managerial accounting

PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA

Copyright © 2015 by McGraw-Hill Education. All rights reserved.

Corporate Governance

Appendix 1A

1A-*

Corporate Governance

The system by
which a company is directed
and controlled.

Board of
Directors

Top
Management

Stockholders

To pursue
objectives of

Incentives and
monitoring for

1A-*

The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 was intended to protect the
interests of those who invest in publicly traded companies by
improving the reliability and accuracy of corporate financial
reports and disclosures. Six key aspects of the legislation include: 

 The Act requires both the CEO and CFO to certify in writing
that their company’s financial statements and disclosures
fairly represent the results of operations.

 The Act establishes the Public Company Accounting Oversight
Board to provide additional oversight of the audit profession.

 The Act places the power to hire, compensate, and terminate
public accounting firms in the hands of the audit committee.

 The Act places restrictions on audit firms, such as prohibiting
public accounting firms from providing a variety of non-audit
services to an audit client.

1A-*

The Sarbanes-Oxley Act of 2002

(continued)

 The Act requires a public company’s independent auditor

to issue an opinion on the effectiveness of the company’s

internal control over financial reporting to accompany

management’s assessment, and both are included in the

company’s annual report.

• The Act establishes severe penalties for certain behaviors,
  such as:
• Up to 20 years in prison for altering or destroying any
  documents that may eventually be used in an official
  proceeding.
• Up to 10 years in prison for retaliating against a
  “whistle blower.” 

1A-*

Internal Control

Internal control is a process designed to provide reasonable assurance that objectives are being achieved.

Preventive Controls

Prevents or deters undesirable events

Detective Controls

Detects undesirable events

1A-*

Internal Control

Type of Internal Controls for Financial Reporting

Type of Control Classification Description

Authorizations Preventive Requiring management to formally approve certain types of transactions.

Reconciliations Detective Relating data sets to one another to identify and resolve discrepancies.

Segregation of Preventive Separating responsibilities related to authorizing

Duties transactions, recording transactions, and

maintaining custody of the related assets.

1A-*

Internal Control

Type of Internal Controls for Financial Reporting

Type of Control Classification Description

Physical Preventive Using cameras, locks, and physical barriers to

Safeguards protect assets. .

Performance Detective Comparing actual performance to various Reviews benchmarks to identify unexpected results.

Maintaining Detective Maintaining written and/or electronic evidence to

Records support transactions.

Information Preventive/ Using controls such as passwords and access

Systems Detective logs to ensure appropriate data restrictions.

Security

1A-*

Internal Control

Internal controls cannot guarantee that objectives are achieved because:

• Even well-designed internal control systems can break down.
• Two employees may collude to circumvent the control system.
• Senior leaders may manipulate financial results by intentionally overriding prescribed policies and procedures.

1A-*

End of Appendix 1A