Accounting 1 Test 2

Sarbanes-Oxley Act of 2002

Also known as the "Public Company Accounting Reform and Investor Protection Act of 2002"

What would not be considered a cash equivalent?

Certificate of deposit (CD) that matures one year from now

Company-issued debit and credit cards

-debit cards (and checks) captured in the bank reconciliation -credit card purchases need to be recorded

Auditor's Internal Control Responsibilities

-provide an opinion on managements assessment of internal control over financial reporting -provide their own opinion on company's internal control over financial reporting

Sarbanes-Oxley Act

A law passed by Congress that requires the CEO and CFO to certify that their firm's financial statements are accurate.

To update the company's cash account- Debit cash for items that

Add to the balance

Managers act as stewards or caretakers of the company's ___________

Assets

Physical Controls

Assets and accounting records must be kept safe and accessible only to authorized personnel.

What does the Balance sheet report?

Balance of cash, Snapchat at end of period, and current or non current assets

Common items that will increase the company's cash balance

Bank collections on the company's behalf and interest earned on average daily balance

A ________ _________ matches the balance of cash in the bank with the balance of cash in the company's own records

Bank reconciliation

Timing differences occurs when the company records transactions ________ or ________ the bank records the transactions

Before or after

The asset most susceptible to fraudulent activity is(are)

Cash

The asset most susceptible to fraudulent activity is

Cash or money

The Sarbanes-Oxley Act applies to

Companies that are required to file with the SEC

We examine items used to reconcile the ________ ________ balance

Company cash

___________ _______________ Include a variety of policies and procedures used to protect a company's assets

Control activities

Which of the following statements is true? A. Having too much cash represents idle resources that are not being used to produce revenues B. One way to assess cash holdings is to compare cash assets to non cash assets C. In recent years cash holdings have increased tremendously D. All of the above are true

D. All of the above are true

How would an NSF check from a customer be treated on a bank reconciliation?

Deduction on the company side

What would be found on the "Bank side" or left-hand side of the bank reconciliation

Deposits outstanding

Common items that will decrease the company's cash balance

Electronic funds transfers, NSF checks "non sufficient funds", debit card purchases, and bank service fees

__________ can result from mistakes by the bank or by the company

Errors

Published financial statements may be incorrect because of (Select all that apply.)

Errors and fraud

The two reasons why companies may issue incorrect financial statements are fraud and __________

Errors or mistakes

Incorrect financial statement reasons

Errors- Accidental errors in recording transcations or applying accounting rules Fraud- A person intentionally deceives another person for persobnal gain or to damage that person Occupational fruad- the use of ones occupation for personal enrichment

When a person intentionally deceives another person or company for personal gain, this is referred to as

Fraud

Which of the following led to the passage of the Sarbanes-Oxley Act of 2002?

High profile accounting scandals during the early 2000s

Audits

Hire an independent auditor to assess the theatre's internal control procedures to detect any deficiencies or fraudulent behavior of employees.

Components of Internal Control

In order top to bottom- monitoring, control activities, risk assessment, control environment

What does the statement of cash flow report?

Inflows/outflows, covers a period of time, operating, investing ,and financing

_________________ and __________________ depend on the reliability of the accounting information system itself

Information and Communication

Managers are entrusted with the resources of both the company's __________ and owners

Lenders

reconciliations

Management should periodically determine whether the amounts of physical assets of the company match the accounting records.

_____________ of internal controls needs to occur on an ongoing basis

Monitoring

Do all companies in the US fall under the Sarbanes-Oxley Act of 2002?

No, the act applies to companies who are required to file financial statements with the SEC. It does not apply to all companies in the U.S

Companies have the greatest ability to eliminate this element of fraud:

Opportunity

The three elements present in the fraud triangle are

Opportunity, Rationalization, motive

What would be categorized as an investing activity on a statement of cash flows?

Paid for the purchase of equipment using cash

________ _______ Includes careful consideration of internal and external risk factors

Risk Assessment

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act

Responsibilities for internal control for CEO and CFO

Sign a report each year assessing whether the internal controls are adequate

To update the company's cash account- Credit cash for items that

Subtract from the balance

Employee Management

The company should provide employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties.

Who must take final responsibility of a companies operations and effectiveness of internal control

Top executives

Internal controls

attempt to eliminate the opportunity element of fraud

deposits outstanding

cash receipts of the company that have not been added to the bank's record of the company's balance

checks outstanding

checks the company has written that have not been subtracted from the bank's record of the company's balance

The overall attitudes and actions of management greatly affect the __________ ___________

control environment

Who must personally certify the financial statements and company disclosures or risk financial penalties and criminal prosecution for fraudulent misstatements?

corporate executives

How would an NSF check from a customer be recorded in the accounting records?

debit accounts receivable, credit cash

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational __________

fraud

Separation of Duties

fraud is prevented by not allowing the same person to be responsible for both controlling the asset and accounting for the asset

proper authorization

fraud is prevented when unauthorized individuals are not allowed to use company resources

Fraud Triangle: Rationalization

justification for the deceptive act by the one committing the fraud

The element of fraud which is easiest for companies to eliminate is

opportunity

E-commerce controls

passwords should be required to conduct electronic business transactions, and firewalls and antivirus software should be kept current

Performance reviews

reviews of actual vs. expected results, which can be applied to the employees as well as business processes

Internal controls represent plans to

safeguard the company's assets and improve the accuracy and reliability of accounting information

petty cash fund

small amount of cash kept on hand to pay for minor purchases

Fraud triangle- motivation

someone feels the need to commit fraud, such as the need for money

Fraud triangle- Opportunity

the situation allows the fraud to occur

The three elements present in every fraud are commonly referred to as the fraud

triangle