Question 1

The Sarbanes-Oxley Act is also known as Generally Accepted Accounting Principles.The Sarbanes-Oxley Act is also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX.

Accepted Answer

The Sarbanes-Oxley Act is not the same as Generally Accepted Accounting Principles. It is a separate law designed to increase transparency and accountability in financial reporting by publicly traded companies. However, SOX is also referred to as the Public Company Accounting Reform and Investor Protection Act of 2002.

Question 2

Separation of duties occurs when two or more people act in coordination to circumvent internal controls.This is the act of collusion.

Accepted Answer

Separation of duties is actually designed to prevent collusion and ensure that no one person has too much control over a specific process. The purpose of separation of duties is to create an environment in which collusion is more difficult to accomplish.

Question 3

Auditors of public companies can perform the full range of audit and nonaudit consulting services for their audit clients.

Accepted Answer

Auditors of public companies are restricted from providing certain nonaudit consulting services to their audit clients in order to maintain their independence and objectivity. Examples of prohibited consulting services include bookkeeping, financial systems design and implementation, and expert services related to information systems design and implementation. However, they can perform certain nonaudit services, such as tax services, as long as these are pre-approved by the audit committee of the company and disclosed in the company's annual proxy statement.

Question 4

Management needs to monitor the internal control system,just like any other system.Any control deficiencies spotted by employees should be reported immediately to management.

Accepted Answer

Management needs to actively monitor the internal control system to ensure that it is effective and any deficiencies should be reported by employees to management as soon as possible.

Question 5

The internal control component of information and communication relates to the effectiveness of accurately measuring and communicating business transactions.

Accepted Answer

The internal control component of information and communication is responsible for ensuring accurate and complete recording and communication of business transactions within an organization.

Question 6

The Public Company Accounting Oversight Board (PCAOB)has the authority to establish standards dealing with auditing,quality control,ethics,independence,and other activities relating to the preparation of audited financial reports.

Accepted Answer

The statement is true. The PCAOB was created by the Sarbanes-Oxley Act of 2002 to oversee the auditing of public companies in order to protect investors and maintain the integrity of the financial reporting process. As part of its oversight, the PCAOB has the authority to establish and enforce standards for auditors and audit firms.

Question 7

Section 404 of the Sarbanes-Oxley Act requires that a company's management document and assess the effectiveness of all internal control processes that could affect financial reporting.Auditors are prohibited from providing most nonaudit services,such as consulting,to their clients by the Sarbanes-Oxley Act.

Accepted Answer

Section 404 of the Sarbanes-Oxley Act does require management to document and assess internal control processes, and auditors are prohibited from providing most nonaudit services to their clients.

Question 8

Managers of the company act as stewards or caretakers of the company's assets.

Accepted Answer

This statement is true. Managers have the responsibility of managing the resources and assets of the company in a responsible and efficient manner.

Question 9

Internal control is a company's plan to (1)improve the accuracy and reliability of accounting information and (2)safeguard the company's assets.

Accepted Answer

Internal control is a system put in place by a company in order to protect its assets and ensure that its financial information is accurate and reliable. It is an important part of corporate governance and helps companies to prevent fraud, errors, and other financial problems. The goal of internal control is to provide reasonable assurance that a company's financial statements are accurate and complete, and that its assets are protected from theft, fraud, or misuse.

Question 10

Risk assessment procedures include periodic reviews of internal controls,assessing management's oversight of the internal control,developing solutions to known cases of internal control failures,and determining whether each division or operation within a company is meeting its objectives.

Accepted Answer

This statement accurately describes the procedures involved in risk assessment.

Question 11

In response to corporate accounting scandals and to public outrage over seemingly widespread unethical behavior of top executives,Congress passed the Sarbanes-Oxley Act.

Accepted Answer

The Sarbanes-Oxley Act was passed in response to corporate accounting scandals and public outrage over unethical behavior of top executives.

Question 12

Effective internal controls ensure a company's success and survival.Effective internal controls improve the company's likelihood of success and survival,but do not provide a guarantee.

Accepted Answer

Effective internal controls are designed to manage and mitigate risks to a company's operations, financial reporting, and compliance with laws and regulations, but they cannot ensure a company's success and survival as there are many external factors and risks beyond their scope.

Question 13

One benefit of internal control is greater reliance by investors on reported financial statements.

Accepted Answer

Internal control provides greater assurance on the accuracy and reliability of financial statements, which can lead to increased reliance by investors on the information presented.

Question 14

The amount of cash reported in a company's balance sheet includes items acceptable for deposit in bank accounts,such as checks received from customers.

Accepted Answer

The amount of cash reported in a company's balance sheet includes items that are acceptable for deposit in bank accounts, including checks received from customers.

Question 15

Common types of financial statement fraud include creating fictitious revenues from a fake customer,improperly valuing assets,and mismatching revenues and expenses.

Accepted Answer

Financial statement fraud can involve creating fictitious revenues, improperly valuing assets, and manipulating the matching of revenues and expenses to falsely inflate financial performance.

Question 16

Separation of duties refers to auditors not being allowed to perform both audit and nonaudit services for the same client.Separation of duties is where individuals who have physical responsibility for assets should not also have access to accounting records.

Accepted Answer

Separation of duties is a key concept in internal control that aims to prevent fraud and errors by ensuring that no single individual has control over all aspects of a financial transaction. It does not specifically refer to auditors not performing both audit and non-audit services, although that concept is related to maintaining auditor independence and objectivity.

Question 17

The control environment refers to the overall top-to-bottom attitude of the company with respect to internal controls.

Accepted Answer

The control environment includes the attitudes and actions of management and employees towards internal control, and is a key component of a company's overall control framework.

Question 18

The amount of cash reported in a company's balance sheet includes currency,coins,and balances in savings and checking accounts,as well as items acceptable for deposit in these accounts,such as checks received from customers.

Accepted Answer

The description provided is accurate and reflects what is included in a company's reported cash balance on the balance sheet.

Question 19

An example of separation of duties would be not allowing an employee who receives cash to also be responsible for depositing that cash in the bank account.

Accepted Answer

Separation of duties is a principle in internal control that requires different individuals or departments to be responsible for different activities. This helps to prevent fraud, errors, and other misconduct by ensuring that no one person has complete control over a process or transaction. In the given example, separating the task of receiving cash and depositing it in the bank account ensures that there is no opportunity for the employee to steal or misplace the funds.

Question 20

A framework for designing an internal control system is provided by the Financial Accounting Standards Board (FASB).A framework for designing an internal control system is provided by the Committee of Sponsoring Organizations (COSO)of the Treadway Commission.

Accepted Answer

The framework for designing an internal control system is provided by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, not the Financial Accounting Standards Board (FASB).

Quiz 4: Cash and Internal Controls