Internal Controls, Governance, Risk and Compliance Flashcards

Practice flashcards covering vocabulary and key concepts from lecture notes on Internal Controls, Governance, Risk, and Compliance, based on the provided practice questions provided.

Fungible asset

An asset, such as cash, that is interchangeable and poses a very high audit risk, requiring organizations to focus on robust internal controls.

Detective control

A control designed to identify control failures after they have occurred and to reverse or reduce the errors found, such as independent reviews of account reconciliations.

Preventive control

A control designed to prevent failures from occurring, such as requiring two signatures on checks over a predetermined amount or keeping unused checks in a locked room.

Direct intervention

A motivational action by a shareholder, such as acquiring shares and nominating a member to the board of directors, to oversee manager actions.

Sarbanes-Oxley Act Section 404

A provision requiring public companies to develop and maintain a sound system of internal controls relating to the reliability of financial statements, which must be audited by external auditors.

Inherent risk

Audit risk associated with the choice of valuation methods or complexities in reporting requirements that may limit the ability to objectively prepare financial statements.

Ethics hotline

An anonymous portal or employee hotline that helps improve culture and governance by allowing employees to report unethical activity without fear of negative repercussions.

Foreign Corrupt Practices Act (FCPA)

A law comprising anti-bribery and accounting provisions that prohibits U.S. companies from making payments to officers of foreign companies to obtain or retain business.

COSO Internal Control–Integrated Framework

A system consisting of five correlated components: control environment, risk assessment, control activities, information and communication, and monitoring activities.

Segregation of duties

An internal control enhancement that reduces the risk of falsified records by separating the accounting responsibility for authorizing and recording transactions related to an asset.

Sarbanes-Oxley Act Section 302

A provision requiring key executives to attest that they are responsible for internal controls and that financial statements do not contain material inaccuracies.

Sarbanes-Oxley Act Section 407

A provision stating that the audit committee of a listed company must have at least one financial expert or explain the reasons for not having one.

Audit effectiveness

A measure of how accurate and timely the results of the audit process are.

Safeguarding control

A control measure designed to protect physical and digital assets, such as locking cash in a drawer or restricting access to computer server rooms.

Governmental Accounting Standards Board (GASB)

The organization and standard-setting body that oversees and enforces accounting standards for government accounting entities.

Material misstatements

Errors, omissions, or inaccuracies in financial statements that must be communicated and disclosed to stakeholders and end users in an external audit report.

Bonding employees

An internal control measure involving insurance that protects a company against losses caused by the dishonest acts of employees who handle cash.

Control risk

The level of risk associated with the possibility that internal controls will fail to prevent or detect misstatements, which is higher for cash than other current assets.