Administrative Processes
activities that either are specifically authorized by top managers or are used by managers to perform administrative functions
Three administrative processes described in this chapter:
Source of capital processes
Investment processes
General ledger processes
Which of the following is not part of an administrative process? The sale of stock The sale of bonds The write-off of bad debts The purchase of marketable securities
The write-off of bad debts
Capital
is the funds used to acquire long-term, capital assets of an organization.
Source of capital processes are those processes to
authorize the raising of capital,
the execution of raising capital, and
the proper accounting of that capital.
Which of the following statements is not true regarding source of capital transactions?
These processes should not be initiated unless there is specific authorization by management at a top level.
Source of capital processes will result in potential dividend or interest payments.
Retirement of debt is a source of capital process.
The fact that these transactions and processes cannot occur without oversight by top management means other controls are not necessary.
The fact that these transactions and processes cannot occur without oversight by top management means other controls are not necessary.
Management should
properly manage, or administer, the investment of excess funds.
Investment processes are those processes which
authorize, execute, manage, and properly account for investments of excess funds.
The officer within a corporation that usually has oversight responsibility for investment processes is the controller. treasurer. chief executive officer (CEO). chief accounting officer (CAO).
treasurer
For both source of capital processes and investment processes, the important control is
the specific authorization and oversight by top management.
Generally, the risks are not related to _____ fraud, but are instead related to _______ fraud.
employee
management
Which of the following statements is true?
Routine transactions are recorded in the general journal.
Nonroutine transactions are entered in the general journal.
Nonroutine transactions are recorded in a subsidiary ledger.
Nonroutine transactions are recorded in a special journal.
Nonroutine transactions are entered in the general journal.
Regarding subsidiary ledgers and general ledger control accounts, which of the following is not true?
Total balances in a subsidiary ledger should always equal the balance in the corresponding general ledger account.
The general ledger maintains details of subaccounts.
Control is enhanced by separating the subsidiary ledger from the general ledger.
Reconciling a subsidiary ledger to the general ledger can help to detect errors or fraud.
The general ledger maintains details of subaccounts.
Common procedures associated with the general ledger:
Authorization of transactions Segregation of duties Adequate records and documents Security of the general ledger and documents Independent checks and reconciliation Cost-benefit considerations
Which of the following statements regarding the authorization of general ledger posting is not true?
Posting to the general ledger always requires specific authorization.
User IDs and passwords can serve as authorization to post transactions to the general ledger.
A journal voucher serves as authorization for manual systems.
As IT systems become more automated, the authorization of general ledger posting is moved to lower levels of employees.
Posting to the general ledger always requires specific authorization.
In a manual system with proper segregation of duties, an employee in the general ledger department should only
authorize posting to the general ledger.
post transactions to the general ledger.
reconcile the subsidiary ledger to the general ledger.
post transactions to the subsidiary ledger.
post transactions to the general ledger.
External Reporting
Four general purpose financial statements
balance sheet,
income statement,
statement of cash flows, and
statement of retained earnings
are created from general ledger account balances.
Internal Reporting
Internal reports are
usually not financial statements, but reports tailored to specific needs of each management level and function.
Many factors affect the type of report provided
Type of organization
Function managed
Time horizon
Which of the following statements about reporting is true?
External users need detailed, rather than summarized, information.
All reports, internal and external, are derived only from general ledger data.
All organizations need similar internal reports.
Internal reports are tailored to the specific needs of each management level and function.
Internal reports are tailored to the specific needs of each management level and function.
Reasons that unethical and fraudulent behavior would tend to be management-initiated.
First, in a properly controlled system, employees do not have access to related assets or source documents.
Second, administrative processes are tightly controlled and supervised by top management.
Finally, routine nature of processes such as sales, purchasing, payroll, and conversion generates a huge volume of transactions.
Unethical Management Behavior in Capital Sources and Investing
Management should
be honest in the financial statements presented, footnote disclosures, and any related disclosures.
avoid misleading creditors about
the financial status of the company or
its ability to repay any borrowing.
Internal Reporting ethical Issues
Top management has
an ethical obligation to use financial and other reports to encourage beneficial and ethical behavior.
Reports to lower level managers are usually used
for two purposes.
Feedback to lower level managers.
Used by upper management to evaluate and reward the performance of lower level managers
what is important to effective corporate governance.
Setting and monitoring financial goals, and establishing and maintaining reliable accounting journals and ledgers so that performance can be properly reported,
In addition, internal controls and ethical practices within the administrative processes help ensure
proper financial stewardship of a company’s administrative resources.
examples of admin processes
hiring - not typically done every day
debt equity financing
purchase fixed assets
financial recording
admin processes are done less often, don’t affect day to day operations
all process maps should
end in recording
who does investments?
treasurer
most important control in capital and investment processes
authorization
generally, risks
arent related to employee fraud, they’re related to management fraud
employee doesn’t have rights/authorization to commit fraud usually
possible control is bank having authorized signers
preventative
mirrors to prevent theft
detective
tags on clothes, finding and fixing
only detect after its done
helps you learn about the process, have new controls