chapter 5 learn smart

The quality of financial reporting for publicly traded companies is improved through

-external audit -evaluating and reporting on the effectiveness of internal controls

SOX reduces the opportunities for fraud by requiring publicly traded companies to

-have external auditors evaluate the companies internal controls -establish an audit committee of independent directors -evaluate and report on its internal controls

the SOX act provides increased regulations for

-internal controls -corporate executives -auditors

requirement of SOX is those who commit fraud face

-possible jail time up to 20 years for each violation -stiff fines of up to 5 million plus repayment of fraud proceeds

good internal control for checks received through the mail would include the mail clerk

-sending cash receipts list and the customers remittance advice to the accounting department -giving checks and money orders to the supervisor who makes the bank deposit

internal controls for cash is important because

-the risk of cash handling errors is significant -of the large volumes of cash transactions -cash is portable and is owned by whoever possesses it -of the high risk of theft

a blank deposit is initiated by the EFT instructing a bank to transfer pay to employees

direct

bank reconciliation is an example of which principle of internal controls

independent verification

who should be responsible for stamping checks received in the mail with "for deposit only"

mail clerk

blank is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls

opportunity

fraud triangle

opportunity, pressure, rationalization

cashiers at the supermarket have to talk to a manager before approving price changes at the register, which internal control principle is being followed

segregate duties

A person shouldn't perform both duties that is why we follow

segregation of duties

the SOX act reduces fraud by

-encouraging honesty -counteract incentives -reducing opportunities

Rationalization

when fraud is "justified"