C213 " Accounting for Decision Makers Competency: 3014.1.2, Lecture notes of Accounting

Download C213 " Accounting for Decision Makers Competency: 3014.1.2 and more Lecture notes Accounting in PDF only on Docsity! C213 – Accounting for Decision Makers Competency: 3014.1.2 Internal Controls Topic: Internal Controls Definitions 1. Errors- result when unintentional mistakes are made in recording transactions, posting transactions, summarizing accounts, and so forth. 2. Disagreement- result when different people arrive at different conclusions based on the same set of facts. 3. Frauds- result of intentional errors. Fraudulent financial reporting occurs when management chooses to intentionally manipulate the financial statements to service around. 4. Control environment- consists of the actions, policies, and procedures that reflect the overall attitudes of top management, the directors, and the owners about control and its importance to the company. 5. Control activities- Control activities or control procedures are those policies and procedures, in addition to the control environment and accounting system. Questions 1. What are the various elements of an internal control system? Authorization–authorizing and approving the execution of transactions. Recordkeeping –Recording the transactions in the accounting records period Custody of assets– having physical possession of or control over the assets involved in transactions, including operational responsibility. 2. What is earnings management? Why does it occur? Earnings management is the use of accounting techniques to produce financial reports that present an overly positive view of a company’s business activities and financial position. Earnings management occurs because management wants to look good and if the company is applying for a loan better numbers look favorable. 3. What is SOX? The Sarbanes-Oxley act is a law that was passed by Congress in 2002 that Get the SEC significant oversight responsibility and control over companies issuing Financial statements and their external auditors. 4. What is the PACOB and what does it do? The PACOB consists of five full-time members that oversee the accounting and auditing profession. The PACOB is responsible for the following: Register all public accounting firms that provide audits for public companies. Establish standards relating to the preparation of audit reports for public companies. Conduct inspections (reviews) of accounting firms. Conduct investigations and disciplinary proceedings and impose appropriate sanctions on public accounting firms whose performance is inadequate. Enforce compliance with the Sarbanes-Oxley Acts 5. Who are and what is the role of external auditors in the accounting process? External auditors examine an organization’s financial statements to determine if they are prepared and presented in accordance with GAAP and are free from material misstatement. 6. Who are internal auditors, and what their role in the accounting process?