Chapter 8 ACCT
A common reason to cook the books is to create a false set of a company's books used to convince investors or lenders to provide money to the company
TRUE
A reason to misreport a company's financial data is to drive the stock price higher.
TRUE
A reason to misstate a set of financial statements is to hide corporate looting such as excessive retirement perks of top executives, unpaid loans to top executives, improper stock options, and any other wrongful financial action
TRUE
Deposits in transit, outstanding checks and bank errors are adjustments to the book balance on a bank reconciliation.
TRUE
Fraud is the the act of intentionally deceiving a person or organization or misrepresenting a relationship in order to secure some type of benefit, either financial or non-financial.
TRUE
Incentive in the fraud triangle can be financial pressure, vices such as gambling or the desire to be successful.
TRUE
Incentive, perceived opportunity and rationalization are the three components of the fraud triangle
TRUE
Internal and external auditors are the two types of auditors in an organization
TRUE
Internal controls are the systems used by an organization to manage risk and diminish the occurrence of fraud
TRUE
Rationalization is a way for the potential fraudster to internalize the concept that the fraudulent actions are acceptable
TRUE
SOX stands for the Sarbanes Oxley Act and was implemented after the fall of companies like Enron and Worldcom
TRUE
The bank reconciliation seeks to explain the difference between the cash balance on the bank statement and the cash balance per the company's records (book balance)
TRUE
The cash short and over account is used to correct any overages or underages found during the reconciliation of petty cash
TRUE
The elements of internal control in an organization are establishment of clear responsibilities, proper documentation, adequate insurance, separation of assets from custody, separation of duties and use of technology
TRUE
The five components of effective internal controls are control of environment, assessment of risk, control of operational activities, monitoring of control processes and accurate communication of information
TRUE
The petty cash fund is an imprest account. This means it contains a fixed amount of cash that is replaced as it is spent in order to maintain a set balance.
TRUE
The term 'cooking the books' refers to presenting financial statements that don't represent the true results of the company.
TRUE
Under SOX, internal controls must be certified and documented
TRUE
Under Section 302 of SOX makes the CEO and CFO personally responsible for financial reporting as well as internal control structure
TRUE
When a petty cash fund is set up, money is taken from the main cash account and placed into the petty cash account.
TRUE
With the advancement in use of credit cards for small transactions, there is less of a need to have petty cash today than in prior years when cards could not be used for small transactions.
TRUE
A bank reconciliation is not important or needed in determining the amount of cash available for an organization.
FALSE
After a bank reconciliation is complete, the accountant must journal entries to adjust update the cash balance to the new adjusted cash balance. These entries are the adjustments for outstanding checks, deposits in transit and bank errors.
FALSE
External auditors are usually an employee of the company and provide recommendations to management
FALSE
Internal auditors usually work for an outside certified public accounting firm and are not an employee of the client
FALSE
One person open envelope with a check and another person enters check data in accounting system us an example of proper documentation
FALSE
One person place an inventory order and a different person receive the order is an example of use of technology
FALSE
Only large organizations are the victims of fraud
FALSE
Perceived opportunity is giving yourself a reason to justify committing fraud
FALSE
SOX does not require the CEO or CFO to certify that they have reviewed the internal control report provided by the auditor
FALSE
Since petty cash is such a small amount, it is not necessary to audit or review petty cash.
FALSE
The auditors who are hired by the client are the individuals ultimately responsible for the accuracy of the financial statements and internal controls of a company.
FALSE
The cash balance listed on the bank statement represents the true cash of a business or individual.
FALSE
interest income, collections and service charges are adjustments to the bank balance on a bank reconciliation.
FALSE