2036 - Chapter 5 Smartbook

A check that you have written has cleared the bank when ______.

funds have been withdrawn from your bank account to cover the check

The risk assessment component in a system of internal controls refers to the assessment of the ______. Multiple choice question.

potential for fraud

What are the Internal Controls? (5)

Control Environment Risk Assessment Control Activities Information and Communication Monitoring Activities

Receiving report

Is used to verify amounts ordered agree with the suppliers actual shipment.

In a bank reconciliation, an outstanding check is ______.

deducted from the bank balance

Deposits in transit occur when you make a deposit ______.

after the bank's normal business hours

The Sarbanes-Oxley (SOX) Act provides increased regulations for ______. (Select all that apply.)

corporate exec internal controls auditors

What is a bank reconciliation?

internal report prepared to compare the company's cash records with the bank statement

purchase requisition

Ensures the request is made by someone who is approved to order goods or services of the type and amount requested

Sarbanes-Oxly Act of 2002 (3)

requires companies to have strong internal control systems to prevent management fraud. Requires companies to have INTERNAL CONTROL AUDITS. 1. Reduce opportunities for fraud 2. Encourage good character 3. Counteract incentives for fraud

a _______ system is a process for approving and documenting all purchases and payments made on account.

voucher

Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?

Segregate Duties

The purchasing system begins with an authorized employee completing a manual or electronic ______ which is then reviewed and approved by a supervisor before an order is placed with a supplier.

purchase requisition

Principles of Control Activities

1. Establish Responsibility 2. Segregate Duties 3. Restrict Access 4. Document Procedures 5. Independently Verify

Fraudulent reporting by management includes ______. (Select all that apply.) Multiple select question.

recording fictitious revenues from a phantom customer mismatching revenues and expenses improper asset valuation

Which of the following are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement? (3)

Interest income Electronic funds transfers Services charges

The ____ ____ system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations.

Internal Control

Control Limitations

Internal controls can never completely prevent and detect errors and fraud for two reasons: benefits must exceed the cost human error or fraud

Supplier invoice

Is used to ensure that the appropriate amount is paid for goods received

A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal? (Select all that apply.)

Marketing managers must determine whether the marketing team is submitting accurate sales and expense reports. An audit committee of independent directors oversees financial matters of the company. External auditors must test the effectiveness of the company's internal controls.

What is a Bank Reconciliation?

an important control because it provides independent verification of all cash transactions the bank has processed for the company. This internal report should be prepared by an employee whose duties are separate from recording and handling of cash.

The 3 categories of employee fraud are ______. (Select all that apply.)

asset misappropriation corruption financial statement fraud

establish responsibility (Control Activities definition)

assign each task to only one employee

One of the components of an internal control system is the control environment which refers to the ______.

attitude employees hold regarding internal control

independently verify (Control Activities definition)

check others work

Your customer's NSF check found on the bank statement is a reconciling item on a bank reconciliation and will need to be ______.

deducted from the Cash balance in your accounting records

segregate duties (Control Activities definition)

do not make one employee responsible for all parts of a process

restrict access (Control Activities definition)

do not provide access to assets or information unless it is needed to fulfill assigned responsibilities

Fraudulent reporting by management includes ______.

misreporting revenues and expenses

Fraud Triangle

opportunity, pressure, rationalization

document procedures (Control Activities definition)

prepare documents to show activities that have occurred

After approval of a purchase has been obtained, the purchasing agent completes a prenumbered _____ _____ that identifies the supplier, the delivery location, and the approved quantity and cost.

purchase order

Purchase order

Ensures the order is placed with an approved supplier at approved prices

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags? (Select all that apply.)

Outstanding checks Deposits in transit