Accounting Chapter 5 Fraud, Internal Control and Cash – Flashcards
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Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and embezzlement
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False
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The fraud triangle identifies incentive, opportunity, and benchmarks as the requirements for a fraud to occur
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False
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The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders' equity of at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a:
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loan covenant.
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The Sarbanes-Oxley Act (SOX) requires external auditors to test the company's internal control system.
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True
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Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations, reporting, and compliance.
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True
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The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks
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True
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The Sarbanes-Oxley Act (SOX) grants legal protection to 'whistle-blowers.'
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True
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Internal controls include the policies and procedures a company implements to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.
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True
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. The components of an internal control system include control environment, risk assessment, control activities, information and communication, and rationalization.
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False
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A highly effective internal control should not be implemented if the cost is greater than the benefit.
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True
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The use of internal controls guarantees protection against losses due to fraud, errors, and inefficiencies.
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False
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When duties are properly segregated, the accounting department should compare the cash in the register with the cash count sheet
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True
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. A good voucher system includes procedures and approvals designed to control cash payments
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True
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A petty cash fund is a separate checking account used to reimburse employees for expenditures they have made on behalf of the organization
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False
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. On a bank statement, deposits are listed as debits and cleared checks are listed as credits
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False
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Cash equivalents are short-term, highly liquid investments purchased within one year of maturity.
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False
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The entry recorded when the petty cash fund is replenished includes a debit to Petty Cash and a credit to Cash
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False
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Cash that is legally or contractually required to be set aside for a specific purpose cannot be reported with Cash and Cash Equivalents on the balance sheet.
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True
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. Employee fraud includes all of the following categories except
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Deception
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Research has found that three factors exist when fraud occurs. Which of the following is not one of the three factors of the fraud triangle
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Lack of a code of ethics
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Which of the following would overstate a company's net income?
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Shipping goods to customers without receiving orders from those customers, and recording the transactions as revenue.
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Which of the following was passed by Congress in response to financial statement frauds that occurred in the early 2000s?
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Sarbanes-Oxley Act
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Which of the following is a set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore investor confidence?
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Sarbanes-Oxley Act
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Companies that must comply with the requirements of the Sarbanes-Oxley Act (SOX) include all:
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companies that trade on U.S. stock exchanges.
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All of the following are requirements of the Sarbanes-Oxley Act (SOX) except:
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evaluation and reporting on the effectiveness of internal control over financial reporting for all public companies by management with disclosure that management is not responsible for the internal control system
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Considering current laws that deal with misstatements of financial results, which of the following statements is correct?
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Managers can be sentenced to maximum jail terms of up to 20 years for each violation
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All of the following are requirements of the Sarbanes-Oxley Act (SOX) except
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adoption of a code of ethics covering all employees.
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The Sarbanes-Oxley Act (SOX) requires the establishment of an audit committee that includes the
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independent directors.
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Internal controls are concerned with
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protecting against theft of assets and enhancing accounting information.
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The objectives of a company's system of internal control include all of the following except:
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ensuring the company's stock price provides a reasonable return to investors.
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The main purposes of internal controls include all of the following except
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providing more favorable financial information
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Which of the following is not a reason that a business needs an effective internal control system?
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Identify ways to circumvent applicable laws and regulations
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The attitude that people in the organization hold regarding internal control is referred to as the:
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Control Enviroment
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The control components used by companies as a framework when analyzing their internal control systems include all of the following except
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Complience
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The evaluation of the internal control system to determine whether it is working as intended is referred to as
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Monitoring Activities
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The purpose of internal controls includes all of the following except
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completely eliminating fraud.
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The principles of internal control include which of the following?
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Establish responsibility
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Segregation of duties means that a company assigns responsibilities so that
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responsibilities for related activities are assigned to two or more people.
