Principles of Financial Accounting: Chapter 7 - Internal Control and Cash

A set of vocabulary flashcards covering internal controls, the Sarbanes-Oxley Act, COSO framework elements, control limitations, and cash receipts and payment controls from Chapter 7.

Sarbanes-Oxley Act

An act passed in 2002 applicable to publicly held companies, designed to maintain public confidence and trust in financial reporting by emphasizing effective internal controls and requiring reporting on their effectiveness.

Internal Control

The procedures and processes used by a company to safeguard assets, process information accurately, and ensure compliance with laws and regulations.

Committee of Sponsoring Organizations (COSO)

The organization that issued the Integrated Control-Integrated Framework, which provides the evaluation standards for the effectiveness of internal controls.

Control Environment

The element of internal control reflecting the overall attitude of management and employees, shaped by management's philosophy and operating style, organizational structure, and personnel policies.

Risk Assessment

The element of internal control that involves identifying risks, analyzing their significance, assessing the likelihood of occurrence, and taking action to minimize them.

Control Procedures

Policies and practices that provide reasonable assurance that goals will be achieved, including fraud prevention, separation of responsibilities, mandatory vacations, and security measures like prenumbered documents.

Monitoring

The element of internal control that involves the observation of actions and employee behavior to locate weaknesses and improve control effectiveness.

Information and Communication

The element of internal control used to guide operations and ensure compliance, utilizing external sources such as the Financial Accounting Standards Board (FASB) for reporting standard updates.

Financial Accounting Standards Board (FASB)

The organization that management can reference for changes in accounting reporting standards to maintain effective information and communication controls.

Collusion

A limitation of internal control within the human element where individuals work together to bypass controls and commit errors or fraud.

Cost-Benefit Considerations

A limitation of internal control acknowledging that the cost of establishing a control procedure should not exceed its anticipated benefit.

Cash Short and Over

An account used to adjust and balance the cash drawer entry when the actual cash count does not match the sales tape register total.

Electronic Funds Transfer (EFT)

A payment system conducted electronically through banks that enhances internal control by eliminating employee handling, reducing postage costs, and expediting processing time.

Voucher System

A network of procedures and documents that serves as proof of authority to execute cash payments.