Chapter 7, Problem 7.16E

Understanding internal control, components, procedures, and laws

Match the following terms with their definitions.

1. Internal control 2. Control procedures 3. Firewalls 4. Encryption 5. Environment 6. Information system 7. Separation of duties 8. Collusion 9. Documents 10. Audits 11. Operational efficiency 12. Risk assessment 13. Sarbanes-Oxley Act

a. Two or more people working together to overcome internal controls. b. Part of internal control that ensures resources are not wasted. c. Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports. d. Should be prenumbered to prevent theft and inefficiency. e. Limits access to a local network. f. Example: The person who opens the bank statement should not also be the person who is reconciling cash. g. Identification of uncertainties that may arise due to a company’s products, services, or operations. h. Examination of a company’s financial statements and accounting system by a trained accounting professional. i. Without a sufficient one of these, information cannot properly be gathered and summarized. j. The organizational plan and all the related measures that safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting data. k. Component of internal control that helps ensure business goals are achieved. l. Rearranges data by a mathematical process. m. To establish an effective one, a company’s CEO and top managers must behave honorably to set a good example for employees.