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C213 chapt 7-8

Cash budgeting- Interna controls

QuestionAnswer
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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