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Lecture 7

ACG-2021 Lecture Notes - Lecture 7: Public Company Accounting Oversight Board, Child Custody, Internal ControlPremium

3 pages29 viewsSpring 2017

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Chapter 7 Notes
- Fraud and Internal Control
o Fraud
Dishonest act by an employee that results in personal benefit to the
employee at a cost to the employer
Three factors that contribute to fraudulent activity
Financial Pressure
o The Sarbanes-Oxley Act (SOX)
Applies to publicly traded US corporations
Required to maintain a system of internal control with the help of
internal auditors who also monitor its effectiveness continuously
Corporate executives and board of directors must ensure that these
controls are reliable and effective
Independent outside auditors must attest to the adequacy of the internal
control system
SOX created the Public Company Accounting Oversight Board (PCAOB)
o Internal Control
Methods and measures adopted to:
1. Safeguard assets
2. Enhance accuracy and reliability of accounting records
3. Increase efficiency of operations
4. Ensure compliance with laws and regulations
A opay’s iteal auditos ae eployees ho ealuate the
effetieess of thei opay’s internal controls
o Principles of Internal Control Activities
Establishment of Responsibility
Control is most effective when only one person is responsible for
a given task
Establishing responsibility often requires limiting access only to
authorized personnel, and then identifying those personnel
Segregation of Duties
Different individuals should be responsible for related activities
The responsibility for record keeping for an asset should be
separate from the physical custody of that asset
Segregation of Related Activities
When one individual is responsible for all of the related activities,
the potential for errors and irregularities is increased
Related purchasing activities should be assigned to different
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