ACC 131 Lecture Notes - Lecture 4: Bank Reconciliation, Cash Cash, Bank Statement

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15 Nov 2016

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Review- rest of semester going through the items on the balance sheet, and related items on the income statement. Internal controls are policies, procedures the company puts to keep money from being stolen from the company. To control employees" activities, management puts in place procedures that collectively are called the internal control system. Under the sarbanes-oxley act of 2002, top management of publicly-traded corporations have an increased responsibility for a system of internal controls that ensures the reliability of the financial statements. Section 404- 14 years later, the usefulness is still being debated. Section 302- requires an auditor to overlook the managements documents to make sure they reported correctly. The foundation of the internal control system is the control environment the collection of environmental factors that influence the effectiveness of control procedures. At the end of the month, companies have to do a bank conciliation? (accounts are accounted for).

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Match the following terms with their definitions

Internal control a.two or more people working together to overcome internalcontrol

Control procedures b. part of internal controlthat ensures resources are not wasted.

Firewalls c. requires companies to review internal control and takeresponsibility for the accuracy and completeness of their financialsupport

Encryption d. should be pre-numbered to prevent theft andinefficiency.

Environment e. limits access to a local network.

Information system f. example: theperson who opens the bank statement should not also be the personwho is reconciling cash.

Separation of duties g. identificationof uncertainties that may arise due to a companyâs products,services, or operations.

Collusion h. examination of a companyâs financialstatements and accounting system by a trained accountingprofessional

Documents i. without a sufficient one ofthese, information cannot properly be gathered and summarized.

Audits

j. the organizational plan and all the related measures thatsafeguard assets, encourage employees to follow company policies,promote operational efficiency, and ensure accurate and reliableaccounting data.

Operational efficiency k. component of internal control that helps ensure business goalsare achieved.

Risk assessment l. rearrange data by a mathematical process.

Sarbanes-Oxley Act m. to establish one, a companyâs CEO and top managers must behavehonorably to set a good example foremployees.

maroonleopard66

True or False:

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

A properly designed internal control system is a key part of systems design, analysis, and performance.

An internal control system consists of the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and uphold company policies.

Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

Separation of duties involves dividing responsibility for a transaction or a series of related transactions between two or more individuals or departments.

The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

A receivable is an amount due from another party.

Credit sales are recorded by crediting Accounts Receivable.

The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.

A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

periwinklebeetle160

1â28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Clientâs management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditorsâ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditorsâ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the clientâs operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a companyâs policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a companyâs internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a companyâs legal department.

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ACC 131 Lecture Notes - Lecture 4: Bank Reconciliation, Cash Cash, Bank Statement

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