ACC 207 Ch. 5
Assigning sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of ______.
documenting procedures
Among the new requirements of SOX is those who willfully misrepresent financial results _____.
face stiff fines and possible jail sentence
Deposits in _______ are added to the _______ side of the bank reconciliation.
transit; bank
Which of these are cash equivalents? -money market funds -notes receivable that mature in 5 months -US Treasury bonds that mature in 1 year -investments within 3 months to maturity
-money market funds -investments within 3 months to maturity
Restricted cash is reported ______.
separately as an asset on the balance sheet.
The Sarbanes-Oxley (SOX) Act provides increased regulations for ________.
-internal controls -corporate executives -auditors
Which of the following are limitations in internal control systems?
-A control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors -Collusion can exist making it impossible to completely prevent fraud
Which parts of the Sarbanes-Oxley (SOX) Act may encourage employees to be honest?
-Code of ethics -Anonymous tip line -Whistle- blower protection
The Sarbanes-Oxley (SOX) Act aims to reduce fraud by _______.
-Encouraging honestly in employees -counteract incentives -Reducing opportunities
Business opportunities create incentives for fraud for which of the following reasons?
-Satisfy loan covenants -Increase equity financing -Attract business partners
Additional mechanisms of internal control include ______.
-anonymous hotlines -bonding -mandatory vacations
Match the following control components of the framework used when analyzing internal control systems with the appropriate description.
-control environment: refers to the attitude of the people in the organization and their commitment to integrity -risk assessment: evaluate potential for fraud -control activities :work responsibilities and duties completed to reduce risks to an acceptable level -monitoring activities: evaluating the internal control system to see if working as intended
On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags?
-deposits in transit -outstanding checks
SOX reduces the opportunities for fraud by requiring publicly-traded companies to _______.
-evaluate and report on its internal controls -have external auditors evaluate the companies' internal controls -establish an audit committee of independent directors
Fraudulent reporting by management includes ________.
-improper assets valuation -recording fictitious revenues from a phantom customer -mismatching revenues and expenses
The Sarbanes-Oxley Act contains measures aimed at reducing both opportunities and incentives to commit fraud. Which of the following are designed to reduced the opportunity for fraud?
-internal control report from management -stronger oversight by directors -internal control audit by external auditors
An internal control system consists of actions taken to achieve objectives. Match the appropriate description with each objective of an internal control system.
-operations: objective is to ensure the efficient and effective completion of work and the protection of assets -reporting: objective is to produce reliable and timely accounting information -compliance: objective is to ficus on adhering to laws and regulation -risk abatement: this is not an objective
Match each of the five principles of internal control with its description.
-segregate duties: do not make one employee responsible for all parts of a process -establish responsibilities: assign each task to only one employee in order to allow one to determine who is at fault for an error or theft -restrict access: do not provide access to assets or information unless it is needed to fulfill the assigned task -document procedures: prepare documents to show activities that have occurred -independent verify: check others' work
Fraudsters may rationalize their actions ______.
-through a feeling of personal entitlement -by convincing themselves their actions are justified -are legitimate since they are underpaid
A company has a $10,000 cash balance per its books. The bank statement has a balance of $9,580. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, a $100 NSF check from a customer, and a $20 bank service charge. Given the following reconciling items, the up-to-date cash balance equals ___.
9,880
True or False: Internal controls prevent and detect all errors and fraud.
False
T or F: The three elements of the fraud triangle are incentive, theft and embezzlement.
False Incentive, opportunity, and rationalization are the three elements of the fraud triangle.
A check that you have written has cleared the bank when _____.
Funds have been withdrawn from your bank account to cover the check
In a bank reconciliation, interest revenue earned on your bank balance is _______.
added to the book balance
While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. What is true about this statement
an adjusting entry must be made to debit Accounts payable and credit Cash for $45.
NSF checks from customer should be subtracted from the ____ balance on a bank reconciliation.
book
When a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have ______ the bank.
cleared
A weak system of internal ______ can lead to fraudulent financial statements. These procedures and policies help ensure that information entered into the accounting system and reported in the financial statements is accurate and complete.
control
A loan ______ specifies terms of a loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment.
covenants
The bank will show a customer's deposit on bank statements as a _____.
credit, because a deposit is a liability from the bank's point of view
The bank credited your account for a deposited that should have been deposited into another customer's bank account, not yours. This bank error should be a(n) ______ on a bank reconciliation.
deduction from the bank balance
A bank service charge should be a(n) _________ on a bank reconciliation.
deduction from the book balance
If a company hires an auditor to check that the work done by others within the company is supported by documentation, this is part of the internal control procedure of ________.
independent verification
Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of ______.
establishing responsibility
Firing employees if they are not meeting a certain performance target _____ the risk that others will commit fraud in the future.
increases
An incentive to commit fraud may be caused by managers who receive bonus payments based on the strength of the company's reported ______.
net income
Which of the following is subtracted from the bank balance on a bank reconciliation?
outstanding checks
Physically looking up assets and electronically securing access to other assets and information is required by the internal control principle of ______.
restricting access
______ of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.
segregation
"NSF" checks stand for "not ________ funds".
sufficient
EFT stands for "electronic fund _______".
transfers