Term
| Under the Sarbanes-Oxley Act of 2002, what are the requirements and responsibilities of Audit Committees? |
|
Definition
* All directors must be independent;
* New role: select, compensate, fire outside auditor;
* Set up whistleblower procedures. |
|
|
Term
| Define the SOX Clawback provision |
|
Definition
| This provision allows firms to reclaim incentive and bonus payments that turn out to have been made based on wrongdoing by the officers. |
|
|
Term
| Pro forma financial statements must be reconciled with what? |
|
Definition
| They must also include comparable GAAP numbers. |
|
|
Term
| List prohibitions observed by corporate insiders and outside auditors. |
|
Definition
They observe the following prohibitions:
* Fraudulently Influence;
* Coerce;
* Manipulate;
* Mislead |
|
|
Term
| Describe the three levels of the corporate pyramid. |
|
Definition
* Bottom: shareholders (vote for directors);
* Middle: directors (select officers and set broad policies);
* Top: officers (run firm day-to-day). |
|
|
Term
| What does the acronym SOX stand for? |
|
Definition
|
|
Term
| Define feed-forward controls. |
|
Definition
| A process in which future results are projected based on current and past information and, if the future results are undesirable, the inputs to the system are changed to prevent the outcome. Many inventory ordering systems are essentially feed-forward controls: the system projects product sales over the relevant time period, identifies the current inventory level, and orders inventory sufficient to fulfill the sales demand |
|
|
Term
| Define preventive controls. |
|
Definition
| "Before the fact" controls designed to stop an error or irregularity from occurring. Examples of preventive controls include locks on building and doors, password protected access to files, and segregation of duties. |
|
|
Term
|
Definition
| Controls over the environment as a whole. Apply to all functions, not just specific accounting applications. General controls help ensure that data integrity is maintained. |
|
|
Term
| Define application controls. |
|
Definition
| Controls over specific data input, data processing, and data output activities. Designed to ensure the accuracy, completeness, and validity of transaction processing. As such, application controls have a relatively narrow focus on those accounting applications that are involved with data entry, update, and reporting. |
|
|
Term
|
Definition
| A process in which the results of a process is evaluated and, if the results are undesirable, the process is adjusted to correct the results; most detective controls are also feedback controls |
|
|
Term
| Define detective controls. |
|
Definition
| "After the fact" controls designed to detect an error after it has occurred (though preferably before it is used to update the database or appears in reports). Examples of detective controls include data entry edits (field checks, limit tests, etc.) and reconciliation of batch control totals. |
|
|
Term
|
Definition
| A process, effected by the entity's Board of Directors, management, and other personnel, that is designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and efficiency of operations, Reliability of financial reporting, Compliance with applicable laws and regulations. |
|
|
Term
| Define corrective controls. |
|
Definition
| Paired with detective controls, they attempt to reverse the effects of the error or irregularity which has been detected. Examples of corrective controls include maintenance of backup files, disaster recovery plans, and insurance |
|
|
