Fraud, Internal Control and Cash - Principles of Accounting - Lecture Notes, Study notes for Principles of Accounting. Aliah University

Principles of Accounting

Description: Fraud, Internal Control and Cash, Fraud and Internal Control, Internal Control, Control Environment, Risk Assessment, Control Activities, Information and Communication, Principles of Internal Control, Establishment of Responsibility, Segregation of Duties are some points from lectures of Principles of Accounting.
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Fraud, Internal Control and Cash
Study Objectives
1. Define fraud and internal control.
2. Identify the principles of internal control activities.
3. Explain the applications of internal control principles to cash receipts.
4. Explain the applications of internal control principles to cash disbursements.
5. Prepare a bank reconciliation.
6. Explain the reporting of cash.
7. Discuss the basic principles of cash management.
8. Identify the primary elements of a cash budget.
9. (Appendix) Explain the operation of a petty cash fund.
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7-2
Outline
Study Objective 1 Define Fraud and Internal Control
Fraud is a dishonest act by employee that results in personal benefit to the
employee at a cost to the employer
Three main factors contribute to fraudulent activity. They are: (1) opportunity,
which are usually due to a lack of sufficient controls; (2) financial pressure,
which usually is related to too much personal debt or a desire for a better
lifestyle; and (3) rationalization, which is justification for why the employee
deserves the compensation from fraudulent acts.
Sarbanes-Oxley Act of 2002 (SOX) requires all publicly traded U.S. corporations to
maintain an adequate system of internal controls. SOX imposes more
responsibilities on corporate executives and boards of directors to ensure that
companies’ internal controls are reliable and effective
Companies must develop sound principles of control over financial
reporting and continually assess that the controls are working.
Independent outside auditors must attest to the level of internal controls.
Internal control consists of all of the related methods and measures adopted
within a business to:
Safeguard assets
Enhance the reliability of its accounting records
Increase efficiency of operations, and
Ensure compliance with laws and regulations.
There are five primary components of internal control systems:
Control environment, or “tone at the top.”
Risk assessment, or identifying and analyzing factors that create risk.
Control activities, or policies and procedures to address risk.
Information and communication, which allow for both down and up
organizational information flow and appropriate external communication.
Monitoring, which allow for reporting of significant deficiencies
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