Chapter 8 Flashcards
Audit Committee
members of a company’s board of directors who are responsible for dealing with the external and internal auditors
Control Activities
policies and procedures used by management to meet their objectives
Control Environment
the actions, policies, and procedures that reflect the overall attitudes of top management about control and its importance to the entity
Control Procedures
policies and procedures used by management to meet their objectives
Detective Controls
internal control activities that are designed to detect the occurrence of errors and fraud
External Auditors
independent CPAs who are retained by organizations to perform audits of financial statements
GAAP Oval (Generally Accepted Accounting Principles)
a diagram that represents the flexibility a manager has, within GAAP, to report one earnings number from among many possibilities based on different methods and assumptions.
Income Smoothing
the practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next
Generally Accepted Auditing Standards (GAAS)
Auditing standards developed by the PCAOB for public companies and AICPA for private companies
Independent Checks
procedures for continued internal verification of other controls
Internal Auditors
a independent group of experts (in controls, accounting, and operations) who monitor operating results and financial records, evaluate internal controls, assist with increasing the efficiency and effectiveness of operations, and detect fraud
Internal Control Structure
policies and procedures established to provide management with reasonable assurance that the objectives of an entity will be achieved
Internal Earnings Targets
financial goals established within a company
Organizational Structure
lines of authority and responsibility
Physical Safegaurds
physical precautions used to protect assets and records
Preventative Controls
internal control activities that are designed to prevent the occurrence of errors and fraud
Public Company Accounting Oversight Board (PCOAB)
board of five full-time members established by the Sarbanes-Oxley Act to oversee the accounting and auditing profession
Sarbanes-Oxley Act
a law passed by Congress in 2002 that gives the SEC significant oversight responsibility and control over companies issuing financial statements and their external auditors
Securities and Exchange Commission (SEC)
the govt body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds
Segregation of Duties
a strategy to provide an internal check on performance through separation of authorization of transactions from custody of related assets, operational responsibilities from record-keeping responsibilities, and custody of assets from accounting personnel
