AC 210 Chapter 5 Notes
AC 210 Chapter 5 Notes AC 210
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This 3 page Class Notes was uploaded by Carter Cox on Thursday September 29, 2016. The Class Notes belongs to AC 210 at University of Alabama - Tuscaloosa taught by Lisa McKinney in Fall 2016. Since its upload, it has received 11 views.
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Date Created: 09/29/16
Chapter 5 Fraud - An attempt to deceive other for personal gain - 3 types o Corruption Misusing ones position for inappropriate personal gain o Asset Misappropriation Theft (embezzlement) o Financial Statement Fraud Misreporting amounts in the financial statements, usually to portray more favorable financial results than what actually exists Fraud Triangle (For fraud to happen these 3 things must be present) - Incentive - Opportunity - Rationalization SOX (Sarbanes- Oxley Act) - Counteract Incentives o Stiff fines and prison time - Encourage Honesty (good character) o Tip lines, whistleblower protection, ethics code - Reduce Opportunities o Internal control evaluation, independent audit committee Internal Control - Consists of the action taken by people at every level of an organization to achieve its objectives - Operations o Focus on completing work efficiently and effectively and protecting assets by reducing the risk of fraud - Reporting o Producing reliable and timely accounting information for the use by people internal and external to the organization - Compliance o Objective focus on adhering to laws and regulations Internal Control Component - Most organizations use the following control components as a framework when analyzing their internal control systems o Control Environment Attitude people have in the organization hold regarding internal control o Risk Assessment o Control Activities Include various work responsibilities and duties completed by employees to reduce risks to an acceptable level o Information and Communication o Monitoring Activities Deficiencies should be communicated to those responsible for taking corrective action Principle of Control Activities - Establish Responsibility o Assign each task to only one employee - Segregate Duties o Do not make one employee responsible for all parts of a process - Restrict Access o Do not provide access to assets or information unless it is needed to fulfill assigned responsibilities - Document Procedures o Prepare documents to show activities that have occurred - Independently Verify o Check others work Control Limitations - Internal controls can never completely prevent and detect errors and fraud for two reasons o Benefits must exceed the costs o Human Error or Fraud Controls for Cash Receipts - Business can receive cash in two different ways o Receive Cash in person at time of sale o Cash through electronic transfer - Goal for cash receipts is to ensure that the business receives the appropriate amount of cash and safely deposits it in the bank Cash Paid to Employees via EFT - Most companies pay cash to their employees through EFT’s, which are known by employees as direct deposits - To reduce the risk of the bank accidentally overpaying or underpaying an employee, many companies use an imp rest system Up to Date ending Cash Balance - Equal to (ending cash balance per book + Interest Received from Bank- NSF Check) Check has been cleared when - Funds have been withdrawn from your bank account to cover the check Controls from Bank Procedures - Banks provide important services that help businesses to control cash in several way o Restricting Access o Documenting procedures o Independently Verifying - Bank Reconciliation o Internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual o Bank may not know Errors made by the bank Time lags o You may not know Interest the bank has put into your account EFT- Electronic funds transfer Service Charges taken out of your account Customer checks you deposited for which the customer did not have sufficient funds (NSF) User Error o Goals Identify the deposits in transit Identify outstanding checks Record other transactions on the bank statement and correct your errors
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