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Texas State - ACC 2361 - Class Notes - Week 5

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> > > > Texas State - ACC 2361 - Class Notes - Week 5

Texas State - ACC 2361 - Class Notes - Week 5

School: Texas State University
Department: Engineering
Course: Intro to Financial Accounting
Professor: Elizabeth Ponder
Term: Spring 2018
Tags: Accounting, financial accounting, and Bank Reconcilations
Name: ACC2361, Week 5
Description: Chapter 5 notes that will be covered in exam 2.
Uploaded: 02/22/2018
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background image Chapter 5: Fraud, Internal Control, and Cash
Fraud­ generally defined as an attempt to deceive others for personal gain
Groups of Employee Fraud: ­ Corruption
­ Asset Misappropriation
­ Financial Statement (Accounting) Fraud Who is likely to commit fraud? 1 in 10 people will not commit fraud regardless of the circumstances 8 in 10 will commit fraud if the fraud triangle is in place 1 in 10 people seeks a particular job in order to commit fraud (predatory employee) Frauds: Opportunity­ generally provided through weaknesses in internal controls. Some examples include inadequate or no: ­ Establishment of responsibility ­ Segregation of duties
­ Restriction of access
­ Documentation of procedures
­ Independent verification
Pressure/Incentive­ can be imposed due to: ­ Personal financial problems ­ Personal vices such as gambling, drugs, extensive debt
­ Unrealistic deadlines and performance goals
Rationalization­ occurs when the individual develops a justification for their fraudulent  activities. The rationalization varies by case and individual. Some examples include: ­ “I really need this money and I’ll put it back when I get my paycheck”
­ “I’d rather have the company on my back than the IRS”
­ “I just can’t afford to lose everything­ my home, car, everything” Internal Controls Deterrent to Fraud: 1. Establish Responsibility­ assign each task to only one employee
2. Segregate Duties­ do not make one employee responsible for all parts of a process
3. Restrict Access­ do not provide access to assets or information unless it is needed to  fulfill assigned responsibilities 4. Document Procedures­ prepare documents to show activities that have occurred
5. Independently Verify­ check others’ work
background image Sarbanes Oxley Act of 2002­ in response to Financial Statement (Accounting) fraud committed 
by management of Enron in 2001 and demise of largest international accounting firm, Arthur 
Anderson:
­ Sarbanes Oxley Act (SOX) of 2002 was passed to improve financial reporting and restore investor confidence ­ One of the most significant changes to financial reporting in the United States since the  Securities Exchange Acts were introduced in the 1930s ­ Was created in response to the many financial frauds and scandals occurring in the late  1990s and early 2000s ­ Counteract Incentives­ stiffer fines and prison terms ­ Reduce Opportunities­ internal control report from management, stronger oversight by  directors, internal control audit by external auditors ­ Encourage Honesty­ anonymous tip lines, whistle­blower protection, code of ethics   Internal Controls Actions taken to ­ Promote efficient and effective operations­ operational controls ­ Protect assets, prevent fraud­ operational controls
­ Produce reliable and timely accounting information­ reporting controls
­ And adhere to laws and regulations­ compliance controls Internal Controls over Cash Controls over Cash Receipts Controls over Cash Payments Controls from Bank Procedures
Banks
­ Restrict Access: keep cash
­ Document Procedures: establish procedure to process payments and deposits
­ Independently verify: provide bank statements, independent record of cash transactions Internal Control over Cash: Preparation of Bank Reconciliation: Compares General Ledger Cash to Cash balance reported by bank; “reconciles” Key internal control; independent verification of book transactions by bank Performed by employee who does not record or handle cash Bank Reconciliation Terminology: Cleared Checks­ company checks that have been processed by the bank Outstanding Checks­ company checks that have not been processed by the bank Deposits in Transit­ company deposits that have not been processed by the bank

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School: Texas State University
Department: Engineering
Course: Intro to Financial Accounting
Professor: Elizabeth Ponder
Term: Spring 2018
Tags: Accounting, financial accounting, and Bank Reconcilations
Name: ACC2361, Week 5
Description: Chapter 5 notes that will be covered in exam 2.
Uploaded: 02/22/2018
4 Pages 26 Views 20 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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