Accounting Chapter 7 Homework Some Customers Are Frequently Overdrawn Thus Only

BYP 7-5 REAL-WORLD FOCUS

(a) The mission of the Financial Accounting Standards Board is to estab-

lish and improve standards of financial accounting and reporting that

(b) The Chairman will consult with FASB members, staff directors, and others

as appropriate before making a decision to add or remove a project from

the FASB’s technical agenda or to change the priorities of existing

projects.

(c) The FASB is committed to following an open, orderly process for

setting standards. The FASB designed its comprehensive due process

procedures to permit timely, thorough, and open study of financial

accounting and reporting issues and to encourage broad public

participation in the standards-setting process by creating channels for

BYP 7-6 REAL-WORLD FOCUS

(a) The PCAOB is a private-sector, non-profit corporation, created by the

(b) The PCAOB is required to conduct inspections of public accounting

firms to assess compliance with the Sarbanes-Oxley Act, the rules of

the Board, the rules of the SEC, and professional standards in

(c) The PCAOB has authority to investigate and discipline registered

public accounting firms and persons associated with those firms for

noncompliance with the Sarbanes-Oxley Act of 2002, the rules of the

BYP 7-7 DECISION MAKING ACROSS THE ORGANIZATION

(a) The material weaknesses and the related principle(s) of internal control

that was violated are as follows:

Material Weakness Internal Control Principle

•

• Excessive past due accounts

receivable

•

Establishment of responsibility

• Disregard of advantages

offered by vendors for prompt

payment of invoices

•

Establishment of responsibility

•

• Overall poor record keeping

•

Documentation procedures

(b) Under the Sarbanes-Oxley Act, publicly traded companies are required

to maintain adequate systems of internal control. Failure to comply

BYP 7-8 COMMUNICATION ACTIVITY

Mr. D. A. Flynn

Lyman Company

Main Street, USA

Dear Mr. Flynn:

During our audit of your financial statements, we reviewed the internal controls

over cash receipts. The weaknesses we discovered and our suggested

improvements are listed below.

Weaknesses Suggested Improvement

1. A list of checks received is not pre-

pared by the person who opens the

This list should be prepared so that it

can later be compared with the daily

2. Mail is opened by only one person. When this occurs, there is no assu

r

–

ance that all incoming checks are for-

warded to the cashier’s department.

3. The cashier is allowed to open the

Under this arrangement, it is possible

4. The accounts receivable clerk is

A

gain, there is poor segregation o

f

BYP 7-8 (Continued)

Weaknesses Suggested Improvement

We would be pleased to discuss the weaknesses and our recommended

BYP 7-9 ETHICS CASE

(a) The amount of fee revenue depending on order of processing would be:

(1) Largest to smallest: 5 bounced checks X $30 = $150

(b) Whether this is ethical is subject to debate. On the one hand, it can be

argued that customers have a responsibility to maintain an adequate

(c) In deciding what approach to take, the bank must consider its relationship

with the customer. Clearly, by adopting a “largest to smallest” approach,

(d) Answer will vary depending on student’s opinion.

BYP 7-10 ETHICS CASE

Answers will vary depending on article chosen.

BYP 7-11 ALL ABOUT YOU

Answers are provided to students on the government website as they complete

the ID Theft Faceoff quiz.

BYP 7-12 FASB CODIFICATION ACTIVITY

(a) Consistent with common usage, cash includes not only currency on

hand but demand deposits with banks or other financial institutions.

Cash also includes other kinds of accounts that have the general

(b) Cash equivalents are short-term, highly liquid investments that have

both of the following characteristics:

Generally, only investments with original maturities of three months or

less qualify under that definition. Original maturity means original

BYP 7-12 (Continued)

(c) Cash and cash items. Separate disclosure shall be made of the cash

and cash items which are restricted as to withdrawal or usage. The

provisions of any restrictions shall be described in a note to the

financial statements. Restrictions may include legally restricted deposits

held as compensating balances against short-term borrowing arrange-

ments, contracts entered into with others, or company statements of

IFRS CONCEPTS AND APPLICATION

IFRS7-1

Companies listed on U.S. stock exchanges must comply with the Sarbanes-

Oxley Act. This compliance gives investors greater assurance that these

companies have adequate internal controls in place. In addition, the

auditors for these publicly traded companies must attest to the effectiveness

IFRS7-2

(a) True.

IFRS7-3 INTERNATIONAL FINANCIAL REPORTING PROBLEM

(a) Zetar’s Audit Committee reviews management’s reports on internal

control.

(b) The key control procedures include

1. A comprehensive system of financial budgeting, forecasting and

then reporting and reviewing actual monthly results for the

(c) No, Zetar’s Board does not consider it appropriate to establish an

internal audit department.