CHAPTER 1: INTERNAL CONTROLS
1.2 What Are Internal Controls?
Internal controls include processes and procedures that are designed to provide reasonable safeguards of the organization’s assets and other resources. Internal controls are also required to achieve reliable financial reporting; compliance with federal, state, and local regulations; and efficient operation of the business.
Order to Cash
Internal Controls
Customer
O2C
Thought of Need
Find Supplies
Sales Order Created
Order Fulfillment
Submit PO
Credit: Research, Set Credit Line
Quote/ Contract
Use existing preapproved suppliers or
Large dollars: request a quote 3-5 suppliers May require formal contract
Order Acknowl- edgement: Confirms all product/service details & Tems
Goods pulled from inventory or service is prepared
Need Specs
have purchasing locate appropri- ate suppler
Internal Controls
O2C
Customer
O2C
Invoice & Packing Slip Prepared
Deliver Goods or Service
Receipt of Goods/ Service
Payment to Supplier
Financial Statement
Payment Cashed
Packing slip w/ package Invoice to AP
Carrier is contacted
80% of mismatches
Based on terms
FIGURE 1
For example, the Sarbanes-Oxley Act (SOX) has had a far-reaching global impact due to its requirement that all publicly traded companies establish internal controls for all their locations worldwide. Many of these companies trade globally and so have required their suppliers to comply with SOX as well. Even if your organization does not have to comply, SOX clearly outlines requirements that help safeguard an organization’s cash. SOX, and regulations like it enacted in many countries around the world, require that effective internal controls over the financial reporting process be in place and that a recognized framework be used to assess and evaluate whether those controls are indeed effective. Section 404 of SOX, for example, requires management to certify their organization’s internal control over financial reporting. The impact of this on the AR process is that executive level management holds managers and supervisors responsible for having effective internal controls in their areas. Some require personnel to sign an annual statement attesting to their adherence to the company’s SOX compliance policies and procedures.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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