New Chapter 7

Question 1

Describe the components of the fraud triangle?

Answer 1

Opportunity: the opportunity to commit fraud is readily available.

Financial Pressures: Needs to meet financial pressures rise to high causing one to commit fraud.

Rationalization: “ I deserve this raise, I am just gonna take what I deserve.”

Question 2

What is the purpose of the Sarbanes Oxley act?

Answer 2

• Requires companies to maintain an internal control system.
• executives and directors must ensure the validity of this.
• An independent internal auditor must ensure the validity of this.

Question 3

What is the primary purpose of internal controls?

Answer 3

1.) to safeguards ones’ assets

Question 4

What are the types of internal controls?

Answer 4

1.) Establishment of responsibility:
- ex: when one cashier exits and the next arrives, the one who just finished
their shift should turn their cash drawer.
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2.) segregation of Duties:
Different individuals should be responsible for related activities
* The responsibility for record keeping and keeping a physical asset should
be separated.
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3.) Documentation procedures:
Companies should use prenumbered documents, and all documents should be accounted for.
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4.) Physical Controls:
- Things such as safes, lock boxes, alarms, and passwords should be used to prevent cash being taken, or other assets.
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5.) Independent internal verification:
- Records should be periodically examined by an independent employee.
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6.) Human Resources:
- Bond employees who handle cash, Bond-insurance protection.
- Conduct background checks
- Rotate employee duties and require background checks.

Question 5

What are bonds- human resources (internal controls)?

Answer 5

They are insurance for fraudulent activities.

Question 6

T/F Bank statements are audited?

Answer 6

False

Question 7

What accounts are found in the bank statement?

Answer 7

+ Deposit
- Outstanding checks
+/- Bank Errors

Question 8

What accounts are found in the Book statement?

Answer 8

+ Electronic fund transfer
- NSF checks
- Bank Chargers
+/- service charges

Question 9

What are the principles in cash management?

Answer 9

1. ) increase the speed of Receivables Connection.
   2) Keep inventory low
2. ) monitor payment of liabilities
3. ) plan timing of major expenditures
4. ) Invest idle cash.

Question 10

Voucher system: ?

Answer 10

A network of approvals by authorized individuals, acting independently, to ensure that all disbursements by check are proper.

Question 11

Outstanding check: ?

Answer 11

authorized by the company, but hasn’t been paid for by the bank.

Question 12

Petty cash fund: ?

Answer 12

A cash fund used to pay relatively small amounts.

Question 13

• Cash Disbursement Section: ?

Answer 13

This Section contains expected cash payments

materials, taxes) (Does not include dividends

Question 14

What is included in the cash receipt section of the cash budget?

Answer 14

dividends, all cash sources,

Stock interest and assets.

Question 15

What kind of things are liquid enough to be reported as cash and cash equivalents?

Answer 15

Money market funds

treasury notes