AC 210: Chapter 5

Voucher System

A process for approving and documenting all purchases and payments made on account.

Fraud

An attempt to deceive others for personal gain.

Internal Control Components

Control Environment, Risk Assessment, Control Activities, Information and Communication, Monitoring Activities

Monitoring Activities

Control component used, when analyzing internal control systems, that involves evaluating the internal control system to see if working as intended.

Control Activities

Control component used, when analyzing internal control systems, that involves work responsibilities and duties completed to reduce risks to an acceptable level.

Control Environment

Control component used, when analyzing internal control systems, that refers to the attitude of the people in the organization and their commitment to integrity.

Risk Assessment

Control component used, when analyzing internal control systems, to evaluate the potential for fraud.

Independently Verifies

Internal control principle associated with this activity: A company manager compares the cash count sheets with the bank deposit slip.

Segregate Duties

Internal control principle associated with this activity: A person different from whom receives the cash makes the deposit in the bank.

Document Procedures

Internal control principle associated with this activity: Cash receipts are summarized and their total is calculated.

Establish Responsibility

Internal control principle associated with this activity: Just one employee receives cash.

Operations

Internal control system objective that ensures the efficient and effective completion of work and the protection of assets.

Compliance

Internal control system objective that focuses on adhering to laws and regulations.

Reporting

Internal control system objective that produces reliable and timely accounting information.

Financial Statement Fraud

Misreporting amounts in the financial statements, usually to portray more favorable financial results than what actually exist.

Corruption

Misusing one's position for inappropriate personal gain.

Internal Control Objectives

Operations, Reporting, Compliance

Establish Responsibilities

Principle of internal control that assigns each task to only one employee in order to allow one to determine who is at fault for an error or theft.

Independent Verify

Principle of internal control that involves checking others' work.

Segregate Duties

Principle of internal control that involves not making one employee responsible for all parts of a process.

Document Procedures

Principle of internal control that involves preparing documents to show activities that have occurred.

Restrict Access

Principle of internal control that involves preventing access to assets or information unless it is needed to fulfill the assigned task.

Sarbanes-Oxley (SOX) Act

Provides increased regulations for corporate executives, auditors, and internal controls.

Loan Covenant

Specifies terms of the loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment.

Reducing opportunities, encouraging honesty in employees, and counteract incentives

The Sarbanes-Oxley (SOX) Act aims to reduce fraud by...

Internal Control

The actions taken by people at every level of an organization to achieve its objectives.

Establish Responsibility

The appropriate control principle for the step in the voucher system that ensures that purchase requisition are made by employees approved to make purchases.

Segregate Duties

The appropriate control principle for the step in the voucher system that involves the accounting department preparing the journal entry.

Document Procedures

The appropriate control principle for the step in the voucher system that prepares a receiving report.

Asset Misappropriation

Theft (embezzlement)

cleared

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