Accounting 1 Dersi 7. Ünite Sorularla Öğrenelim

How would you define internal control?

Internal control is a managerial task and responsibility to ensure that all of the activities of a company are under the management control. Internal control can be defined as a plan and a system of control procedures designed and implemented by the management and the board of directors. Management should constitute a control structure to safeguard assets, ensure accurate and reliable accounting records and comply with legal requirements.

What is “Committee of Sponsoring Organization of the Treadway Commission (COSO)? 

“Committee of Sponsoring Organization of the Treadway Commission (COSO) is a joint initiative of some private sector organizations. COSO published Internal Control-Integrated Framework in 1992.”

What are operation objectives? 

Operation objectives state the efficiency and effectiveness of the business’ activities.

What are reporting objectives?

Reporting objectives are about the reliability of financial, non-financial and all other types of reports.

What are compliance objectives?

Compliance objectives are related to complying with laws and regulations that the business is subject to according to the its characteristics.

How many componenets does internal control have? 

Internal control has five components: control environment, risk assessment, control activities, information and communication, and monitoring activities.

What do you know about documentation?

Documentation, which is related to the accounting process, provides the details about financial transactions in a business. These include sales invoice, purchase orders, shipping records, reports, etc. For each transaction, separate and adequate documents should be prepared as hard copy or in an electronic format. Documents should be pre-numbered to assure the completeness of the transac tion and to prevent control deficiencies. Briefly, documentation is a very effective control procedure in a business.

What is fraud?

Fraud is an intentional misrepresentation of facts which is made made for purpose of persuading another party to act in a way that causes injury or damage to that party.

What is The Association of Certified Fraud Examiners (ACFE)?

The Association of Certified Fraud Examiners (ACFE) is a very important anti fraud organization. It is also the largest around the world. They conduct very important studies about this subject. 

How many types of frauds are there? What are they?

There are two types of frauds: misappropriation of assets and fraudulent financial reporting.

1. Misappropriation of assets: Frauds which are committed by employees to steal money or other assets. In this type of fraud usually employee tries to cover the fraud up with an inaccurate entry or tries to steal the asset before recording process.
2. Fraudulent financial reporting: Frauds which are committed by managers to make false and misleading entries in the books. In this case, the purpose of fraud may be making performance or financial status of the business appear to be better than they actually are; or deceiving investors, creditors, or any other parties into loaning money that they need; or evading tax.

What do you know about fraud triangle?

Understanding the conditions and factors that lead to fraud is important to detect them and to find ways to prevent them. In other words, to determine the best controls, the conditions and factors that may cause fraud risk should be analyzed. The description of the factors that may cause fraud risk are called fraud triangle.

What are the components of fraud triangle? Explain them? 

The components of fraud triangle are pressure, opportunity, and rationaliza-tion.

Pressure is one of the components which is based on the effects of the stress factor on the management and other employees.

Opportunity is another component arising from control deficiencies. Management has a very critical responsibility to prevent the business from control deficiencies
that will create an opportunity to commit fraud.

Rationalization is the third component in the fraud triangle. Sometimes, employees or some managers try to make excuses and convince themselves that fraud is not an extraordinary action; and they try to rationalize their action. Some conditions and especially week ethical values of top management may cause this tendency toward rationalization.

How would you define the concept of cash?

Cash is the most liquid asset, relatively easy to steal; and also many transac tions have an impact on cash. Even if the amounts may be very small in some types of fraud, the importance of the action will not change. So,the management should design special control mechanisms to protect the business from fraud
involved in cash directly

What is a cash budget?

A cash budget is a document that shows the expected amount of cash receipt and payments for a period in the future.  So, the management can compare the realized amount and the budget later. This procedure provides an effective way of financial planning.

What are the risks about cash? Explain it?

Risks about cash are always changing, so it is one of the most important subject for businesses to find effective ways of protecting cash. However, in this part, we will focus on the general controls to protect cash, not on the specific controls to reduce control deficiencies related to the technological characteristics of transactions.
A point-of-sale terminal can provide effective control in transactions with cash receipt over the counter. For example, in a store when inventories are sold, a receipt would be issued as evidence of transaction. After an employee records this transaction, the cash drawer opens and the machine transfers this transac- tion to the main computer. At the end of the day, the cash amount and machine record of cash sales are compared by a manager. They must be equal to the each other. 

What do you know about " voucher "?

To achieve effective controls on cash payment, it should be verified, approved and recorded. In this process, companies usually use a “voucher system.” In this system, the accounting department is responsible for approving and journalizing cash payments. For this purpose, they can write a voucher which is a specific form that has information about the payment. A voucher is a formal document which authorizes a cash payment.

What do you know about a petty cash fund?

Instead of writing checks for small payments such as stationery, meals, etc., businesses can prefer using a petty cash fund. It is a fund that contains small cash amounts to use for small expenditures, which enables businesses not to keep large amounts of cash on hand. So, a petty cash fund is a good control, but it also needs some control procedures to be effective.

What do you know about online banking?

Online banking, which is a streamlined term in our times, provides some very important advantages. With online banking applications, transactions such as cash payments can be made electronically via an online system. Also the business can check its bank accounts at any time. This advantage can provide real time assurance instead of periodic assurance through controls.

What do you know about cybersecurity?

The advantages and the different types of services of online banking are  improving day by day while the information technologies are improving too. Online banking will support the “speed” of transactions, so it can improve the time management in the business. Secondly, it can provide effective “controls”, so it can improve the effectiveness of monitoring and assurance in the business. Despite many advantages, online banking may pose new types of risks about cybersecurity. To protect the business against these risks, the management should establish new control procedures such as anti-virus programs, firewalls,  filtering systems, periodic software updates, passwords, secure logins, limited access, etc.

What is a bank reconciliation?

A bank reconciliation is a statement that explains any differences between the balance shown on the bank statement and the balance shown on the business’s accounting records. 

A bank reconciliation has two sides: One of them is for the bank and other one is for the business. Required corrections can be seen for both sides. Some differ ences require adjusting entries for the business’s book side. After taking a list of differences from the bank reconciliation, accounts can be updated. 

What is " cash ratio "?

Using financial ratios is a very practical, beneficial, and pervasive way of analyzing financial statements. By analyzing some ratios, the relationship between different items can be understood. One of the most important ratio is Cash Ratio. “Cash ratio is a measure of a company’s ability to pay current liabilities from cash and cash equivalents.”

What do you know about cash equivalents? 

For different proposes of financial statement presentation process, the balance of the Cash is combined with cash equivalents that include highly liquid assets such as time deposits and certificates of deposits. Cash equivalents can be defined as highly liquid investments that can be converted into cash in a short term.