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Chapter 4

COMMERCE 1AA3 Chapter Notes - Chapter 4: Commercial Paper, General Ledger, Money Market Fund


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Aadil Merali Juma
Chapter
4

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CHAPTER 4 READING NOTES
Fraud: intentional misrepresentation of facts, made for the purpose of persuading another party
to act in a way that causes injury or damage
Misappropriation of assets
Committed by employees
Steal asset from the company and cover it up through erroneous entries in the
books
Examples include theft of inventory, falsifying invoices, forging or altering
cheques, and overstatement of expense reimbursement requests
Fraudulent financial reporting
Committed by company managers
Make false and misleading entries in the books, making financial results appear
to be better than they actually are
Purpose is to deceive investors and creditors into making decisions they might
not have made given accurate financial information
Fraud Triangle
Motive - results from critical need or greed (by the person committing the fraud)
Opportunity - usually arises through weak internal control
Rationalization - thinking that "I need this, I deserve this, just this once", etc.
Internal Control - organizational plan and system of procedures
designed/implemented/maintained by company management to deal with risks to the business
Reliability of the company's financial records and financial reporting
Accounts should be accurate, reliable and timely
Company's ability to operate effectively and efficiently
Assets and records are safe guarded, no wasting of company resources
Company's compliance with legal requirements
Components of Internal Control
Control environment - CEO's and managers assuring there is control by behaving
honorably
Risk assessment - must be able to identify risks in order to establish procedures for
dealing and to minimize impacts of these risks
Information systems - every system should be able to capture, record and journalize
transactions in a timely manner
Control procedures - designed to ensure that company goals are achieved
Monitoring of controls - provides the ability to check what employees are doing
(inputting transactions, for example)
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