ACCT 2101 Principles of Accounting I1Chapter 4: Cash and Internal ControlsInternal ControlsFinancial Accounting Misstatements•Errors—accidental errors in recording transactions or applying accounting principles•Fraud—a person intentionally deceives another person for personal gain or to damagethat personThe Fraud Triangle•Opportunity — the situation allows the fraud to occur•Motivation — someone feels the need to commit fraud, such as the need for money•Rationalization — justification for the deceptive act by the one committing the fraudAccounting scandals in the early 2000s prompted passage of the Sarbanes-Oxley Act (SOX)•Enron and Worldcom•SOX required better internal controlsInternal controls attempt to eliminate the opportunity element of fraud•Safeguard the company’s assets•Improve the accuracy and reliability of accounting information•Monitoring: Continual monitoring of internal activities and reporting of deficiencies isrequired. Monitoring includes formal procedures for reporting control deficiencies.•Control activities are the policies and procedures that help ensure that management’s
