Accounting Test 2 Flashcards
What are the AICPA Principles
- Responsibilities Principle
- Objectivity and Independence
- Public Interest Principle
- Due Care Principle
- Integrity Principle
Responsiblities Principle
In carrying out their duties as professionals, members should exercise sensitive professional and moral judgments in all their activities.
Objectivity and Independence
A member should be free of conflicts of interest in discharging professional responsibilities.
Public Interest Principle
Public Interest Principle
Members should accept the obligation to act in a way that will honor public trust and demonstrate a commitment to professionalism.
Due Care Principle
A member should observe the profession’s technical and ethical standards and strive to continually improve competence.
Integrity Principle
To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of good character.
What are the Internal Control Objectives
- Safeguard Assets
- Encourage employees to follow company policies
- Promote Operational efficiency
- Ensure accurate and reliable accounting records
- Comply with legal requirements
Encourage employees to follow company policies
Everyone in an organization follows a proper systems of controls.
Safeguard assets
A company must protect what brings them future economic benefits.
Comply with legal requirements
Companies, like people, are subject to laws, such as those of regulatory agencies, the IRS, and governing bodies.
Ensure accurate, reliable accounting records
Proper controls are in place to ensure precise, good quality records.
Promote operational efficiency
Companies should have controls that minimize waste, which lowers costs and increases profits.
Internal control procedures
- Smart hiring
- Separation of duties
- comparison and compliance monitoring
- limited access
- proper approvals
smart hiring
things like background checks
separation of duties
not all should go in 1 persons hands
comparison and compliance monitoring
cross checking from other departments
proper approvals
someone else signing off to approve payments
Operating
Create revenue, expenses, gains, and losses. Most companies would want the majority of their cash to flow in from operating
Financing
obtain cash from investors + creditors. also issuing stock, borrowing money, buying + selling, treasury stock, paying dividends, and paying loans.
Investing
increase or decrease in long term assets. A negative cash flow in investing could indicate that a company is purchasing long-term assets.
A large increase in accounts receivable can mean what?
Collections are lagging or sales have grown.
If you take on a lot of debt, your cash flow in financing activities will probably be (POSITIVE/NEGATIVE).
positive
puroses of cash flow statement
- Predicts future cash flow.
- Evaluates management decisions.
- Determines ability to pay dividends and interest.
- Shows relationship between net income and cash flows.
What are the three types of business activities that appear on the cash flow document?
Operating, Investing, and Financing
Indirect method
reconciles for net income to net cash provided by operating activities
Direct method
records all cash receipts and cash payments from operating activities
An increase in accrued liablities would INCREASE/DECREASE cash provided by operations activities.
Increase
GAAP (Generally accepted accounting principles)
Accounting guidelines developed by FASB that govern how accounting is practiced.
IASB (International Accounting Standards Board)
International regulatory body that formulates guidelines for accounting.
FASB (Financial Accounting Standards Board)
Regulatory body in the US that formulates guidelines for accounting.
AICPA (American Institute of Certified Public Accountants)
Professional organization that has a code of conduct for accountants.
SEC (Securities and Exchange Commission)
Government organization whose primary purpose is to enforce the law against market manipulation.
The SOX Act was passed in this year.
2002
All public companies must issue…
an internal control report
The Public Company Accounting Oversight Board was created to…
oversee the audits of public companies
An accounting firm may not both audit and …
provide certain consulting services for the same client
Violators of SOX act face…
stiff penalties
SOX act
a law the U.S. Congress passed on July 30 of that year to help protect investors from fraudulent financial reporting by corporations
