1. BusinessAllstars.com 1 BusinessAllstars.com Presents Copyright © 2004 by Gainbridge Associates All right reserved This material may not be used or reproduced without permission of Gainbridge Associates INTERNALCONTROLS

2. BusinessAllstars.com 2 Internal Controls are The policies and procedures management utilizes to protect assets and assure that records are accurate and reliable.

3. BusinessAllstars.com 3 A – Control Environment Board of directors or Audit Committee Management’s philosophy and operating style Organizational structure Assignment of authority and responsibility Human resource policies and practices Integrity, Ethical Values, and Commitment to Competence must be present at all levels:

4. BusinessAllstars.com 4 B – Risk Assessment A concerted effort must be made to: Identify factors affecting risks Assess significance of risks and likelihood of occurrence Determine actions necessary to manage risks

5. BusinessAllstars.com 5 C - Control Activities 1- Hire honest, competent employees trained for their task. 2- Bond employees against potential loss.

6. BusinessAllstars.com 6 C - Control Activities 3- Separation of duties 4- Require vacations and rotate employees. AuthorizationCustodyRecording

7. BusinessAllstars.com 7 C - Control Activities 5- Proper authorization of transactions and activities 6- Procedures Manuals 7- Pre-numbered sequential documents 24382 24383 24384 24385 24386 24387

8. BusinessAllstars.com 8 C - Control Activities 8- Safeguard all physical assets and their related records 9- Independent check on performance

9. BusinessAllstars.com 9 D – Information & Communication Records will be checked for: Accuracy Completeness Classification Existence Posting and summarization Timing A C C E P T

10. BusinessAllstars.com 10 E - Monitoring 1. Data is subject to edit checks and matched to approved control files. 2. Transactions are accounted for in numeric sequence. 3. File totals are compared with control accounts. 4. Exceptions are examined and acted upon. 5. Access is granted to only authorized individuals.

11. BusinessAllstars.com 11 Procedures for Testing Internal Controls Make Inquiries of Appropriate personnel Examine Documents, Records, and Reports Observe Control-Related Activities Re-perform Procedures

12. BusinessAllstars.com 12 Management Assessment Process http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf

13. BusinessAllstars.com 13 Auditor’s responsibilities in the Audit of Internal Control over Financial Reporting http://www.kpmg.de/library/pdf/040413_SOX404_PCAO B_Requirements_en.pdf

14. BusinessAllstars.com 14 Taking the long view = Value http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf

15. BusinessAllstars.com 15 Management Report is required to include 1. A statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting for the company

16. BusinessAllstars.com 16 Management Report is required to include 2. A statement identifying the framework used by management to conduct the required assessment of the effectiveness of the company’s internal controls over financial statements

17. BusinessAllstars.com 17 Management Report is required to include 3. An assessment of the effectiveness of the company’s internal controls over financial reporting as of the end of the company’s most recent fiscal year, including an explicit statement as to whether the internal controls over financial reporting is effective.

18. BusinessAllstars.com 18 Management Report is required to include 4. A statement that the registered public accounting firm that audited the financial statements included in the annual report has issued an attestation report on management’s assessment of the company’s internal controls over financial reporting.