Chapter 8

Question 1

Audit Committee

Answer 1

members of a company’s board of directors who are responsible for dealing with the external and internal auditors

Question 2

Control Activities

Answer 2

policies and procedures used by management to meet their objectives

Question 3

Control Environment

Answer 3

the actions, policies, and procedures that reflect the overall attitudes of top management about control and its importance to the entity

Question 4

Control Procedures

Answer 4

policies and procedures used by management to meet their objectives

Question 5

Detective Controls

Answer 5

internal control activities that are designed to detect the occurrence of errors and fraud

Question 6

External Auditors

Answer 6

independent CPAs who are retained by organizations to perform audits of financial statements

Question 7

GAAP Oval (Generally Accepted Accounting Principles)

Answer 7

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.

Question 8

Income Smoothing

Answer 8

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

Question 9

Generally Accepted Auditing Standards (GAAS)

Answer 9

Auditing standards developed by the PCAOB for public companies and AICPA for private companies

Question 10

Independent Checks

Answer 10

procedures for continued internal verification of other controls

Question 11

Internal Auditors

Answer 11

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

Question 12

Internal Control Structure

Answer 12

policies and procedures established to provide management with reasonable assurance that the objectives of an entity will be achieved

Question 13

Internal Earnings Targets

Answer 13

financial goals established within a company

Question 14

Organizational Structure

Answer 14

lines of authority and responsibility

Question 15

Physical Safegaurds

Answer 15

physical precautions used to protect assets and records

Question 16

Preventative Controls

Answer 16

internal control activities that are designed to prevent the occurrence of errors and fraud

Question 17

Public Company Accounting Oversight Board (PCOAB)

Answer 17

board of five full-time members established by the Sarbanes-Oxley Act to oversee the accounting and auditing profession

Question 18

Sarbanes-Oxley Act

Answer 18

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

Question 19

Securities and Exchange Commission (SEC)

Answer 19

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

Question 20

Segregation of Duties

Answer 20

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