Ch 7. internal control and cash (TEXTBOOK) Flashcards
(47 cards)
what are the 3 main objectives of internal control
1) reliable financial reporting
2) effective and efficiency operations
3) compliance w relevant laws and regulations
internal control systems help prevent and detect errors
!!
differenece between unintenitional misstatements and fraud
INTENT!!
unintentional misstatementnts: errors not on purpose
Fraud: purposefully creating errors
5 components of good intenral control systems
1) control environment
2) risk assesment
3) control activities
4) info and communication
5) monitoring activities
what do control activities include (5 control activities)
-assignment of responsibility
-segregation of duties
-documentaiton
-physical controls
-review and reconciliation
what 2 factors affect specific control activities
1) risks it is facing
2) size and nature of the company
is it easier to segregatte duties in a small company or large company
large company, because there are plenty of employees to delegate to
control activities- assignment of responsibility
responsibility should be assigned to specific employees, INCREASES ACCOUNTABILITY
each cashier manages own cash drawer
Control activities- segregation of duitrs
responsibility for authorization and rercording of transactions and custody of assets should be assigned to differnt individuals
1) physical custody 2) authorization of transactions 3) recording of transactions
should be done by 3 different people!!1
control activities- documentation
evidence that transactions and events have occured at specified times and specified amounts
-> you should keep documents to prove
control activities- physical controls (Specifically access controls)
safeguards assets and enhances the accuracy of records!
control activity- review and reconciliation
data prepared by employees should be revied by people internally and externally
reconciliation involves comparing between 2+ documents
EXAMPLE of review and reconciliation activity
bank reconciliation
limitations of internal control
ultimately the controls can only provide reasonable asurancethat assets are safeguarded and records are reliable
examples of limitation on internal control
cost/benefit considerations (is the cost of the internal control worth it?)
human error
collusion (This impacts the control activity of segregation of duties the most because people are colluding)
management override
what is fraud
intentional act to steal assets or to misstate financial info
examples of mistatements that create fraud
1) recording expenses as assets
2) overstating useful life!! (think about this, the longer the useful life, the lower yearly depreciation expense, higher net income)
3) recroding revenue that do not exist
what are the 3 factors of the fraud triangle
opportunity pressure rationalization
control activites over cash recipets
internal control over cash recipets is more effecitve when cash reciepts are deposited into the bank daily or are made by EFT
how are the 5 control activities applicable to cash reciepts
slide 18
control activities over cash payments
control activites over cash payments are more effective when payments are made by cheqye or by EFT rather than in cash
what is the easier method of payment to do control activiites over
when it is in cheques, or EFT!!! this is easeir to control than cash
how are the 5 internal control activities applicable to cash payments
1) assignment of respo: specific employees should be authroized to approve EFT payments
2) segration of duties: have diff employees prepare, approve, adn record EDT payments
3) documentaiton: ensuring that each EFT is supported by an invoice
4) Physcial control: require multifactor authetntication to log into eft system
5) revie and reconciliation: reconcile the total authroized EFT payments with actual payments from bank accounts DAILY!!
BANK ACCOUNTS ARE WHAT?
a key control activtiy
