Fall 2006 issue of Horizons

FINANCIAL CONTROLS

• Are there appropriate controls over the treasury function (i.e. authorization to open/close bank accounts, execute wire transfers, etc.)? Fixed Assets • Does the company have a capital versus expense accounting policy? • Is there a tracking and reporting system for disposals and transfers? Tax Accounting and Compliance • Has management identified its tax compliance require- ments (federal, state and local income taxes, property taxes, sales & use taxes, etc.)? • Are controls in place to ensure the accurate and timely fil- ing of returns? • Are personnel knowledgeable of tax accounting (FAS109)? Outsourced Activities/Functions • If the company is using a third party to provide accounting support, are controls and procedures over information submitted to and received from these providers adequate? This list of ”SOX-like” practices is not all-inclusive. It is based on our internal audit expertise and our experience assisting the manage- ment of more than 20 public companies with the implementation of SOX. Many companies are interested in implementing these con- trols to add value in the event of an acquisition or public offering. Or, it may reduce the cost of insurance if your underwriter is confi- dent in your corporate governance polices and practices. The bot- tom line, however, is that these are good business practices and controls that should be considered regardless of whether they are required by law. Questions? Contact Steve Newstead, CPA, FLMI Partner-in-Charge, Internal Audit Services Group 314-290-3325 steve.newstead@rubinbrown.com or Mike Ramirez, CPA Manager, Internal Audit Services Group 314-290-3455 mike.ramirez@rubinbrown.com These might include: - Payroll outsourcing - IT outsourcing - Benefits administration

Section 404 of SOX focuses on financial reporting. As a result, the quality and reliability of financial information pre- pared and reported by the accounting/finance department has improved. Having the CEO and CFO sign off on the financial statements and footnotes is key for all organiza- tions. Following is a list of some key financial internal con- trols that should be considered by companies that want to enhance their financial reporting activities and processes: Financial Control Activities - Items to Consider Revenue Recognition • What are the company's sources of revenue? • What controls are in place to ensure revenue is recorded in the correct accounting period? • Are monthly cut-off processes adequate? • Are nonstandard shipping and selling terms communicated? • What controls are in place over returns and credits? • Are sales contracts and side agreements communicated to and reviewed by accounting personnel? • Are warranties and related accruals established and are they adequate? Month-End Closing Checklist • Does each division have a standard reporting package that is prepared and sent to corporate accounting? • Does management use a checklist to ensure all month- end activities are completed (i.e. journal entries, reconcili- ations & analysis, etc.)? • Is there a monthly review and analysis of accruals, esti- mates and other judgmental accounts? Account Reconciliations • Are all significant accounts reconciled timely and reconciling items investigated and cleared? • Are all reconciliations reviewed by someone other than the preparer? Journal Entries • Are journal entries (recurring and non-standard) properly approved and supported? Cash/Funds Management • Is cash deposited and recorded on a timely basis? • Does the company use a lock-box? • Are there adequate controls over the approval of disburse- ments and signing of checks?

18 • summer 2006 issue

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