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ACCT 427 exam 2 > exam 2 > Flashcards

exam 2 Flashcards

1
Q

Fraud Legal Definition

A
  1. a false statement, representation, or disclosure is made
  2. The fact is a material fact that induces a person to act
  3. the fact was made with the intent to deceive
  4. a justifiable reliance on the fraudulent fact in which the person was taking action
  5. an injury or loss was suffered by the victim
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2
Q

Three sides of the fraud triangle

A

Opportunity, rationalization, pressure

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3
Q

Opportunity triangle

A

commit, conceal, convert

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4
Q

Rationalization triangle

A

attitude, lack of personal integrity, justification

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5
Q

employee pressure triangle (pressure)

A

financial, emotional, lifestyle incentives

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6
Q

financial statement pressure triangle

A

financial, management characteristics, industry conditions

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7
Q

missapropriation of assets

A
  • theft of company assets

most common, smaller amounts with each instance

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8
Q

largest factors for theft of assets

A
  • absence of internal controls system

- failure to enforce the internal control system

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9
Q

fraudulent financial reporting

A

intentional or reckless conduct, whether by act or omission, that results in materially misleading financial statements

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10
Q

corruption

A
  • wrongful use of a position to procure benefits

- kickbacks, conflicts of interest

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11
Q

lapping

A

concealing the theft of cash through delays in posting collections to accounts recievable: often through applying payments to different customer balances

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12
Q

kiting

A

creating cash using the lagtime between when a check is deposited and the time it clears the bank

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13
Q

auditing standard SAS 99 (now AU-C 240)

A
  • understand fraud
  • discuss risks of material fraudulent statements amongst audit group
  • obtain evidence supporting if fraud has occured or not
  • evaluate the results of other audit tests
  • document and communicate findings
  • professional skepticism
  • incorporate technology focus
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14
Q

input fraud

A

alteration or falsifying input of data in the AIS: you have the ability to input this data as a part of your responsibilites

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15
Q

Processor fraud

A

unauthorized system use, like using work computers for non-work activities or using access you incidentally have in the AIS but shouldnt be using

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16
Q

computer instruction fruad

A

modifying software to do unintended things, illegal copying of software, creating software to undergo unauthorized activities

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17
Q

output/data fraud

A

stealing, copying or missuing AIS reports/printouts or displaying information

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18
Q

Foreign Corrupt Practices Act (FCPA)

A
  • first piece of regulation that required internal controls - 1970s
  • did not require an audit of the controls
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19
Q

Sox act- MGMT rules

A
  • Management is responsible for setting up internal controls over financial reporting, other operational controls are good just not necessary for SOX compliance
  • auditors are told about material internal controls weaknesses and fraud even if its immaterial
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20
Q

Sox act- External audit

A
  • Audit partners must rotate periodically

- prohibited from performing certain non- audit services (consulting)

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21
Q

SOX- new audit committee rules

A
  • still part of board of directors with new independence rules ( cant be employees)
  • one member must be a financial expert
  • oversees external audit
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22
Q

Sox- Creation of PCAOB

A
  • entity that oversees the external audit profession includingprocess review and approv
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23
Q

COSO

A

committee of sponsoring organizations, like US Gaap rules for internal controls

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24
Q

ERM Framework

A

broad focus on strategic planning, setting risk the company is willing to take on

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25
Q

Internal controls- integrated framework

A

this is the cube, many companies claim on their 10k that they follow the IC cube as a part of their internal controls

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26
Q

5 elements of the front of the cube

A

control environment, risk assessment, control activities, information and communication, monitoring activities

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27
Q

control environment

A
  • how does management show “tone at the top”
  • established by setting up board of directors, and independent audit, communication of ethics and values, organizational structure, HR activities
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28
Q

risk assessment

A
  • event identification
  • risk assessment
  • risk response
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29
Q

impact risk assessment

A

how much money will you lose or how much will your reputation take a hit

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30
Q

likelihood risk assessment

A

how often will this risk happen

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31
Q

inherent risk response

A

cost potential if the risk is not controlled

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32
Q

residual risk response

A

remaining risk after the controls are put in place

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33
Q

cost of control

A

costs that go along with trying to implement a control and setting up cost benefit on this

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34
Q

control activities

A

when determined to be appropriate and cost effective internal controls are set into place- manual automatic, preventative or detective

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35
Q

information and communication

A

management should use a system that gathers information accurately and communicates it on demand

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36
Q

monitoring

A

the 4 above components should be monitored by the company to ensure they are in place and defecencies found in any component are communicated by auditors to the audit committee

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37
Q

top of the cube

A
  • operations- day to day decisions and efficiency
  • reporting- SOX
  • compliance- OSHA, IRS, HIPAA, PCI
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38
Q

COSO-IC and COSO-ERM

A

Address organizational-wide internal controls

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39
Q

business process controls

A

designed to address specific financial risks

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40
Q

COBIT

A

focuses on information technology internal control

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41
Q

IT general control

A
  • the risks that information stored electronically is complete and accurate
  • developed by the information systems audit and control association (ISACA)
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42
Q

IT Controls

A

intended to secure information and protect the functionality of any financially impacted system- broad and not linked to just one cycle

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43
Q

Business process controls

A

intended to address a specific business process cycle risks. this may be automated or manual

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44
Q

IT department responsibility

A

recording and custody

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45
Q

accounting department responsibility of IT controls

A

Authorization

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46
Q

Risk: Innapropriate user gains access to the AIS or database

A

controls:

  • each user given unique ID
  • authentication layers
  • new user ID should be approved prior to access
  • User ID of employee who leaves should be promptly removed
  • users who change job responsibility should have access to AIS updated
  • access reviewed periodically
  • ability to change user access is restricted
  • strong passwords
  • physical access to databases is limited
  • employees required to take security training
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47
Q

tasks

A

the individual function a user can do in the AIS

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48
Q

roles

A

the AIS groups together tasks to save time in granting access and assign a role (clerk, manager)

49
Q

Authentication examples

A

Passwords
randomized PINS that are required in addition to the password
biometrics
-requiring more than one of these is referred to as multifactor authentication

50
Q

physical access controls

A 
requiring keys
security guards
laptops should be locked down in work places 
camera survelience
visitor escorts
51
Q

Risk: unauthorized disclosure of financial data or privacy data

A

controls

  • read only access should be restricted
  • encryption
  • shredding of printed reports
  • firewalls
  • virus detection software
  • review suspiscious activity
  • penetration tests
52
Q

encrpytion

A

makes it to where you have to have a key to access a certain document and if you dont when you open it all you will see is gibberish

53
Q

digital certificates

A

built into electronic documents/transactions, this certifies the owner of the document is who they say they are

54
Q

digital signitures

A

confirms who created the file and that it is has not been altered since it was last saved by the creator

55
Q

what should be encrypted

A
  • financial data
  • EDI, FEDI, EFT transactions
  • Ecommerce activity
  • employee activity over the corporate network (VPN)
  • company info stored on personal devices
  • emails with sensitive data
  • excels with sensitive data
56
Q

Encryption regulations

A
  • Payment card industry (PCI)
  • HIPPA
  • customer data mainatained in the financial services industry (gramm-leach bliley act)
  • EEOC- personal info of company employees
57
Q

firewall

A

brick wall around the server so no one outside can get in

58
Q

hacking

A

when firewalls fail or other control weaknesses are identified, hackers obtain unauthorized access to systems and data by

  • exploiting weaknesses in the code
  • guessing passwords
  • viruses
  • keystroke loggers
59
Q

intrusion detection systems

A

helps identify if anyone has gained access to the system

60
Q

risk: changes are made to the AIS code that makes financial data incomplete or inaccurate

A

controls-

  • changes to the AIS should be tested and approved
  • ability to implement coding changes is restricted
  • changes are logged by IT
  • AIS updates/patches offered by the vendor
61
Q

development version

A

dummy version of the system to test on

62
Q

production version

A

the live scale version of the AIS

63
Q

testing is done by

A

developers and managers

64
Q

risk: transactions are not processed/saved by the AIS completely or accurately

A

controls
-online processing integrity controls and batch process controls
- real time or batch processing transactions that fail/error should notify IT and ACCT to be reviewed
- reviews of financial information should be performed periodically
(this risk is generally addressed by business process controls)

65
Q

Risk: AIS data is not available when needed, resulting in inaccurate or incomplete financial data

A

controls-

  • backups
  • data center controls reduce the risk of system downtime
  • disaster recovery plans clearly defined
  • business continutity plans should be defined for non-IT functions
66
Q

data center controls

A
  • natural disaster proof
  • adequate AC
    uniterupped power supply or backup generators
  • physical access is restricted
67
Q

incrementally backups

A

captures all activity since the last backup was performed

68
Q

differential backup

A

captures all activity since last full backup was performed

69
Q

disaster recovery plans

A

how a company will restore its IT functions when the data center fails due to disaster

70
Q

business recovery plans

A

how a company restores business process functions the compans operations are affected by disaster

71
Q

cold site ( disaster recovery)

A

cheapest slow and the company purchases rughts to an empty warehouse to set up

72
Q

hot site (disaster recovery location)

A

Expensive and fast, a duplicate of the current data center and backed up frequently

73
Q

warm site ( disaster recovery site)

A

in between the two and may have stuff in it but not a duplicate site

74
Q

Changes in AIS (waterfall method)

A

request- authorization- development- testing- approval- implementation

75
Q

changes in AIS ( agile method)

A

request (auth)- development- test- user- devlop-user……- test- approve implement
little sprints rather than one long marathon

76
Q

Sales organization

A

the organizational unit that is responsible for the sale and distribution of goods and services

77
Q

distribution channel

A

the structure through which salable materials or services reach customers

78
Q

a sales organization must be linked to

A

a plant

79
Q

controlling module

A

assigns costs and revenues to appropriate subledgers

80
Q

outbound delivery

A

picking, packing, and transportation scheduling are accomplished through the creation of this

81
Q

material master record

A

automatically proposes data for pricing, delivery, schedule, weight volume and tax determination

82
Q

a given delivery can be carried out by multiple shipping points

A

false

83
Q

a delivery cannot be created if the order is for less than the minimum order quantity

A

false

84
Q

document flow

A

processing status of a given sale can be determined by referencing this

85
Q

delivery unit

A

unit in which sold materials can be delivered is the

86
Q

Database

A

where all data (transaction and master data) used by an AIS is stored

87
Q

Relational Database Model

A

data is stored in separate tables but structured together to where they are linked

88
Q

who is the database administrator (DBA)

A

IT

89
Q

attributes

A

columns

90
Q

records

A

rows

91
Q

fields

A

individual cells

92
Q

primary key

A

every item has one of these and it is an attribute or combination of attributes that can be used to uniquely identify a specific row in a table

93
Q

Foreign key

A

an attribute in one table that is a primary key in another table

94
Q

Non-Key

A

an attribute that describes a key (name, color, price)

95
Q

Design requirements for relational databases

A
  1. every attribute must be single valued
  2. primary keys must contain data (not null) and cannot have duplicates
  3. foreign keys must be the primary key in another table
  4. all other non key attributes must identify a characteristic of the table identified by the primary key
96
Q

update anomaly

A

changes to existing data on one table may not update another table that uses the data (when not properly linked)

97
Q

insert anomaly

A

unable to add a new record to the database tables if the primary key is not defined

98
Q

delete anomaly

A

removing a record also removes other unintended data from the database (delete one thing messes up something else)

99
Q

Data integration

A

if properly set up a database can be accessed by various programs

100
Q

data sharing

A

with data in one place it is more easily accessed by- and limited to - only authorized users

101
Q

minimizing data redundancy and data inconsistency

A

eliminates the same data being stored in multiple files/places, thus reducing inconsistency in multiple versions of the same data

102
Q

data independence

A

data is separate from the programs that access it

103
Q

cross functional analysis

A

relationships between data from various organizational departments can be more easily combined

104
Q

risk: info stored in the database is not complete/accurate

A

controls

  • access is approved upon hire and taken away upon termination (prevent)
  • access should be reviewed periodically (detective)
  • non-routine changes to the DBMS should be tested and approved (prevent)
  • log of changes is reviewed to make sure appropriate (detective)
  • log of changes cannot be edited (detective)- this one supports the prior one
105
Q

Risk: info stored in the database is leaked to unauthorized users

A

controls

  • login with password required
  • encryption
106
Q

SELECT

A

required and shows the output of attributes

107
Q

FROM

A

required and shows from what table

108
Q

WHERE or HAVING

A

optional, applies a filter to the data

109
Q

GROUP BY

A

optional, consolidates like records together

110
Q

ORDER BY or SORT BY

A

optional- organizes the output by date, alphabetically, numerically, etc

111
Q

JOIN or JOIN ON

A

used to link together two or more tables

112
Q

customer master record

A

Financial accounting and sales logistics are linked primarily through the

113
Q

vendor number

A

The account used to track amounts owed to a vendor is the

114
Q

procurement logistics

A

Authorization to make payments to vendors for goods purchased comes from

115
Q

primary costs

A

The costs transferred from financial accounting to controlling are known as

116
Q

distribution

A

The allocation method in which a primary cost is allocated to a receiver cost object is a

117
Q

The use of allocations helps enhance data entry accuracy by increasing the amount of data entry at the time the cost is initially recorded.

A

False

118
Q

An entry to a primary expense account in Financial Accounting results in an automatic entry to the related cost object in Controlling.

A

true

119
Q

A given company code may have multiple controlling areas

A

False

ACCT 427 exam 2 (1 decks)

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