NCJ Number: 66786
Title: ASSESSING INTERNAL ACCOUNTING CONTROL - A WORKABLE APPROACH
Journal: FINANCIAL EXECUTIVE Volume:46 Dated:(MAY 1978) Pages:24-35
Author(s): A S MARTIN; K P JOHNSON
Date Published: 1978
Page Count: 12
Type: Program Description (Model)
Format: Article
Language: English
Country: United States of America
Annotation: AN EXPERIMENT IN INTERNAL ACCOUNTING CONTROL IS DESCRIBED WHICH IS BELIEVED TO PROVIDE COMPLIANCE WITH ACCOUNTING STANDARDS REQUIRED IN THE FOREIGN CORRUPT PRACTICES ACT.
Abstract: IN 1977, CONGRESS PASSED THE FOREIGN CORRUPT PRACTICES ACT, WHICH REQUIRES PUBLICLY-OWNED COMPANIES TO DEVISE AND MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROL THAT MEETS SPECIFIED CRITERIA. IN A RECENT EXPERIMENT, THE SUN COMPANY AND COOPERS AND LYBRAND WORKED TOGETHER TO DEVELOP A SYSTEM OF INTERNAL ACCOUNTING CONTROLS BELIEVED MORE THAN ADEQUATE TO COMPLY WITH THE ACT. THE BASIS FOR THE EXPERIMENT WAS AN ADAPTATION OF THE EXISTING SYSTEMS APPROACH TO ACCOUNTING WHICH USES STANDARDIZED TECHNIQUES AND DOCUMENTS. KEY CONCEPTS IN THE APPROACH ARE THE IDENTIFICATION OF ACTIVITY CYCLES BASED ON COMMON TRANSACTION FLOWS AND TIME-ORIENTED PROCESSES, COMMON 'FAMILIES' OF CONTROLS, CONTROL OBJECTIVES IN EACH CYCLE, AND UNDERLYING CONTROL TASKS NECESSARY TO MEET EACH CONTROL OBJECTIVE. FIRST, THE SYSTEM EVALUATOR IDENTIFIED TYPES OF TRANSACTION FLOWS COMMON TO MOST BUSINESSES, SUCH AS PURCHASING, SALES, AND PRODUCTION. THE TWO 'FAMILIES' OF CONTROL TASKS WERE IDENTIFIED: (1) THE BASIC TASKS NECESSARY TO MEET THE SYSTEM'S OBJECTIVES; AND (2) THE DISCIPLINARY CONTROLS NECESSARY TO ENSURE THE CONTINUED OPERATION OF THE BASIC CONTROLS AND THE SAFEGUARDING OF ASSETS (SUPERVISION, SEGREGATION OF DUTIES, AND CUSTODIAL ARRANGEMENTS). DISTINCTION BETWEEN 'FAMILIES' OF CONTROLS FACILITATES AND ADDS FLEXIBILITY TO THE EVALUATION OF CONTROL WEAKNESSES. THE CONTROL OBJECTIVES TO BE ACHIEVED BY THE INTERNAL ACCOUTING SYSTEM WERE BROKEN DOWN BY CYCLE. FOR EACH CONTROL OBJECTIVE, CONTROL TASKS WERE DEVISED WHICH PROVIDED REASONABLE ASSURANCE THAT OBJECTIVES WOULD BE ACHIEVED. THE IMPLEMENTATION TO THE SYSTEM INVOLVED FLOWCHARTING FOR TRANSACTIONS, TRANSACTION REVIEW, AN INTERNAL CONTROL QUESTIONNAIRE FOR THE TASKS ASSOCIATED WITH EACH CONTROL WEAKNESSES, AND COMPLIANCE TESTING TO ENSURE THAT QUESTIONNAIRE ANSWERS WERE ACCURATE. EVALUATION OF THE EXPERIMENTAL SYSTEM WAS FAVORABLE. SUGGESTIONS FOR IMPROVEMENT ARE OFFERED. THE MAIN COMPONENTS OF THE APPROACH AND ITS RELATED TRAINING MATERIALS ARE AVAILABLE AND CAN BE USED AS A FRAMEWORK FOR DESIGNING A SYSTEM THAT COMPLIES WITH THE FOREIGN CORRUPT PRACTICES ACT. (RCB)
Index Term(s): Accountability; Auditing standards; Model programs; Systems analysis
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