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