CHAPTER 6 Cash and Internal Control

OVERVIEW OF EXERCISES, PROBLEMS, AN

Learn!n# O$t%o"es

CASES
E&er%!ses Est!"ated T!"e !n M!n$tes Le'el

() Identify and describe the various forms of cash reported on a balance sheet. *) Show that you understand various techniques that companies use to control cash. +) E!plain the importance of internal control to a business and the si"nificance of the Sarbanes#$!ley %ct of 00 . ,) &escribe the basic internal control procedures. -) &escribe the various documents used in recordin" purchases and their role in controllin" cash disbursements. *E!ercise) problem) or case covers two or more learnin" outcomes *evel + &ifficulty levels, Easy- Moderate .Mod/- &ifficult .&iff/

1 5* 5*

10 15 10 15

Easy Mod Easy Mod

' (

0 15

Mod Mod

6.(

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Learn!n# O$t%o"es

Pro/le"s and Alternates

Est!"ated T!"e !n M!n$tes

Le'el

() Identify and describe the various forms of cash reported on a balance sheet. *) Show that you understand various techniques that companies use to control cash. +) E!plain the importance of internal control to a business and the si"nificance of the Sarbanes#$!ley %ct of 00 . ,) &escribe the basic internal control procedures.

(* 1 (* 5* 5*

0 5 0 0 0 0 5

Mod Mod Mod Mod Mod Mod &iff

-) &escribe the various documents used in recordin" purchases and their role in controllin" cash disbursements *E!ercise) problem) or case covers two or more learnin" outcomes *evel + &ifficulty levels, Easy- Moderate .Mod/- &ifficult .&iff/

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6.+

Learn!n# O$t%o"es

Cases

Est!"ated T!"e !n M!n$tes

Le'el

() Identify and describe the various forms of cash reported on a balance sheet. *) Show that you understand various techniques that companies use to control cash. +) E!plain the importance of internal control to a business and the si"nificance of the Sarbanes#$!ley %ct of 00 . ,) &escribe the basic internal control procedures. -) &escribe the various documents used in recordin" purchases and their role in controllin" cash disbursements *E!ercise) problem) or case covers two or more learnin" outcomes *evel + &ifficulty levels, Easy- Moderate .Mod/- &ifficult .&iff/

1 '

0 '0

Mod Mod

(* (*

5 '0 '0

Mod Mod Mod

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01ESTIONS () % cash equivalent is an investment that is readily convertible to a ;nown amount of cash and has an ori"inal maturity to the investor of three months or less. It is included with cash on the balance sheet because the ris; of a material loss on it is small. 3nli;e other types of investments) such as those in stoc;s and bonds of other companies) the company holdin" a cash equivalent ;nows e!actly how much cash will be received when it matures. *) % cash equivalent is convertible to a ;nown amount of cash. 4herefore) the purchase of a cash equivalent is not considered a si"nificant investin" activity to be reported on the statement of cash flows. 2ash equivalents are included with cash on the balance sheet) and thus the company is merely tradin" one cash item for another when it writes a chec; and uses the proceeds to invest in a cash equivalent. +) 4he friend is correct in the observation that all receipts should be deposited intact for control purposes. 6owever) no company should have a policy to ma!imi<e the balance in chec;in" accounts. $ther than a nominal interest rate paid) cash is a non# earnin" asset) and a minimal amount should be maintained in chec;in" accounts to pay bills as they are due. E!cess cash can be much more productive if it is invested in other assets) such as debt and equity securities) inventories) and plant and equipment. ,) 4he meanin" of a debit or a credit depends on which company is concerned. 4o the ban;) a company=s chec;in" account is a liability. 4herefore) when a ban; deducts a service char"e from a company=s account) it is reducin" its liability to the company. % liability is decreased with a debit. 4hus) ban;s refer to char"es to a company=s account as debit memoranda. -) >hen the balance per the ban; statement and the balance per the boo;s are reconciled to the correct balance) a service char"e is deducted from the balance on the boo;s. 6owever) if it is added to the balance per the ban;) it is because the company is reconcilin" the balance on the ban; statement to the balance on the boo;s. 4he ban; has deducted the char"e from the balance it shows. ?ecause the company has not yet deducted this amount) a reconciliation of the ban; balance to the boo; balance requires that the char"e be added bac;. 6) 4he Sarbanes#$!ley %ct was passed in the wa;e of a number of hi"h#profile cases involvin" questionable accountin" practices. 2on"ress decided that action by the federal "overnment was needed to protect the interests of various parties that rely on corporate financial statements in ma;in" decisions. 2) % board of directors normally is composed of a combination of ;ey officers of the corporation) such as the president) and outsiders. 4he outsiders usually have been or are presently ;ey officers themselves of other corporations.

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6.-

3) 4his misuse of corporate assets could have been prevented by havin" a procedure in place for se"re"ation of duties. % sin"le employee should not be allowed to order merchandise) receive it) and initiate payment for it. 4) 4here are a number of limitations on the efficiency of internal control. 0irst) a system of internal control is not cost free. 0or e!ample) the se"re"ation of duties may require a lar"er staff than would otherwise be necessary. %n internal audit staff may be too costly for a small company. Second) no system of internal control can prevent collusion by two or more employees. 4hird) the lac; of support from upper mana"ement may wea;en an otherwise stron" commitment to a system of internal control. 0inally) the element of human error can never be eliminated in any operation) re"ardless of how bi" or small. (5) 4wo basic procedures are essential to "ood internal control over cash. 0irst) all cash receipts should be deposited intact in a ban; on a daily basis. 4hat is) no disbursements should be made from any amounts received prior to their deposit in the ban;. Second) all cash disbursements should be made by chec;. 4he use of serially numbered chec;s results in a clear record of all payments. (() 4here may be a benefit in terms of "ood customer relations to positionin" a cash re"ister so that customers can read the display. 6owever) it is equally important for control purposes. If the customer can read the display) the sales cler; is less li;ely to rin" up a sale for less than the amount received and poc;et the difference. 4his control feature is certainly not foolproof in preventin" this from happenin") but it will act as a deterrent. (*) %n invoice rather than a purchase order is the basis for recordin" a purchase and a correspondin" liability .accounts payable/. 0rom a le"al viewpoint) the purchase order is merely an offer by the company to purchase and does not constitute by itself a le"ally bindin" contract. 4he receipt of an invoice from the supplier is evidence that this outside party has accepted the offer and a"reed to sell the merchandise under a particular set of terms and conditions. (+) % receivin" report is a document used by the receivin" department to indicate the arrival of inventory from a supplier. In a computeri<ed system) the same software pro"ram that "enerates the purchase order also "enerates a receivin" report) showin" the various items ordered) the terms of payment) the shipper) and other important information. $n a blind receivin" report) the columns for the quantities of each item are intentionally left blan;. 8ather than bein" allowed to @ust chec; off that the number ordered were all received) the cler; must count the number actually received. (,) % purchase invoice is compared with a purchase order to ensure that the "oods were in fact ordered. 4he comparison of a receivin" report with an invoice ensures that all "oods that a company is bein" billed for were in fact received.

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EXERCISES *$ 1
EXERCISE 6.( CASH E01IVALENTS

2ash equivalents at &ecember '1) 00A, 2ertificate of deposit) due March '0) 00B 2ommercial paper) due 0ebruary B) 00B &eposit into a money mar;et fund D0#day 4reasury bills 2ash equivalents

C 150)000 1 5)000 5)000 100)000 C (00)000

*$

EXERCISE 6.* ITEMS ON A BAN6 RECONCILIATION

() &E?an; *) &E?oo; +) %E?oo;

,) &E?oo; -) %E?oo; 6) %E?an;

2) 1% 3) %E?oo; 4) %E?oo;

*$ (

EXERCISE 6.+ INTERNAL CONTROL

() Students= answers to this question will vary. %mon" the possible "uidelines the club should follow, a) 7renumbered tic;ets /) Se"re"ation of duties for collectin" cash) countin" and recordin" cash) and depositin" cash in a ban; account %) 7ayment by chec; of any e!penses associated with the raffle *) 4he president would li;e verification that all money is collected and recorded. It would be difficult) if not impossible) to be completely sure that this happens. 0or e!ample) human errors in countin" and handlin" the cash may result in not all of the cash bein" collected .such as errors in ma;in" chan"e/. %lso) it is impossible to prevent collusion from occurrin" if two or more individuals wor; to"ether to misdirect any of the cash.

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EXERCISE 6., SE7RE7ATION OF 1TIES

Many possible combinations are possible. $ne appropriate way to se"re"ate the duties would be as follows, E"8lo9ee Tas: Mar9 S$e ;ohn 7repare invoices F Mail invoices F 7ic; up mail from post office F $pen mail) separate chec;s F* F* *ist chec;s on deposit slip in triplicate F 7ost payment to customer=s account F &eposit chec;s F 7repare monthly schedule of accounts receivable F 8econcile ban; statements F *4wo employees should be present to open mail and separate chec;s.

M1LTI.CONCEPT EXERCISE *$ 1) () G *) G +) G ,) 1 .$ffice supplies/ -) 1 .8eceivables from employees/ 6) G

EXERCISE 6.- COMPOSITION OF CASH

2) 1 .Short#term investments, 2&/ 3) G 4) 1 .%ccounts receivable, 7ast due/ (5) G (() G

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PROBLEMS

*$ ()

PROBLEM 6.( BAN6 RECONCILIATION

CALICO CORNERS BAN6 RECONCILIATION MA< +(, *552 C B)(' .11 C1) 50.00 1 '.(5 C '.(0 1(5.00 10.B0 9A.' 1)'A'.(5

?alance per ban; statement) May '1 %dd, &eposit#in#transit ?an; error, &eposit credited to wron" account &educt, $utstandin" chec;s, H1 ' H1 A H1 B H1'0 %d@usted balance) May '1 ?alance per boo;s) May '1 %dd, Interest earned on bonds Interest earned on account &educt, ?an; service char"es 1S0 chec; ?oo; error, &eposit of C101.10 recorded as C1)011.00 %d@usted balance) May '1

.((9.5 / C D)'5D.0( C D)D95.'(

C (95.00 5(.90 C 50.00 199.00 D0D.D0

51D.90

.1)1 5.D0/ C D)'5D.0(

*) 4he fallacy in the friend=s reasonin" is that only the company) not the ban;) can ma;e errors. % ban; reconciliation is needed to detect errors and omissions on both the boo;s and the ban;=s records.

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PROBLEM 6.* INTERNAL CONTROL PROCE 1RES

() *ist of procedures to follow, a) 8in" the sale on the cash re"ister) and "ive every customer a receipt. /) %ccept the money) and count the proceeds before puttin" it into the drawer. %) Ma;e chan"e) and count it as it is "iven to the customer. d) >hen "iven bills of C5 or over) do not put them in the drawer slot until customer accepts chan"e .this avoids customer claimin" he or she "ave a C10 bill) for e!ample) when it was actually a C5 bill/. e) 1ever leave drawer open. *) 7rocedures to follow at end of day to close out, a) 2ount the coins and currency in the drawer. /) 8emove the cash re"ister tape. %) 8econcile the tape to the cash in the drawer) and investi"ate any differences. d) 8emit the tape and the cash to central office. +) 4he primary concern in this operation is control over cash) because all sales are cash. 4his concern was addressed by usin" a cash re"ister) havin" the lead person chec; the cash) and depositin" it intact daily.

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*$ 5

PROBLEM 6.+ THE

ESI7N OF INTERNAL CONTROL OC1MENTS

() 4he old system of allowin" each motel to buy supplies from local distributors offered very little internal control. 0or e!ample) the corporate office had no control over the amount paid by each individual operation for its supplies. 4he new system will allow the company to buy in lar"er quantities) hopefully at better prices. %lso) with the old system) there was no physical control over the supplies. &ishonest employees at a particular motel could steal supplies much more easily than under the new system. *) 4he purchase requisition form should be in triplicate) with the ori"inal filled out by the requestin" department and copies to the purchasin" and accountin" departments. 4he form should show a) requestin" department /) date requested %) preferred vendor d) date needed e) complete description of items requested =) quantity of each item requested #) blan; for si"nature of person requestin" h) blan; for si"nature of supervisor for approval !) sequential numberin" of the forms 4he receivin" report should be in duplicate) with the ori"inal filled out by the receivin" department with a copy to the accountin" department. It should show a) purchase order number /) vendor %) carrierIshipper d) credit terms e) dates requested) ordered) and received =) shippin" instructions #) items ordered and quantity of each ordered h) quantities received of each item !) blan; for si"nature of person receivin" >) blan; for approvals

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M1LTI.CONCEPT PROBLEMS *$ 1)
PROBLEM 6., CASH AN LI01I ASSETS ON THE BALANCE SHEET

In order of liquidity on the balance sheet, () 7etty cash fund *) Money mar;et fund +) Investment in stoc; ,) %ccounts receivable -) 2ertificates of deposit .si! months/ 6) 7repaid rent 4he first two items would be included in cash on the balance sheet. %ll other items are not as liquid as cash and require either collection or sale to "enerate cash. Each of these items would normally be classified as current assets. 7repaid rent is considered current because the benefits will normally e!pire within one year. 6owever) prepayments do not "enerate any cash for the business. It should be noted that the 2& does not qualify as a cash equivalent because it has a maturity lon"er than three months.

*$ ')(

PROBLEM 6.- INTERNAL CONTROL

() Morris Mart suffers from a lac; of se"re"ation of duties. Mary handles all tas;s associated with collection of customer accounts. *) Mary should not handle all aspects of accounts receivable) billin") and collection. 4wo different employees should mail invoices and record the amounts billed. 4wo employees should be present when the mail is opened. %nother employee should be responsible for recordin" collections from customers. 0inally) all employees should be required to ta;e vacations) and there should be rotation of @ob duties amon" employees. +) Someone should e!plain to Mary that she personally is not the problem but that a "ood system of internal control requires certain chan"es to be made. 4his could be e!plained to her not in the conte!t of fraud but rather in the conte!t of the necessity to verify and chec; the wor; performed by all employees.

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AL TE R N AT E P R OB LE M S *$
PROBLEM 6.(A BAN6 RECONCILIATION

() %mounts can be found by preparin" a ban; reconciliation, 6AREN?S CATERIN7 BAN6 RECONCILIATION MARCH +(, *552 ?alance per ban; statement) March '1 %dd, &eposit#in#transit &educt, $utstandin" chec;s, H11 H11A H1 0 H1 ?an; error, chec; written for CDD0- CD0D char"ed a"ainst account %d@usted balance) March '1 ?alance per boo;s) March '1 %dd, 2ustomer chec; collected Interest earned on account 2ustomer chec; not recorded &educt, 2ollection fee ?an; service char"es %d@usted balance) March '1 C 9)509.10 ( '.00 C ( .D '0A.00 10.5B A5.9A

C ('9.1A B1.00 C (5.00 (.'0 1) 50.00 C (.50 .00 .51A.1A/ C 9)(11.D' C J 1) DD.'0 . 9.50/ C 9)(11.D'*

*%d@usted balance per the boo;s must be the same amount as the ad@usted balance per the ban;. Con%l$s!on@ 4he balance on the boo;s before any ad@ustments is the J in the ban; reconciliation and can be found by wor;in" bac;wards, C9)(11.D' K C 9.50 L C1) DD.'0 + C5)1'D.1'. 4he corrected balance to be reported on the balance sheet is the ad@usted balance of C9)(11.D'. *) Maren has an ethical responsibility to tell the ban; about the error of CB1.00 in item ". Even thou"h reportin" the error will result in a decrease in Maren=s ban; balance) the error should be called to the attention of the ban;.

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PROBLEM 6.*A INTERNAL CONTROL PROCE 1RES

() 4he ban; and re"ulatory a"ency are concerned with these documents because without proper documentation the le"al a"reement could be invalid. 0or e!ample) without a valid title) the ban; has no recourse if the customer defaults on the loan. % valid insurance policy is necessary in case the motorist should have an accident. 4he re"ulatory a"ency is empowered by the "overnment to protect the interests of the public. *) Internal control procedures to ensure that the documents are obtained and safe"uarded, a) 4he accuracy and completeness of all information on the note) insurance policy) and title should be verified and reviewed. /) 4he note and insurance policy should be reviewed periodically for e!piration dates. %) Each of the documents should be ;ept in loc;ed compartments with limited access.

*$ 5

PROBLEM 6.+A THE ESI7N OF INTERNAL CONTROL

OC1MENTS

() 7rocedures to ensure that all royalties are paid to the actors, a) %ll payments must be made by chec;. /) %ll payments are sub@ect to approval by a supervisor. %) %ll payments should be cross#referenced to the actual sales of movies. *) 4he shippin" form should be in duplicate) with the ori"inal filled out by the shippin" department and a copy to the accountin" department. It should include a) authori<ations /) dates ordered and shipped) and e!pected delivery date %) customer name) address d) customer contact person e) description of titles to be shipped =) quantity of each title to be shipped

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AL TE R N ATE M 1 LTI. C ON C E P T PR OB LE M S *$ 1)
PROBLEM 6.,A CASH AN LI01I ASSETS ON THE BALANCE SHEET

() 2ash in the chec;in" account and the petty cash fund are cash. 4he three#month certificates of deposit and the money mar;et fund are both cash equivalents. *) %ccounts receivable and mar;etable securities should be classified on the balance sheet as current assets and listed in the order of their liquidity .mar;etable securities are more liquid than accounts receivable/. +) Cash and Cash EA$!'alents 2ertificates of deposit 7etty cash fund Money mar;et fund 2ash in chec;in" account 4otals (*B+(B52 C10)000 1) 00 5)B00 9)000 C(')000 (*B+(B56 C10)000 1)500 B)000 9)000 C(5)500 In%rease C e%reaseD C 0 .'00/ . ) 00/ 0 C . )500/

4he company is not as liquid at the end of 00A as it was at the end of 009. %lthou"h the decrease in liquidity is not lar"e) it is due to the decreases in the balances in the petty cash fund and the money mar;et fund.

*$ ')(

PROBLEM 6.-A INTERNAL CONTROL

() 4here are two ma@or problems with the proposed personnel arran"ements. 0irst) re"ardless of how ethical and honest the two individuals mi"ht be) from the viewpoint of appearances alone) it is not healthy to have two relatives wor;in" this closely to"ether in a business. 4he potential for collusion is very hi"h in this situation. %lso) it is not fair for either party to have ?arbara doin" a performance review for her cousin. *) 8e"ardless of how effective a system of internal control) it can be easily circumvented by collusion) that is) two or more employees wor;in" to"ether to perpetrate a fraud. 4he potential for this to develop can be lessened by not havin" one relative reportin" to another. %lso) ?arbara should not do the performance evaluation for 2heryl. +) 4he above should be e!plained to the two individuals. 4hey personally are not the problem. %ny two or more persons in this situation would face a conflict and wea;en the company=s system of internal control.

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6.(-

E C IS ION C AS E S REA IN7 AN INTERPRETIN7 FINANCIAL STATEMENTS

*$ 1

ECISION CASE 6.( COMPARIN7 TWO COMPANIES IN THE SAME IN 1STR<@ FINISH LINE AN FOOT LOC6ER

(. 4he balance in 2ash and cash equivalents on 0inish *ine=s balance sheet on 0ebruary 5) 009) is C(A)(BB)000. 4he balance on 0ebruary 9) 005) was C55)DD1)000) resultin" in a decrease in cash and cash equivalents of CB)50')000. 4he balance in 2ash and cash equivalents on 0oot *oc;er=s balance sheet on Nanuary B) 009) was C BD)000)000. 4he balance on Nanuary D) 005) was C 5)000)000) resultin" in an increase in cash and cash equivalents of C9()000)000. *) 4he chan"e in cash and cash equivalents appears on the statement of cash flows. ?ecause this statement summari<es a company=s cash flows that result from its operatin") investin") and financin" activities) the bottom of the statement reports the net increase or decrease in cash and cash equivalents for the period. +) $n pa"e ' of its 009 annual report in 1ote 1) 0inish *ine indicates that its O2ash and cash equivalents are primarily invested in ta!#e!empt instruments with hi"h liquidity) less then D0 days when purchased.P In 1ote 1 on pa"e '1 of its 005 annual report) 0oot *oc;er e!plains that O4he 2ompany considers all hi"hly liquid investments with ori"inal maturities of three months or less includin" commercial paper and money mar;et funds to be cash equivalents.P 4he company also e!plains that amounts due from third#party credit card processors are included in cash equivalents. %lthou"h the types of investments the companies ma;e differ) they both use the D0#day or three#month cutoff to determine whether an item is a cash equivalent. *$ '
ECISION CASE 6.* REA IN7 AN MANA7EMENT INTERPRETIN7 IBM?S REPORT OF

() I?M relies on clear definitions of responsibility and dele"ation of authority as part of its internal control structure. %nother ;ey in"redient in its structure is an internal audit pro"ram. *) I?M=s e!ternal auditor is 7ricewaterhouse2oopers **7. In addition to auditin" the company=s financial statements) 7ricewaterhouse2oopers **7 also performs an audit of the assessment by mana"ement of the effectiveness of I?M=s internal control over financial reportin". 4he firm follows the standards of the 7ublic 2ompany %ccountin" $versi"ht ?oard in conductin" its audits.

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ECISION CASE 6.* CCon%l$dedD

+) I?M=s %udit 2ommittee is made up entirely of members of the board of directors who are independent from the company and not part of the company=s mana"ement team. $ne of the ;ey duties of the %udit 2ommittee is to recommend to the board of directors the public accountin" firm to be retained to perform the audit. In addition) the %udit 2ommittee meets with the public accountin" firm to review relevant matters. In addition) it meets with I?M=s mana"ement and its internal auditors.

MA6IN7 FINANCIAL *$ 1 4$, 08$M, &%4E,

ECISION CASE 6.+ LI01I IT<

ECISIONS

4he 7resident of 01? of Qerona 6ei"hts Noe Smith) *oan $fficer FIFIFF

S3?NE24, *oan proposals I have reviewed the loan proposals recently submitted by 8 Monta"ue and N 2apulet and would li;e to summari<e for you my findin"s. ?ecause of limited resources available for short#term loans) my recommendation is that we ma;e a si!#month C10 million loan to N 2apulet only. 4he total current asset positions of the two companies are identical. Each has C'' million in current assets. 6owever) the composition of the current assets differs considerably between the two companies. $n the surface) 8 Monta"ue may appear to be stron"er because it has twice the amount of cash on hand that N 2apulet does. 6owever) cash is essentially a nonearnin" asset) and I am s;eptical as to why 8 Monta"ue feels it necessary to maintain that much cash on hand) and consequently) why it feels as if it needs to borrow an additional C10 million. 4he accounts receivable for N 2apulet is si"nificantly lar"er than that for 8 Monta"ue. %ssumin" that the estimates of bad debts are reasonably reliable) 8 Monta"ue has a bi""er problem with uncollectibles than does N 2apulet. 8 Monta"ue has an allowance that is 1I15) or 9.9AR of accounts receivable) while N 2apulet=s percenta"e is only 1I ') or (.'5R. In summary) I feel that N 2apulet is a better candidate at the present time for a loan. I recommend that we ma;e a si!#month C10 million loan to N 2apulet at the current mar;et rate of interest. 7lease call if you need any further details in connection with these two loan requests.

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6.(2

ETHICAL *$ ')(

ECISION MA6IN7

ECISION CASE 6., CASH RECEIPTS IN A BOO6STORE

Me"o to the store "ana#er@ 4han; you for the opportunity to spend a wee; at one of our stores and learn more about the boo;store business. &urin" my trainin" I received valuable e!perience that will benefit me as I be"in wor;in" for the company. I am concerned) however) about one procedure related to the receipt of cash. 4he current system for handlin" cash shorta"es and overa"es is not effective from an internal control viewpoint. % fundamental principle of internal control over cash is that all cash receipts should be deposited intact. I ;now that you can appreciate that the current system does not allow us to ;eep an accurate record of all receipts. 0or this reason) I recommend that we ;eep a daily record of all cash shorta"es and overa"es. 3nder the proposed system) we would record a debit for any shorta"es in cash and a credit when there is a cash overa"e at the end of the day. If these amounts are material) they should be investi"ated immediately. 3nder no circumstances should we ;eep a separate cash fund to ma;e up the differences. %side from the obvious concerns over physical custody of the cash) the present system of simply ;eepin" a cash#over and #short envelope results in a lac; of important information to us. I am sure you share my concerns over this critical part of our business. 7lease call me if I can provide any further information to you.

REAL WORL

PRACTICE 6)(

$n pa"e ' of its 009 annual report in 1ote 1) 0inish *ine indicates that its O2ash and cash equivalents are primarily invested in ta!#e!empt instruments with hi"h liquidity) less then D0 days when purchased.P REAL WORL PRACTICE 6)*

4he auditors= report on internal control for 0oot *oc;er was written by M7M5 **7. 4he report was addressed to 0oot *oc;er=s board of directors and shareholders. In the ne!t to last para"raph of the report) M7M5 indicates that it believes that mana"ement=s assessment that it maintained effective internal control over financial reportin" is fairly stated. M7M5 also states that in its opinion 0oot *oc;er did maintain effective internal control over financial reportin" as of the balance sheet date.