxley Act of 2002 demand that managers of the publicly traded companies set up and preserve structures of internal control on the business’ financial processes. The act also demands that top management of the companies provide certifications in regard to the accuracy of their financial statements. This system has changed greatly the practice of accounting because it not only regulates the financial records of the businesses, but also it proposes penalties for their abuse. The act describes the kind of records companies should record and their length. It also makes sure every financial data is correct because one function of the act is to prevent and detect falsification of data made by organizations. Therefore, because of the Sarbanes-Oxley Act of 2002 the responsibility of employees has increased in providing accurate financial report, which in turn minimizes the occurrence of financial errors.
Basically, there are five primary components of internal controls. Control Environment is top management clarifying the organization will not tolerate unethical activity and that it values integrity. Risk Assessment is the company identifying and analyzing factors that create risks for the business and how to manage these risks. Control Activities are to curtail occurrences of fraud. Information and Communication capturing and communicating pertinent information from the top of the organization down and vice versa along with communicating to necessary external parties. Monitoring periodically monitor the internal control system to ensure adequacy and report deficiencies to necessary management.
In summary, the role of internal controls to comply with the Sarbanes-Oxley Act (2002) is to safeguard the assets of a company, enhance reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.
References
Time Specials. (2011). Behind the Enron Scandal. Retrieved from http://www.time.com
Joe Ponzio. (2007, August 29). Enron: Accounting Scandal or Bad Business.
Retrieved from http://www.fwallstreet.com
Week 5/ACC 290 Week 5 Week Five Exercises BE5-1, BE5-2, BE6-5, BE6-7, BE7-4, BE7-5, BE7-6 .docx
ACC/290 Week 5
Week Five Exercises
ACC/290
University of Phoenix
BE5-1
A. Sales: $181,500
B. Cost of goods sold: $41,200
C. Gross profit: $38,000
D. Operating expenses: $17,900
E. Operating expenses: $8,500
F. Net income: $63,400
BE5-2
Pocras Company
Inventory 900
900
Wedell Company
Accounts Rec. 900
900
Cost of Goods Sold 590
590
BE6-5
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LIFO |
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FIFO |
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Purchases: |
6 X 100 |
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6 X 100 |
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7 X 200 |
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7 X 200 |
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8 X 140 |
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8 X 140 |
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Cost of goods available for sale |
3,120 |
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3,120 |
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Ending inventory |
1,160 |
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1,400 |
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COGS |
$ 1,960 |
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$ 1,720 |
Using FIFO, COGS would be $240 less under this method. The COGS being $240 less under the FIFO method would be the phantom profit as well.
BE6-7
Cost Market LCM
Cameras 12,500 13,400 12,500
Camcorders 9,000 9,500 9,000
DVDs 13,000 12,200 12,200
LCM value is $33,700 $33,700
BE7-4
A. Physical controls
B. Human resource controls
C. Independent internal verification
D. Segregation of duties
E. Establishment of responsibility
BE7-5
Cash: 975.74
Cash (short/over): 12.88
Sales Revenue: 988.62
BE7-6
A. Documentation procedures
B. Independent internal verification
C. Physical controls
D. Establishment of responsibility
E. Segregation of duties
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?
The Sarbanes-Oxley (SOX) is an act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations.
The Sarbanes-Oxley Act of 2002 has a mandate that requires senior management to certify the accuracy of the reported financial statements. Also, one of the requirements is that management and auditors establish internal controls and reporting methods on the adequacy of those controls. However, maintaining these requirements is for publicly traded companies, which is very expensive to establish and maintain the required internal controls that are sought out intentionally and required by the SOX Act.
Supposedly, the Sarbanes-Oxley Act has yielded tighter regulatory compliance, stricter corporate governance policies, more responsibility by a company to develop, enact, and actually enforce more potent internal control elements within their organization. Plus, the Sox Act has helped companies establish and strengthen past and present procedural policies, eliminate redundancies, uncover deficiencies and detecting weaknesses, and so on.
Week 5/ACC 290 Week 5 Weekly Summary.docx
Summary
Week 5 Summary
In our discussion of internal controls and the control environment I learned that policies and procedures are put into place by an organization to protect not only the organization from dishonesty but to protect the employee. The most effective control that I learned was the separation of duties. The separation of duties control establishes the requirements that are required for a process such as, no one person can handle consecutive duties that are related to one activity. An example of this would be an employee orders departmental supplies, the order is then sent to a supervisor for approval, once approved the order then goes to finance for account codes, and finally the order is placed through procurement. Having all these steps involved is for the benefit of securing assets. Each person involved in the activity of this order is assuring that the supplies were legitimate, approved by management, and financially acceptable.
Another example of separation of duties is and employee travel reimbursement. The employee turns over their reimbursable travel receipts to their manager who signs off on the reimbursement as an approved activity. The manager then forwards the reimbursement to the accountant who creates the reimbursement voucher and attaches the signed documentation to the voucher. The voucher then goes through to the accounting system for approval and finally payroll produces the reimbursement into the employee’s checking account.
In each of these examples there are controls in place that prevent someone from having complete control without having to get approval. These types of control environments help achieve the requirements of the Sarbanes-Oxley Act of 2002.
References Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
