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C213 chapt 7-8
Cash budgeting- Interna controls
| Question | Answer |
|---|---|
| error | Unintentional mistakes that can enter the accounting system at the transaction and journal entry stage or when journal entries are posted to accounts |
| disagreements in judgement | Differences in opinion about what numbers should be reported in the financial statements based on different estimates |
| fraud | Intentional misrepresentations in the financial statements |
| Three types of problems can affect financial statements. | error, disagreements in judgement, fraud |
| The three basic internal control structure categories are | 1.The control environment 2.The accounting systems 3.The control procedures |
| an important tool in helping management plan its cash needs | cash budgeting |
| The five types of control procedures are | 1.Segregation of duties 2.Procedures for authorizations 3.Documents and records 4.Physical safeguards 5.Independent checks |
| Pressure to meet internal earnings targets • Pressure to meet external expectations • Smoothing income • Preparing to apply for a loan or to offer stock to the public | reasons for earning management |
| Careful timing of transactions • Changing accounting methods or estimates with full disclosure • Changing accounting methods or estimates withOUT adequate disclosure • Non-GAAP accounting • Fictitious transactions | techniques for earnings management |
| SAX Public Company Accounting Oversight | Register all public accounting firms |
| SAX Board (PCAOB) | Establish auditing standards. • Inspect public accounting firms |
| SAX Constraints on auditors | Auditors are prohibited from providing nonaudit services to audit clients. • Audit partners must rotate every five years. • Auditors must report to the audit committee of the board of directors |
| SAX Constraints on management | The CEO and the CFO must personally certify the reliability of the financial statements. • Companies must have a code of ethics. • Loans to company executives are prohibited. • Audit committees must be strengthened |
| role of internal auditor | Evaluate internal controls • Monitor operating results • Ensure compliance with laws and company policy • Detect fraud |
| role of external auditor | Gather evidence to be able to certify the fairness of the financial statements through: • Interviews • Observation • Sampling • Confirmation • Analytical procedures |
| •The SEC is the agency of the federal government charged with the responsibility | of assisting investors by making sure they are provided with reliable information upon which to make investment decisions |
| •The SEC was organized in the 1930s and requires | certain periodic reports of companies that sell stock publicly in the United States, such as Forms 10-Q and 10-K. |
| •The SEC adds credibility to financial statements by | ◦Requiring independent audits ◦Reviewing financial statements itself ◦Sanctioning firms that violate its standards |
Created by:
nashanta
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