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MGA 311 - Chapter 3
Internal Controls
26
Accounting
Undergraduate 3
03/07/2016

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Term
Enterprise Risk Management (ERM)
Definition
process by which the company identifies potential events that may affect the company, manage the risk to an acceptable level, and to provide reasonable assurance regarding the achievement of the company’s goals.
Term
8 Components of ERM
Definition
1.Internal Control
2.Objective Setting
3.Event Identification
4.Risk Assessment
5.Risk Response
6.Control Activities
7.Information & Communication
8.Monitoring
Term
risk appetite
Definition
Risk can never be completely eliminated, but it can be reduced to a level considered acceptable by Management
Term
Why are Internal Controls put in place?
Definition
reduce errors and reduce the possibility of fraud
Term
Exposure
Definition
the potential financial effect times the probability of occurrence.
Term
Enterprise Risk Management (ERM)
Definition
process by which the company identifies potential events that may affect the company, manage the risk to an acceptable level, and to provide reasonable assurance regarding the achievement of the company’s goals.
Term
8 Components of ERM
Definition
1.Internal Control
2.Objective Setting
3.Event Identification
4.Risk Assessment
5.Risk Response
6.Control Activities
7.Information & Communication
8.Monitoring
Term
risk appetite
Definition
Risk can never be completely eliminated, but it can be reduced to a level considered acceptable by Management
Term
Why are Internal Controls put in place?
Definition
reduce errors and reduce the possibility of fraud
Term
Exposure
Definition
the potential financial effect times the probability of occurrence.
Term
3 Basic Forms of Fraud
Definition
1.Employee theft for personal gain
2.Employee-outsider theft resulting from an employee in collusion with an outsider
3.Management fraud concerns diversion of assets or misrepresentation of assets by management
Term
internal control is built on 2 premises
Definition
1.Responsibility
2.Reasonable Assurance
Term
Reasonable Assurance
Definition
Management weighs out the costs versus benefits of implementing internal controls
Term
Responsibility
Definition
Management and the Board of Directors are responsible for maintaining a strong control environment
Term
Sarbanes-Oxley Act of 2002 (SOX) section 404 says?
Definition
requires Management to annual provide an internal control report
Term
Control Environment
Definition
sets the tone of the organization
Term
Risk Assessment
Definition
the process of identifying, analyzing, and managing risks to meet the company’s objectives/goals
Term
Control Activities
Definition
policies and procedures, established by Management, to ensure that the objectives of the Company are met
Term
Segregation of Duties
Definition
to reduce opportunity to allow any person to be in a position to both perpetrate and conceal errors or irregularities
Term
3 steps to accomplish segregation of duties
Definition
1.Authorization of transactions
2.Recording of transactions
3.Maintaining custody of assets
Term
Information & Communication
Definition
Information refers to the organization’s accounting system, while communication refers to the clear understanding of policies and procedures
Term
Monitoring
Definition
on-going assessment of controls over time and the taking corrective actions when necessary
Term
Preventative controls
Definition
prevent errors and fraud before they happen
Term
Detective controls
Definition
uncover errors and fraud after they have occurred
Term
Corrective controls
Definition
to correct errors
Term
Collusion
Definition
agreement or conspiracy among two or more people to commit fraud
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