30 terms

Fraud, Internal Control, and Cash (Chapter 7)

a dishonest act by an employee that results in personal benefit to the employee at a cost to the
fraud triangle
three main factors that contribute to fraudulent activity
1. opportunity
2. financial pressure
3. rationalization
The Sarbanes-Oxley Act (SOX)
all publicly traded U.S. corporations are required to maintain an adequate system of internal control and audits
Internal Control
consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations
purpose of internal control 1
Safeguard a company's assets from employee theft, robbery, and unauthorized use
internal auditors
company employees who continuously evaluate the effectiveness of the company's internal control systems
obtaining insurance protection against theft by employees
Human Resource Control 1
bonding employees who handle cash
Human Resource Control 2
rotate employee's duties and require employees to take vacations
Human Resource Control 3
conduct thorough background checks
voucher system
a network of approvals by authorized individuals, acting independently, to ensure dis, a network of approvals by authorized individuals acting independently to ensure that all disbursements by check are proper
an authorization from prepared , An authorization form prepared for each expenditure in a voucher system
petty cash fund
to pay relatively small amounts
bank reconciliation
compares the bank's balance with the company's balance and explains any differences to make them agree
a written order signed by the depositor directing the bank to pay a specific sum of money to a designated receipt
bank statements
shows the depositor's bank transactions and balances
bank service charge
a monthly fee
deposits in transit
deposits recorded by the depositor that have not been recorded by the bank
outstanding checks
issued checks recorded by the company but have not yet been paid by the bank
cash equivalents
short-term highly liquid investments that are readily convertible to cash and insensitive to changes in the market
restricted cash
cash that is not available for general use
Principle of Internal Control 1
establishment of responsibility
Principle of Internal Control 2
segregation of duties
Principle of Internal Control 3
documentation procedures
Principle of Internal Control 4
physical controls
Principle of Internal Control 5
independent internal verification
Principle of Internal Control 6
human resource controls
Purpose of Internal Control 2
Enhance accuracy and reliability of the accounting records by reducing the risk of errors
(unintentional mistakes) and irregularities (intentional mistakes and misrepresentations) in the
accounting process.
Purpose of Internal Control 3
Increase efficiency of operations
Purpose of Internal Control 4
Ensure compliance with laws and regulations