Exam 2 (ch 18)

Question 1

General Ledger and Reporting System Process

Answer 1

• Update general ledger
• Post adjusting entries
• Prepare financial statements
• Produce managerial reports

Question 2

General threats throughout the general ledger and reporting cycle

Answer 2

1) Inaccurate or invalid general ledger data
2) Unauthorized disclosure of financial statement
3) Loss or destruction of data

Question 3

Controls to this threat:

(Inaccurate or invalid general ledger data)

Answer 3

• Data processing integrity controls
• Restriction of access to general ledger
• Review of all changes to g/l data

Question 4

Controls to this threat:

(Unauthorized disclosure of financial statement)

Answer 4

• Access controls
• Encryption

Question 5

Controls to this threat:

Loss or destruction of data

Answer 5

• Backup and disaster recovery procedures

Question 6

Update general ledger

Threats

Answer 6

• Inaccurate updating of the general ledger
• Unauthorized journal entries

Question 7

Controls to this threat:

(Inaccurate updating of general ledger)

Answer 7

• Data entry processing integrity controls
• Reconciliations and controls reports
• Audit trail creation and review

Question 8

Controls to this threat:

(Unauthorized journal entries)

Answer 8

• Access controls
• Reconciliations and control reports
  (Preventative)
• Audit trail creation and review
  (Detective; e.g. putting a name to a journal entry)

Question 9

Adjusting entries

Answer 9

• Accruals
• Deferrals
• Estimates
• Revaluations
• Corrections

Question 10

Accruals

Answer 10

• Made at the end of the accounting period to reflect events that have occurred but are not in the financial statements
  (e.g. Wages payable)

Question 11

Deferrals

Answer 11

• Made at the end of the accounting period to reflect the exchange of cash prior to the performance of the related event
  (e.g. rent)

Question 12

Estimates

Answer 12

• Portion of expenses expected to occur over a number of accounting periods
  (e.g. depreciation)

Question 13

Revaluations

Answer 13

• Entries made to reflect differences between the actual and record value of an asset or change in accounting principle
  (e.g. Impairment)

Question 14

Corrections

Answer 14

• Entries made to counteract the effects of errors found in the general ledger

Question 15

Post Adjusting Entries

Threats

Answer 15

• Inaccurate adjusting entries
• Unauthorized adjusting entries

Question 16

Controls to this threat:

(Inaccurate adjusting entries)

Answer 16

• Data entry processing integrity controls
• spreadsheet error protection controls
• Standard adjusting entries
• Reconciliations and control reports
• Audit trail creation and review

Question 17

Controls to this threat:

(Unauthorized adjusting entries)

Answer 17

• Access controls
• Reconciliations and control reports
• Audit trail creation and review

Question 18

Prepare Financial statements
Produce Managerial Reports

Threats

Answer 18

• Inaccurate financial statements
• Fraudulent Financial statements
• Poorly designed reports and graphs

Question 19

Controls to this threat:

(Inaccurate financial statements)

Answer 19

• Processing integrity controls
• Use of packaged software
• Training and experience in applying IFRS and XBRL
• Audits

Question 20

Controls to this threat:

(Fraudulent financial reporting)

Answer 20

• Audits

Question 21

Controls to this threat:

(Poorly designed reports and graphs)

Answer 21

• Responsibility accounting
• Balanced scorecard
• Training on proper graph design

Question 22

Regulatory & Technological Developments that affect financial reporting

Answer 22

• eXtensible Business Reporting Language (XBRL)

Question 23

eXtensible Business Reporting Language
(XBRL)

Answer 23

• Specifically used for communicating financial data
  (required by the Securities and Exchange Commission (SEC) if a public company)`

Question 24

Managerial Reports & Evaluating Performance

Answer 24

• Responsibility accounting
• Flexible budget
• Balanced scorecard
• Graphs

Question 25

- Responsibility Accounting

Answer 25

- Reporting results based on managerial responsibilities in an organization (e.g. sales managers are held accountable for sales revenue)

Question 26

- Flexible Budget

Answer 26

- Budget formula based on level of activity (e.g. production levels)

Question 27

Balanced Scorecard

Answer 27

- Measures financial and nonfinancial performance using four-dimensional goals - Financial - Customer - Internal Operations - Innovation and Learning

Question 28

Graphs

Answer 28

- Data visualizations and proper graph design