Chapter 8: Internal Controls: Ensuring the Integrity of Financial Information

Question 1

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

Answer 1

Audit Committee

Question 2

Policies and procedures used by management to meet their objectives

Answer 2

Control Activities

Question 3

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

Answer 3

Control Environment

Question 4

Policies and procedures used by management to meet their objectives

Answer 4

Control Procedures

Question 5

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

Answer 5

Detective Controls

Question 6

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

Answer 6

External Auditors

Question 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

Answer 7

GAAP Oval

Question 8

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

Answer 8

Generally Accepted Auditing Standards (GAAS)

Question 9

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earning from one year to the next

Answer 9

Income Smoothing

Question 10

Procedure for continual internal verification of other control

Answer 10

Independent Checks

Question 11

An 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

Answer 11

Internal Auditors

Question 12

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

Answer 12

Internal Control Structure

Question 13

Financial goals established within a company

Answer 13

Internal Earnings Target

Question 14

Lines of authority and responsibility

Answer 14

Organizational Structure

Question 15

Physical precautions used to protect assets and records

Answer 15

Physical Safeguards

Question 16

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

Answer 16

Preventative Controls

Question 17

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

Answer 17

Public Company Accounting Oversight Board (PCAOB)

Question 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

Answer 18

Sarbanes-Oxley Act

Question 19

The government body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds

Answer 19

Securities and Exchange Commission (SEC)

Question 20

A strategy to provide an internal check on performance through separation of authorization of transactions from custody of related asset, operational responsibilities from record-keeping responsibilities, and custody of assets from accounting personnel

Answer 20

Segregation of Duties