Accounting 101: Fraud, Internal Controls, and Cash

Flashcards covering key concepts from Accounting 101 Chapter 7 on fraud, internal controls, and cash.

Fraud is defined as __ by an employee that results in personal benefit to the employee at a cost to the employer.

A dishonest act.

The three components of the Fraud Triangle are __, Financial Pressure, and Rationalization.

Opportunity

occurs when the workplace lacks sufficient controls to deter and detect fraud.

Opportunity

Financial Pressure can arise from __ or being unable to maintain a certain lifestyle on a current salary.

excessive debt

Rationalization allows employees to justify fraud because they believe they are __.

underpaid

Internal Controls are processes designed to provide reasonable assurance regarding the achievement of company objectives related to __, reporting, and compliance.

operations

The purpose of Internal Controls is to safeguard assets, enhance reliability of accounting records, increase efficiency of operations, and ensure __ with laws and regulations.

compliance

The components of Internal Control include Control Environment, __, Control Activities, Information and Communication, and Monitoring.

Risk Assessment

Control Environment emphasizes that management must stress the organization's values of __.

integrity

In Risk Assessment, organizations must identify and analyze various factors that create __ .

risk

Control Activities must be designed to address the specific __ faced by the company.

risks

The Information and Communication system must capture and communicate all __ information.

pertinent

Monitoring requires systems to be monitored periodically for their __.

adequacy

Principles of Internal Control Activities include Establishment of Responsibility, Segregation of Duties, Documentation Procedures, Physical Controls, Independent Internal Verification, and __.

Human Resource Controls

Establishment of Responsibility is most effective when only __ person is responsible for a given task.

one

Segregation of Duties helps limit the potential for __ or irregularities.

errors

Documentation Procedures require that companies use prenumbered documents and ensure all documents are __ .

accounted for

Physical Controls are designed to safeguard assets and enhance the __ and reliability of accounting records.

accuracy

Independent Internal Verification should be conducted by an __ who is independent of the personnel responsible for the information.

employee

Human Resource Controls include bonding employees who handle cash and conducting thorough __ checks.

background

Limitations of Internal Control include the possibility of human __ occurring in collusion.

error