Chapter 7 Outline
CHAPTER 7
Fraud, Internal Control, and Cash
Study Objectives 1. Define fraud and internal control. 2. Identify the principles of internal control activities. 3. Explain the applications of internal control principles to cash receipts. 4. Explain the applications of internal control principles to cash disbursements. 5. Prepare a bank reconciliation. 6. Explain the reporting of cash. 7. Discuss the basic principles of cash management. 8. Identify the primary elements of a cash budget. *9. Explain the operation of a petty cash fund. Chapter Outline
Study Objective 1 – Define Fraud and Internal Control * Fraud is a dishonest act by employee that results in personal benefit to the employee at a cost to the employer * The fraud triangle refers to the three factors that contribute to fraudulent activity. They are: (1) opportunity, which is usually due to a lack of sufficient controls; (2) financial pressure, which usually is related to too much personal debt or a desire for a better lifestyle; and (3) rationalization, which is justification for why the employee deserves the compensation from fraudulent acts. * Sarbanes-Oxley Act of 2002 (SOX) requires all publicly traded U.S. corporations to maintain an adequate system of internal controls. SOX imposes more responsibilities on corporate executives and boards of directors to ensure that companies’ internal controls are reliable and effective * Companies must develop sound principles of control over financial reporting and continually assess that the controls are working. * Independent outside auditors must attest to the level of internal controls. * Internal control consists of all of the related methods and measures adopted within an organization to: * Safeguard its assets * Enhance the reliability of its accounting records * Increase efficiency of operations, and *
Fraud, Internal Control, and Cash
Study Objectives 1. Define fraud and internal control. 2. Identify the principles of internal control activities. 3. Explain the applications of internal control principles to cash receipts. 4. Explain the applications of internal control principles to cash disbursements. 5. Prepare a bank reconciliation. 6. Explain the reporting of cash. 7. Discuss the basic principles of cash management. 8. Identify the primary elements of a cash budget. *9. Explain the operation of a petty cash fund. Chapter Outline
Study Objective 1 – Define Fraud and Internal Control * Fraud is a dishonest act by employee that results in personal benefit to the employee at a cost to the employer * The fraud triangle refers to the three factors that contribute to fraudulent activity. They are: (1) opportunity, which is usually due to a lack of sufficient controls; (2) financial pressure, which usually is related to too much personal debt or a desire for a better lifestyle; and (3) rationalization, which is justification for why the employee deserves the compensation from fraudulent acts. * Sarbanes-Oxley Act of 2002 (SOX) requires all publicly traded U.S. corporations to maintain an adequate system of internal controls. SOX imposes more responsibilities on corporate executives and boards of directors to ensure that companies’ internal controls are reliable and effective * Companies must develop sound principles of control over financial reporting and continually assess that the controls are working. * Independent outside auditors must attest to the level of internal controls. * Internal control consists of all of the related methods and measures adopted within an organization to: * Safeguard its assets * Enhance the reliability of its accounting records * Increase efficiency of operations, and *