chapter 4 important terms

error

a mistake without intent to decieve

fraud triangle

the three elements necessary for every fraud

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 comitting the fraud “I deserve it”

Internal controls

processes designed to reasonable assure a company can achieve objectives

4 components of internal control

control environment, risk assessment, control activities, monitoring

control environment

sets the overall ethical tone of the company with respect to internal control.

risk assessment

identifies and analyzes internal and external risk factors that could prevent a companies objectives from being achieved

control activities

the policies and procedures that help ensure that management’s directives are being carried out.

monitoring

continual monitoring of internal activities and reporting of deficiencies is required

preventive controls

separation of duties, physical controls, proper authorization, employee management, E-commerce control

detective controls

Bank reconciliations, performance reviews, audit logs

cash

currency, coins and balances in savings and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received from customers