Chapter 5 AC 210

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

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

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

evaluating and reporting on the effectiveness of internal controls obtaining an external audit

Good internal control for checks received through the mail would include the mail clerk ______.

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

Incentives for committing fraud in order to satisfy personal greed include _______.

increasing personal wealth getting a bigger paycheck

Fraudulent reporting by management includes ______. Multiple choice question.

misreporting revenues and expenses

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

Internal control for cash is important because ______.

of the large volume of cash transactions the risk of cash-handling errors is significant cash is portable and is "owned" by whomever possesses it of the high risk of theft

The benefits of internal control procedures are that they ______.

protect against theft of assets improve the efficiency and effectiveness of operations enhance the reliability of accounting information

Which of the following are components of the fraud triangle?

rationalization opportunity incentive

Among the requirements of SOX is those who commit fraud face ______.

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

Fraudsters may rationalize their actions ______.

through a feeling of personal entitlement as legitimate since they are underpaid by convincing themselves their actions are justified

A common principle of internal control is to ______.

assign each task to only one employee

Which of the following provisions of the Sarbanes-Oxley (SOX) Act aim to encourage honesty and the reporting of dishonest acts?

Code of ethics Whistle-blower protection Anonymous tip lines

Which of the following are limitations in internal control systems?

Collusion can exist making it impossible to completely prevent fraud. A control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors.

A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal?

External auditors must test the effectiveness of the company's internal controls. Marketing managers must determine whether the marketing team is submitting accurate sales and expense reports. An audit committee of independent directors oversees financial matters of the company.

True or false: The person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be in the accounting records.

False

What are reasons internal controls can never completely prevent and detect errors and fraud?

Human error Collusion Costs exceed benefits

The procedure of bank reconciliation is an example of which principle of internal control?

Independent Verification

The Sarbanes-Oxley Act (SOX) contains measures aimed at reducing both opportunities and incentives to commit fraud. Which of the following are designed to reduce the opportunity for fraud?

Internal control report from management Stronger oversight by directors Internal control audit by external auditors

Is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls.

Opportunity

Which component of the fraud triangle is exemplified best by an employee being able to steal because no documentation is required for amounts taken from the petty cash?

Opportunity

Which of the following is not an internal control for checks received through the mail?

The accounting department counts the cash, prepares the deposit slip and deposits the cash in the bank

An advantage of direct deposits is they ______.

are convenient and efficient

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

counteract incentives reducing opportunities encouraging honesty in employees