Chapter 8 Study Guide

Chapter 8 Study Guide - CHAPTER 8 FRAUD INTERNAL CONTROL...

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CHAPTER 8 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. DESCRIBE THE OPERATION OF A PETTY CASH FUND. 6. INDICATE THE CONTROL FEATURES OF A BANK ACCOUNT. 7. PREPARE A BANK RECONCILIATION.
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8. EXPLAIN THE REPORTING OF CASH.
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CHAPTER REVIEW Fraud and Internal Control 1. (S.O. 1) Fraud is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer. The fraud triangle refers to the three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization. 2. Internal control consists of all the related methods and measures adopted within an organization to (a) safeguard its assets, (b) enhance the reliability of its accounting records, (c) increase efficiency of operations, and (d) ensure compliance with laws and regulations. 3. (S.O. 2) An essential characteristic of internal control is the establishment of responsibility to specific employees. Control is most effective when only one person is responsible for a given task. 4. The rationale for segregation of duties is this: The work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. 5. The responsibility for related transactions should be assigned to different individuals, and the responsibility for establishing the accountability for an asset should be separate from the physical custody of that asset. 6. Documentation procedures provide evidence that transactions and events have occurred. 7. Physical controls relate primarily to the safeguarding of assets and include such measures as safes for the storage of cash prior to deposit, vaults for the deposit of cash, safety deposit boxes for the storage of important business papers, and locked warehouses for inventories. These controls also include alarms, television monitors, garment, sensors and time clocks. 8.
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Chapter 8 Study Guide - CHAPTER 8 FRAUD INTERNAL CONTROL...

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