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Chapter 7: Q1TI (page 386)

Match the accounting terminology to the definitions.

1. Sarbanes-Oxley Act

2. Internal control

3. Encryption

4. Separation of duties

5. Internal auditors

a. Organizational plan and all the related measures adopted by an entity to safeguard assets,

encourage employees to follow company policies, promote operational efficiency, and ensure

accurate and reliable accounting records.

b. Employees of the business who ensure that the company鈥檚 employees are following company

policies and meeting legal requirements and that operations are running efficiently.

c. Rearranging plain-text messages by a mathematical process鈥攖he primary method of

achieving security in e-commerce.

d. Requires companies to review internal control and take responsibility for the accuracy and

completeness of their financial reports.

e. Dividing responsibilities between two or more people.

Short Answer

Expert verified

Separation of duties means dividing the responsibility of the employees.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of internal controls

Internal control is an internal process in which the company controls its internal activities.

02

Correct option

  1. Sarbanes-Oxley Act

d. The Sarbanes-Oxley act is the act that requires companies to review internal control and takes responsibility for the accuracy and

completeness of their financial reports.

2. Internal Control

a. Internal control is an organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational, efficiency and ensure accurate and reliable accounting records.

3.Encryption

c. Encryption means rearranging plain-text messages by a mathematical process鈥攖he primary method of achieving security in e-commerce.

4.Separation of Duties

e. The separation of duties is dividing responsibilities between two or more people.

5.Internal Auditors

b. Internal auditors are the employees of the business who ensure that the company鈥檚 employees are following company

policies and meeting legal requirements and that operations are running efficiently

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Most popular questions from this chapter

Conduct an Internet search for information on internal control and the Sarbanes-Oxley Act. Write a report of your findings. In your account, discuss some of the advantages and disadvantages of the Sarbanes-Oxley Act. Present it to your class (if required by your instructor).

Applying internal control over cash receipts by mail. Review the internal controls over cash receipts by mail presented in the chapter. Exactly what is accomplished by the final step in the process, performed by the controller?

Correcting internal control weaknesses

Each of the following situations has an internal control weakness.

a. Upside-Down Applications develops custom programs to customers鈥� specifications.

Recently, development of a new program stopped while the programmers

redesigned Upside-Down鈥檚 accounting system. Upside-Down鈥檚 accountants could

have performed this task.

b. Norma Rottler has been your trusted employee for 24 years. She performs all cashhandling

and accounting duties. Norma just purchased a new luxury car and a new

home in an expensive suburb. As owner of the company, you wonder how she

can afford these luxuries because you pay her only $30,000 a year and she has no

source of outside income.

c. Izzie Hardwoods, a private company, falsified sales and inventory figures in order

to get an important loan. The loan went through, but Izzie later went bankrupt and

could not repay the bank.

d. The office supply company where Pet Grooming Goods purchases sales receipts

recently notified Pet Grooming Goods that its documents were not prenumbered.

Howard Mustro, the owner, replied that he never uses receipt numbers.

e. Discount stores such as Cusco make most of their sales in cash, with the remainder

in credit card sales. To reduce expenses, one store manager ceases purchasing

fidelity bonds on the cashiers.

f. Cornelius鈥檚 Corndogs keeps all cash receipts in an empty box for a week because

the owner likes to go to the bank on Tuesdays when Joann is working.

Requirements

1. Identify the missing internal control characteristics in each situation.

2. Identify the possible problem caused by each control weakness.

3. Propose a solution to each internal control problem.

Evaluating internal control over cash payments Gary鈥檚 Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary鈥檚, verifies receipt of merchandise and then prepares, signs, and mails the check to the vendor.

Requirements

1. Identify the internal control weakness over cash payments.

2. What could the business do to correct the weakness?

Evaluating internal control over cash receipts Dogtopia sells pet supplies and food and handles all sales with a cash register. The cash register displays the amount of the sale. It also shows the cash received and any change returned to the customer. The register also produces a customer receipt butkeeps no internal record of the transactions. At the end of the day, the clerk counts the cash in the register and gives it to the cashier for deposit in the company bank account.

Requirements

1. Identify the internal control weakness over cash receipts.

2. What could you do to correct the weakness?
See all solutions

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