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23 Cards in this Set

  • Front
  • Back
Sarbanes-Oxley Act
requires that a company develop sound principles of control over financial reporting and continually verify that these controls are working. The act specifically requires top
management to attest that the company’s internal controls are reliable and effective. In order to achieve and maintain the required level of control, all employees must be educated with regard to
internal control principles and evaluated for compliance with expected procedures on a regular basis
Internal controls
Policies and procedures a company uses to help protect assets from misuse, ensure information is complete and accurate and ensure laws and rules are followed.
1. Assets are safeguarded and used for business purposes

2. Business information is accurate

3. Employees comply with laws and regulations.
Employee Fraud
the intentional act of deceiving an employer for personal gain
Control environment
Risk assessment
Control procedures
Information & Communication
Control environment
is management & employee attitudes about importance of internal control
Includes management philosophy/Operating style, organizational structure, personnel policies, internal reviews.

o For example, in a poor control environment, you have a dominating management staff that pressures employees to meet budgets and projections at all costs, regardless of circumstances.

o A good control environment is established by a management that encourages employees to adhere to control policies and procedures and an employee code of conduct
Risk assessment
identifies risks so management can take steps to control them.
Competent personnel and personnel policies
ncludes proper training and supervision, keep employees accountable, rotation of job duties, bonding of personnel, mandatory vacations, etc. Why? To ensure employees are honest, know their jobs, and find it difficult to steal
Control procedures
procedures to help safeguard the assets and ensure the reliability of the financial records, including:
* Competent personnel
* Rotating duties
* Mandatory vacations
* Separating responsibilities for related operations
* Separate operations
* Custody of assets
* Accounting proofs
o Security measures
o Monitoring the internal control system
Separation of duties
Assign different employees responsibility for ARC - Authorizing transactions, Recording transactions, Custody of assets; Why? So that a mistake (honest or not) cannot be made without being seen by at least one other person
Separation of operations, custody of assets and accounting
reduces potential for fraud if separate these.
Proofs and security measures
authorization, approvals, reconciliations, bond employees etc; also included physical safeguards like protection of accounting records by using backup computer files and fireproof file cabinets. Companies have gone out of business because fire or theft destroyed their accounting records.
Need to monitor the system to detect weaknesses; internal, and external auditors
Information and communication
Gather and communicate appropriate information to assess and monitor internal controls.
money, coins, checks, currency, money orders, and money deposit
* the cashier will not have the correct amount of cash in the register at the end of the shift.
Cash Receipts
To protect cash from theft when
Customers buy products, services
Customers pay on account

1. Initially ring up sale on cash register; Customer should be able to see cash register amount rung up; give customer receipt.
2. Have cash register tape (some are computerized so will have info stored in a data base.)
3. Accountant records daily sales from tape.
4. Head cashier or Treasurer collects cash for deposit in bank.
* Computerized transfer of funds rather than paper! No cash or checks. Better internal control; less costly; reduces late payments; speeds up processing of cash receipts and payments!

* Examples: Pay employees by using point-of-sale, direct deposit; debit cards etc
* When an expense or liability is incurred, we prepare a voucher.

* Voucher is a sequentially numbered form on which we document:
1. That we have verified ACCURACY and VALIDITY of the expenditure
2. That the expenditure has been AUTHORIZED for payment by management
3. The ACCOUNTS in which the expenditure is to be recorded

* All supporting documentation (purchase order, invoice, receiving report) is attached to the voucher.

* Voucher serves as "permission slip" to authorize payment for the expenditure later. Checks can be written ONLY for APPROVED and AUTHORIZED vouchers
Bank accounts control accounts by:
Safeguarding cash
Providing double recording of cash transactions
Providing comparison with business records
Add deposits not recorded to bank balance
Deduct checks not paid from bank balance
Add credit memos not recorded to company balance
Deduct debit memos not recorded from company balance
Correct all errors
* A small amount of cash kept on hand to handle small expenditures that must be made by cash.

* The type of fund we cover is an IMPREST fund (meaning it is established for a fixed amount and periodically reimbursed to bring it back to this fixed amount).

* Recorded in an account called Petty Cash; Petty Cash is an ASSET (often combined with Cash on Balance Sheet)
Money market mutual funds
Commercial paper
Certificates of deposit
Government & municipal securities
Corporate notes, bonds