Chapter 7 Flashcards
what is internal control system
All the policies and procedures managers use to
- protect assets,
-ensure reliable accounting
- urge adherence to company policies
- adhere to sustainability targets sat by management
- collect accurate data relating to sustainability targets
Corporate governance
the mechanism by which individuals in a company in particular the board of directors are motivated to align their behaviours with the overall corporate good
what is the principles of internal control
fundamental principles of internal control that apply to all companies requiring management to ensure
-transactions and activities are authorized
-maintain recors
- insure assets
- separate record keeping and custody of assets
- establish a separation of duties
- apply technological controls
- and perform internal and external audits
What is establish a separation of Duties
an internal control principle requiring the division of responsibility for related transactions between two or more individuals or departments
what is separation of duties also called
segregation of duties
what needs to be separate when it comes to custody of assets
authorization and record keeping
what is the act in which two or more people agree to commit a fraud
collusion
what is ensure transaction and activities are authorized
establish responsibilities for each task clearly for each position in the company
approvals must be make by authorized individuals
what does maintaining records entail
maintain adequate records to help protect assets by ensuring that employees use prescribed procedures
what does insuring assets and bond key employees entail
used to reduce risk of loss from casualty and theft
what does it mean to bond an employee
and insurance policy purchased by a company to protect against losses from theft by that employee
applying technological controls
need to develop controls to protect both their business and the valuable data they maintain regarding confidential information of their customers and suppliers
examples of applying technological controls
passwords to limit access to sensitive information
registers with a locked-in tape or electronic file make a record of each cash sale
time clock registers the exact time an employee arrives at and departs
perform internal reviews
to ensure the internal control procedures are followed
are internal control systems effective
not entirely for many reasons
- employee turnover
- human error
- intentional circumvention of controls
external audits
normally independent external auditors who are professional accountants
why are external audits required
to document the controls for every financial statement line item and test existing controls
what to external auditors perform
detailed analysis of the companies financial records and give opinions as the whether the companies financial statements are presented fairly
tip - solving problems related to controls
to provide a full analysis of a control issue remember W (weakness) I (implication) R (recommendation)
what are the 4 top types of fraud
- Customer fraud
- Cybercrime
- Asset misappropriation
- Bribery and corruption