Accounting Chapter 7

Front 1

Fraud

Back 1

is a dishonest act by employee that results in personal benefit to the employee at a cost to the employer
-opportunity, Financial pressure, Rationalization

Front 2

Sarbanes-Oxley Act of 2002 (SOX)

Back 2

requires all publicly traded U.S. corporations to maintain an adequate system of internal controls. SOX imposes more responsibilities on corporate executives and boards of directors to ensure that companies' internal controls are reliable and effective

Front 3

Internal control

Back 3

consists of all of the related methods and measures adopted within a business
-safeguard assets
-Enhance the reliability of its accounting records
-increase efficiency of operations
-Ensure compliance with laws and regulations

Front 4

5 primary components of internal control systems

Back 4

-Control Enviroments
-Risk Assessment
-Control Activities
-Information and communication
-Monitoring

Front 5

A Control Environment

Back 5

-It is the responsibility of top management to make it clear that the organization values integrity and that unethical activity will not be tolerated. THis component is often referred to as the "tone at the top"

Front 6

Risk Assessment

Back 6

-Companies must identify and analyze the various factors that create risk for the business and must determine how to manage these risks

Front 7

Control Activities

Back 7

-To reduce the occurrence of fraud, management must design policies and procedures to address the specific risks faced by the company

Front 8

Information and Communication

Back 8

-The internal control system must capture and communicate all pertinent information both down and up the organization, as well as communicate information to appropriate external parties

Front 9

Monitoring

Back 9

- Internal control systems must be monitored periodically for their adequacy. Significant deficiencies need to be reported to top management and/or board of directors.

Front 10

Establishment of Responsibility

Back 10

-An essential characteristic of internal control is the assignment of responsibility to specific individuals
-Control is most effective when only one person is responsible for a given task
-establishing responsibility includes the authorization and approval of transactions

Front 11

Segregation of Duties

Back 11

-Work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of an employee

Front 12

2 applications of Segregation of Duties

Back 12

1) the responsibility for related activities should be assigned to different individuals
2) The responsibility for record keeping for an asset should be separate from physical custody of the asset

Front 13

Documentation Procedures

Back 13

-documents provide evidence that transactions and events have occurred
-documents should be pre-numbered and all documents should be accounted for

Front 14

Physical Electronic Controls

Back 14

Physical controls relate primarily to the safeguarding of assets. Mechanical and electronic contorls safeguard assets and enhance the accuracy and reliability of accounting records. Use of physical controls is essential.

Front 15

Independent Internal Verification

Back 15

-Independent internal verification involves the review, comparison, and reconciliation of data prepared by employees
-For maximum benefit
Verification should be made periodically or on a surprise basis
Verification should be done by an employee independent of the personnel responsible for the information
Discrepancies and exceptions should be reported to a management level that can take appropriate corrective action

Front 16

Human Resource Controls

Back 16

-bonding of employees who handle cash

Front 17

Limitations of Internal Control

Back 17

-Human element
-size of business

Front 18

Cash receipts Controls:

Back 18

-establishment of responsibility: cashiers are authorized to handle cash receipts
-Segregation of Duties: different individuals receive cash, record
-Documentation procedures: use mail receipts, cash register tapes, deposit slips
-Physical controls: store cash in safes and banks vaults
-Independent internal verification:supervisors count cash receipts daily; treasure compares total receipts to bank deposits daily
-Human resource controls: Bond personnel who handle cash; require vacations; deposit all cash in bank daily

Front 19

Cash Disbursement Control:

Back 19

-establishment of responsibility:only designated personal are authorized to sign checks
-Segregation of Duties: different individuals approve and make payments; check signers do not record disbursements
-Documentation procedures: use pre-numbered checks; PAID stamps
-Physical controls:store blank checks in safes
-Independent internal verification: compare checks to invoices;
-Human resource controls: bond personal who handle cash; background checks

Front 20

Voucher system controls:

Back 20

A voucher system is a network of approvals by authorized individuals, acting independently, to ensure that all disbursements by check are proper

Front 21

Petty Cash Fund

Back 21

used to pay relatively small amounts

Front 22

Basic Principles of Cash Management

Back 22

1) Increase the speed of collection on receivables
2) Keep inventory levels low
3) delay payment of liabilities
4) plan the timing of major expenditures
5) Invest idle cash

Front 23

Cash Budget

Back 23

1) Cash receipts section
2) Cash disbursements Section
3) Financing Section