Chapter 4 Flashcards
A company’s policies and procedures are designed to reduce the opportunity for fraud and to provide reasonable assurance that its objectives will be accomplished.
internal controls
An insurance policy that a company buys to insure itself against loss due to employee dishonesty.
fidelity bond
Manual that sets forth the accounting procedures to be followed.
procedures manual
A document that outlines the chain of command for authority and responsibility.
authority manual
The _____provides guidelines for specific positions such as personnel officer as well as general authority, such as all vice presidents are authorized to spend up to a designated limit.
authority manual
Policies and procedures that apply to designated levels of management, such as the policy that the right to approve overtime pay may apply only to the plant manager.
specific authorizations
Policies and procedures apply across different levels of a company’s management, such as everyone flies coach class.
general authority
Coins, currency, checks, balances in checking and certain savings accounts, money orders, bank drafts, certificates of deposit, and other items that are payable on demand.
cash
Statement issued by a bank (usually monthly) that denotes all activity in the bank account for that period.
bank statement
Memorandum that describes a decrease in the account balance.
bank statement debit memo
Memorandum that describes an increase in the account balance.
bank statement credit memo
Schedule that identifies and explains differences between the cash balance reported by the bank and the cash balance in the firm’s accounting records.
bank reconciliation
Ending cash balance reported by the bank as of the date of the bank statement.
unadjusted bank balance
Actual balance of cash owned by a company at the close of business on the date of the bank statement.
true cash balance
Balance of the Cash account as of the date of the reconciliation before making any adjustments.
unadjusted book balance
National association that serves the educational and professional interests of members of the public accounting profession; membership is voluntary.
American Institute of Certified Public Accountants (AICPA)
A set of guidelines established by the American Institute of Certified Public Accountants (AICPA) to promote high ethical conduct among its membership.
Code of Professional Conduct
Detailed examination of a company’s accounting records and the documents that support the information reported in the financial statements;
financial statement audit
Licensed certified public accountant engaged to audit a company’s financial statements; not an employee of the audited company.
independent auditor
The point at which knowledge of information would influence a user’s decision; can be measured in absolute, percentage, quantitative, or qualitative terms.
materiality
The concept allows nonmaterial matters to be handled in any convenient way, such as charging a pencil sharpener to expense rather than recording periodic depreciation over its useful life.
materiality
Opinion issued by a certified public accountant that means the company’s financial statements are, in all material respects, in compliance with GAAP; the auditor has no reservations. Contrast with qualified opinion.
unqualified opinion
Opinion issued by a certified public accountant that means one or more departures from GAAP in a company’s financial statements are so very material the auditors believe the financial statements do not fairly represent the company’s status; contrast with unqualified opinion.
adverse opinion
Opinion issued by a certified public accountant that means the company’s financial statements are, for the most part, in compliance with GAAP, but there is some circumstance (explained in the auditor’s report) about which the auditor has reservations; contrast with unqualified opinion.
qualified opinion
Report on financial statements issued when the auditor is unable to obtain enough information to determine if the statements conform to GAAP; is neither positive nor negative.
disclaimer of opinion
Code of ethics requirement that prohibits CPAs from voluntarily disclosing information they acquire as a result of accountant–client relationships.
confidentiality
The framework that is used to assess the effectiveness of a company’s internal control was established by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
____ will be shown as a credit on a bank statement
Interest revenue
Kelly Company’s unadjusted bank balance on May 31 is $9,500. An analysis of the bank statement revealed $1,400 of deposits in transit and $900 of outstanding checks. In addition, the bank statement showed a $200 NSF check. Based on this information, Kelly’s true cash balance is
$10,000
Which of the following entities is responsible for establishing auditing standards?
The Public Company Accounting Oversight Board
The term “Retained Earnings” is best explained by which of the following statements?
A measure of capital generated through earnings.
