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Flashcards in Chapter 7 Deck (22):
1

Internal Controls

refers to the safeguards the organization build within its own system of recording

2

Five purposes of internal controls

-check handout

3

Fraud Triangle

-opportunity
-financial pressure
-rationalization

4

Control environment includes

-check handout

5

fraud

is a dishonest act by an employee that results in personal benefits to the employee at a cost to the employer

6

Opportunity

workplace lacks sufficient controls to deter and detect fraud

7

Financial Pressure

personal financial problems caused by too much debt

8

Rationalization

-justify actions


-like I'm being underpaid

9

Establishment of Responsibility

-control is most effective when only one person is responsible for a given task

-limit access to authorized personnel and then identify those personnel

-pass codes for who entered certain things

10

Segregation of Duties

-different individuals should be responsible for related activities

-the responsibility for record-keeping for an asset should be separate from the physical custody of that asset

11

Information and Communication

-information must be communicated up and down the chain

-and to external parties

12

Monitoring

-internal controls must be monitored periodically
-significant deficiencies need to be reported to top management or the board of directors

13

Documentation procedures

-pre numbered documents and all documents should be accounted for

-pre numbering helps to prevent a transaction from being recorded more than once or conversely from not being recorded at all


-promptly forward source documents to the accounting department. helps to ensure timely recording of the transaction

14

Physical Controls

relate to the safeguarding of asset and enhance the accuracy and reliability of the accounting records

15

Examples of Physical Conttrols

-safes, vaults, and safety deposit boxes fro cash and business papers

-locked warehouses and storage cabinets


-computer facilities with pass key access or fingerprint or eyeball scans


-alarms to prevent break-ins

-television monitors and garment sensors


-time clocks for recording time worked

16

Independent Internal Verification

-companies should verify records periodically or on a surprise basis

-an employee who is independent of the personnel responsible for the information should make the verification

-discrepancies and exceptions should be reported to a management level that can take appropriate corrective action

17

Human resource controls

-bond employees who handle cash
...screens all individuals before adding them to the policy
...company will vigorously persecute offenders



Rotate employees and require employees to take vacations

Conduct through background checks

...make sure they really graduated from schools
....never use telephone numbers provided

18

Limitations of Internal Controls

-cost benefit(reasonable assurance)


-human element

-collusion
-technological

19

Reasonable Assurance

-cost of establishing control procedures should not exceed their expected benefit

20

Human element

a good system can be ineffective as a result of employee fatigue ,carelessness, or indifference

21

Collusion

-to individuals working together to get around prescribed controls

22

Cash Management Principles

-see handout