ACCT20200 Chapter Notes - Chapter 4: Internal Control, Financial Statement, Risk Assessment

21 views2 pages

periwinklechimpanzee451

27 Aug 2020

School

Department

Accountancy

Course

ACCT20200

Professor

hums

For unlimited access to Textbook Notes, a Class+ subscription is required.

Chapter 4: Cash and Internal Control

● Companies issue incorrect financial statements for errors and fraud.

● Occupational fraud: the use of one’s occupation for personal enrichment through the

deliberate misuse or misapplication of the employer’s resources.

● Fraud triangle:

○ Opportunity: the situation allows the fraud to occur

○ Motivation: someone feels the need to commit fraud, such as the need for money

○ Rationalization: justification for the deceptive act by the one committing the fraud

● Internal controls: formal procedures implemented to safeguard the company’s assets and

improve the accuracy and reliability of accounting information

● Sarbanes-oxley act of 2002: established a variety of guidelines related to auditor-client

relations and internal control procedures for all companies that are required to file financial

statements with SEC

● Risk assessment includes careful consideration of internal and external risk factors

● Preventive controls:

○ Separation of duties: separating duties among employees for authorizing, recording

transactions and controlling related assets.

■ Fraud is prevented by not allowing the same person to be responsible for

both controlling the asset and accounting for the assets

○ Physical controls: over assets and accounting records

○ Proper authorization: formal guidelines established to prevent improper use of the

company’s resources

○ Employee management: providing appropriate guidance to ensure employees have

the knowledge necessary to carry out their job duties

○ E-commerce controls: guidelines for all electronic activities of a company

● Detective controls:

○ Reconciliations: determining whether the amount of physical assets of the company

agree with the accounting records

○ Performance reviews: processing the actual performance of individuals or

processes against their expected performance

Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Companies issue incorrect financial statements for errors and fraud. Occupational fraud: the use of one"s occupation for personal enrichment through the deliberate misuse or misapplication of the employer"s resources. Opportunity: the situation allows the fraud to occur. Motivation: someone feels the need to commit fraud, such as the need for money. Rationalization: justification for the deceptive act by the one committing the fraud. Internal controls: formal procedures implemented to safeguard the company"s assets and improve the accuracy and reliability of accounting information. Sarbanes-oxley act of 2002: established a variety of guidelines related to auditor-client relations and internal control procedures for all companies that are required to file financial statements with sec. Risk assessment includes careful consideration of internal and external risk factors. Separation of duties: separating duties among employees for authorizing, recording transactions and controlling related assets. Fraud is prevented by not allowing the same person to be responsible for both controlling the asset and accounting for the assets.

Related Questions

1â28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Clientâs management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditorsâ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditorsâ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the clientâs operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a companyâs policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a companyâs internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a companyâs legal department.

coralbadger702

ACCT20200 Chapter Notes - Chapter 4: Internal Control, Financial Statement, Risk Assessment

Document Summary

Get access

Related Documents

ACCTG 201 Chapter Notes - Chapter 4: Internal Control, Financial Statement, Cash Cash

ACCT 201 Lecture Notes - Lecture 4: Debit Card, General Ledger, Savings Account

ACTG 2200 Chapter Notes - Chapter 4: Accounting Reform, Risk Assessment, Investor

Related Questions