Chapter 4 Key Words Flashcards
when a person intentionally deceives another person for personal gain or to damage that person
fraud
The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources
occupational fraud
The three elements present for every fraud— motivation, rationalization, and opportunity.
fraud triangle
A company’s plans to (1) safeguard the company’s assets and (2) improve the accuracy and reliability of accounting information.
internal controls
Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor–client relations and internal control procedures.
Sarbanes-Oxley Act
Authorizing transactions, recording transactions, and controlling related assets should be separated among employees.
separation of duties (pc)
controls designed to keep error or fraud from occurring in the first place
preventive controls
controls designed to detect errors or fraud that have already occurred
detective controls
Two or more people acting in coordination to circumvent internal controls.
two or more people acting in coordination to circumvent internal controls
Currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), credit card and debit card sales, and cash equivalents
cash
Short-term investments that have a maturity date no longer than three months from the date of purchase.
cash equivalents
paper
cash and checks
plastic
credit and debit cards
transfer of funds directly from the bank account to the company’s bank
electronic funds tranfers (EFTs)
Matching the balance of cash in the bank account with the balance of cash in the company’s own records.
bank reconciliation
Cash receipts of the company that have not been added to the bank’s record of the company’s balance.
deposits outstanding
Checks the company has written that have not been subtracted from the bank’s record of the company’s balance.
checks outstanding
A check received and deposited by a company that is later determined by the bank to have nonsufficient funds. Also known as a “bad” check from a customer.
NSF check
Company-issued debit cards or credit cards that allow authorized employees to make purchases on behalf of the company.
purchase cards
Small amount of cash kept on hand to pay for minor purchases.
petty cash fund
cash that is not available for current operations
restricted cash
accidental errors in recording transactions or applying accounting rules
errors
A set of procedures that ensure assets and accounting records are kept safe.
physical controls (pc)
A set of procedures designed to prevent improper use of the company’s resources.
proper authorization (pc)
Providing employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties.
employee management (pc)
A set of procedures specifically designed to ensure only authorized personnel are able to conduct e-commerce transactions.
e-commerce controls (pc)
Management should periodically determine whether the amount of physical assets of the company (cash, supplies, inventory, and other property) agree with the accounting records.
reconciliations (dc)
The actual performance of individuals or processes should be checked against their expected performance
performance reviews (dc)
Hire an independent auditor to assess the internal control procedures to detect any deficiencies or fraudulent behavior of employees.
audits
cash transactions involving revenues and expenses (ex: cash received from customers, cash paid for rent, utilities, supplies, and salaries)
operating activities
Cash investments in long-term assets and investment securities (ex: purchase or sale of land, equipment, and buildings for cash)
investing activities
Transactions designed to finance the business through borrowing and owner investment (ex: issue common stock or pay dividends; borrow or repay debt)
financing activities
