ACCT620Chapter12

ACCT620Chapter12 - CHAPTER 12 INCENTIVE SYSTEMS Questions,...

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Unformatted text preview: CHAPTER 12 INCENTIVE SYSTEMS Questions, Exercises, Problems, and Cases: Answers and Solutions 12.1 See text or glossary at the end of the book. 12.2 The major characteristics of divisional compensation plans include: cash bonuses and profit sharing plans based on short-term performance, deferred compensation incentives for long-term performance, and special awards for particular actions or extraordinary performance. 12.3 Expectancy theory holds the view that people will act in ways that they expect will provide them with the rewards that they desire and prevent the penalties that they want to avoid. 12.4 Intrinsic rewards come from within the individual, whereas extrinsic rewards come from outside the individual. Intrinsic rewards include the sense of satisfaction from doing a good job or the satisfaction of doing a good deed. Extrinsic rewards include pay, promotions, praise from ones boss, and praise from a customer. 12.5 The four basic perspectives of the balanced scorecard are (1) the learning and growth perspective, (2) the internal business process and production perspective, (3) the customer perspective and (4) the financial perspective. 12.6 Fraudulent financial reporting is intentional conduct that results in materially misleading financial statements. The two key concepts in the definition of fraudulent financial reporting are (1) the conduct must be intentional or reckless, and (2) the misstatement must be material to the financial statements. 12.7 Common examples of fraudulent financial reporting are failure to write down obsolete inventory and recognizing revenue before the sale has been made. 12.8 Separation of duties helps prevent financial fraud because it limits the opportunity to commit the fraud. To commit financial fraud when a separation of duties exists, two or more individuals must engage in collusion. While collusion can and does occur, it increases the risk 12-1 Solutions that someone will blow the whistle on the fraud. The increased risk of revealing fraud makes it less likely that fraud will occur. Also, it gets increasingly difficult to find people who are willing to commit fraud as the number of perpetrators increases. Solutions 12-2 12.9 Internal auditors deter fraud by reviewing and testing controls and by assuring that controls are in place and working well. Often, the physical presence of a watchful internal auditor can deter fraud. Internal auditors detect fraud by employing special fraud examiners or investigators whose job is to identify fraud and build a case against...
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ACCT620Chapter12 - CHAPTER 12 INCENTIVE SYSTEMS Questions,...

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