ACTG 210 Lecture Notes - Lecture 7: Financial Statement, Current Liability, Child Custody

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limebadger329

11 Aug 2020

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Fraud and the principles of internal control: fraud---dishonest act by employee that results in personal benefit to the employee at a cost to the employer. The fraud triangle refers to the three factors that contribute to fraudulent activity. Opportunity--which is usually due to a lack of sufficient controls. Financial pressure--which usually is related to too much personal debt or a desire for a better lifestyle. Rationalization which is the justification for why the employee deserves the compensation from fraudulent acts. Sarbanes-oxley act of 2002 (sox: 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. Companies must develop sound principles of control over financial reporting and continually assess that the controls are working. Independent outside auditors must attest to the level of internal controls.

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4)Managers place a high priority on internal control systems because the systems assistmanagers in all of the following except:

A)Protecting assets.

B)Urging adherence to company policies.

C)Promoting efficient operations.

D)Ensuring reliable accounting.

E)Assuring that no loss will occur.

5)A properly designed internal control system:

A)Insures profitable operations.

B)Eliminates the need for an audit.

C)Is not necessary if the company uses a computerized system.

D)Requires the use of non-computerized systems.

E)Lowers the company's risk of loss.

6)A company's internal control system:

A)Eliminates the need for audits.

B)Eliminates the need for managers' certification of controls.

C)Monitors company and employee performance.

D)Eliminates human error.

E)Eliminates the company's risk of loss.

7)The impact of technology on internal controls includes:

A)Elimination of fraud.

B)Elimination of the need to bond employees.

C)Reduced processing errors.

D)Elimination of separation of duties.

E)Elimination of the need for regular audits.

8)Internal control systems are:

A)Required only if a company plans to engage in interstate commerce.

B)Developed by the Internal Revenue Service for all U.S. companies.

C)Required by Sarbanes-Oxley (SOX) to be documented and certified if the

company's stock is traded on an exchange.

D)Developed by the Securities and Exchange Commission for public companies.

E)Developed by the Small Business Administration for non-public companies.

9)Cash equivalents:

A)Include 6-month certificates of deposit.

B)Are short-term, highly liquid investment assets.

C)Include money orders.

D)Include checking accounts.

E)Are recorded in petty cash.

10)Cash equivalents meet all of the following criteria except:

A)Include short-term investments purchased within 3 months of their maturity

dates.

B)Are readily convertible to a known cash amount.

C)Have a market value that is not sensitive to interest rate changes.

D)Include short-term U.S. treasury bills.

E)Are more liquid than cash.

azureporcupine205

Required: After reading the Bye, Bye SOX? Article comment on the issue of small business compliance with Section 404 of SOX

Bye, Bye, SOX?
The Sarbanes-Oxley Act (SOX)	SOX compliance has been extended
may be declawed by upcoming	four times, but they wonât need to
U.S. Congress and	comply at all if the Garrett-Adler
Supreme Court decisions.	amendment makes it to the Senate
The House of Representatives	floor as a standalone bill.
recently voted to approve the	SOX also established the
Garrett-Adler amendment, which	PCAOB to oversee and regulate
would exempt small companies	audit firms. PCAOB operates under
from SOX Section 404 provisions,	the supervision of the Securities
while the Supreme Court is considering	and Exchange Commission (SEC),
the constitutionality of the	which also appoints PCAOB members.
Public Company Accounting Oversight	It is funded by fees charged to
Board (PCAOB).	audited firms. When it was established,
These developments may have	Congress wanted the board
long-term implications for SOX, the	to be separate, with its own funding
2002 legislation passed in the wake	stream, and outside normal civil
of the Enron, WorldCom, and Tyco	service laws so it could attract
scandals. The outcomes may also	highly qualified specialists. PCAOB
have implications for records managers,	membersâ salaries are more than
information technology specialists,	$500,000 and are reviewed by the
and compliance officers	SEC.
who devise and implement company	Pro-business advocates, represented
controls.	by the Free Enterprise
Section 404 of SOX requires	Fund, argue that the PCAOBâs governance
company auditors to attest to the	structure is unconstitutional
soundness of the firmâs internal	because it is an independent
controls and financial statements.	agency that does not allow for the
Internal controls may include anything	president to appoint members. Additionally,
from transaction approval authorizations	because only the president
to records retention	can remove SEC commissioners
programs. This provision is widely	for cause, and because
blamed for an increase in auditorsâ	the SEC can only remove PCAOB
fees, as well as increased expenditures	members for cause, some court
to ensure that proper internal	members believe this is a formerly
controls are in place.	unrecognized limit of the presidentâs
Small firms â those with	powers that may contradict
less than $75 million in	the constitution.
market capitalization	The Supreme Court will take up
â have protested that	the issue soon, and some legal experts
compliance with SOX 404 would	believe that SOX could be
cost them a disproportionate share	abolished completely if the court
of their earnings. The complaint is	rules the PCAOB unconstitutional.
supported by an independent study
conducted at Pennsylvania State
University, which showed that
firms just over the $75 million
mark paid nearly $700,000 more in
audit fees and had average earnings
of negative $1.4 million in 2004

aquamarinebear162

True or False:

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

A properly designed internal control system is a key part of systems design, analysis, and performance.

An internal control system consists of the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and uphold company policies.

Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

Separation of duties involves dividing responsibility for a transaction or a series of related transactions between two or more individuals or departments.

The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

A receivable is an amount due from another party.

Credit sales are recorded by crediting Accounts Receivable.

The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.

A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

periwinklebeetle160

ACTG 210 Lecture Notes - Lecture 7: Financial Statement, Current Liability, Child Custody

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