Executive Summaries of Article - Essay Example

Executive Summary Executive Summary Introduction Since the introduction of Sarbanes Oxley Act, managements and auditors have been considerate about the weaknesses in internal control. The weaknesses identified are in control design and in control applications, as well. The reports issued by management and auditors state the description of weaknesses, the resultant risk and the recommended actions. Following are some of the common and significant weaknesses in controls related to statements of cash flow:Re-Classifications IssueThis is one of the common weaknesses identified in the presentation of the cash flow.

Normally items are not classified accordingly in the appropriate activity of the cash flow. Items that have to be shown in investing activity are shown as operating activity. Moreover, when such items are rectified for classification, the re-statement of the figures is not done (Daniel, Susan, & Dana, 2007). Controls should be so efficient that they are capturing the correct classification of the items each year. Such misclassifications mislead the users of the statement of cash flows. Secondly, when classifications are done, they should be re-stated as per the Generally Accepted Accounting Principles.

Since, this re-statement is not being done, the ratio of current years and that of comparatives are also being distorted. Such inconsistency in the ratios affects the decision making of the investors. The main control weaknesses that are responsible for this inappropriate preparation and presentation of the statement of cash flows are as follows:1. Untrained Staff: There is untrained staff, which is not capable of preparing Ha cash flow. The staff is not technically sound due to lack of knowledge and training.

Many a times the staff is not even capable of adjusting the profit for non-cash items. Qualified and experienced staff should be hired to remove these errors.2. Lack of Adequate Review: It is observed that the senior management does not appropriately review the statement of cash flows. There are some complex items in the cash flow, which come in the form of balancing figures such as taxes paid. These figures are difficult to be calculated. Junior staff may manipulate such figures to balance the cash flow statement.

Such manipulation could be rectified at initial stage if reviews are done in detail.3. Misclassification of Balance Sheet items: It is observed that the balance sheet items are not classified appropriately. The items of short-term investments such as securities, which are highly liquid in nature, are classified as a cash equivalent. Such misclassification eradicates the item from investing items in the cash flow. 4. Consolidation weaknesses: The consolidation process is a complex process that requires due process while being executed.

All the transfer prices have to be eliminated as a company cannot earn by selling a product to it. All intergroup transactions have to be removed from the group financial statements. If the consolidation is not performed correctly, then its effects will be transferred to balance sheet and then ultimately to the statement of cash flow.ReferenceDaniel, I., Susan, I., & Dana, H. (2007). Material Weaknesses in Internal Control Related to Statement of Cash Flows. The CPA Journal, 29-33.