ACCT 743 Final Exam

what is the fraud triange

-Pressure - sally might lose her home if she misses another payment -Rationalization - I deserve a nice home -Opportunity - has access to assets and information that can help conceal the fraudulent activity

How does existence affect the financial statements? (i.e. potential misstatement) What control could be put in place to avoid this effect?

-The inventory balance includes amounts that don't physically exist (inventory is overstated) -Physically examine inventory items

list and describe the 4 risk response strategies?

1. Avoidance: Walking away from risk. 2. Reduction: Reducing certain risks. 3. Sharing: Reduce risks by purchasing insurance to share or hedge risks. 4. Acceptance: This is the strategy of no action.

The auditor may choose to issue a report containing an opinion on the financial statements and an opinion on internal control over financial reporting in one of two ways. What are those two ways?

1. Combined report (contains opinions on both financial statements and internal controls) 2. Separate reports

what are the five components of internal control?

1. Control Environment 2. Risk Assessment 3. Control Activities 4. Information and Communication 5. Monitoring

what are three business risks associated with EBay?

1. Industry developments 2. New products and services 3. Use of IT (information technology)

Provide 2 examples of performance measures that can affect the risks of material misstatement by creating incentives or pressures for management of the company to manipulate certain accounts or disclosures to achieve certain performance targets (or conceal a failure to achieve those targets).

1. Measures that form a basis for contractual commitments or incentive compensation arrangements 2. Measures used by external parties, such as analysts and rating agencies, to review the company's performance

what are the steps of the accounting cycle?

1. Obtain Source Documents 2. Analyze Transactions 3. Record Transactions in journals 4. Post from journals to ledger accounts 5. Prepare unadjusted trail balance 6. Record adjusting entries 7. Prepare adjusted trail balance 8. Prepare financial statements 9. Record closing entries 10. Prepare Post Closing trial balance

what are the revenue cycle controls?

1. Pre-numbered shipping documents 2. Pre-numbered sales invoices 3. Proper credit approval 4. Validation check 5. Separation of duties 6. Supervisory approval 7. Keep a list of all payments received in the mailroom 8. Process integration 9. Management support of controls system 10. Appropriate number of staff on hand

what are the expenditure cycle controls

1. Require Purchase requisition 1 2. Use prenumbered purchase requisitions 1 3. Run a credit report on new suppliers 2 4. Obtain purchasing manager approval 2 5. Match purchase order to order received 3 6. Complete a three-way match 3 7. Require an additional check signer 4 8. Issue checks in numerical order 4 9. Require manual check signing 4 10. Separation of duties 1,2,3,4

what are the GRC steps?

1. Risk Assessment and Planning 2. Risk Identification and Analysis 3. Exploit and Develop Risk Response Strategies 4. Risk Monitoring

what are 3 situations where management's personal financial situation could create the potential for fraud

1. Significant interests in the entity 2. Significant portions of their compensation being contingent upon achieving aggressive targets 3. Personal guarantees of debts of the entity

what are the steps in the revenue cycle?

1. Take customer order 2. Approve customer credit 3. Check Inventory 4. Pick & Pack Items 5. Ship the Order 6. Bill Customer & Update A/R 7. Collect Payment & Update A/R 8. Process and Record Sales returns & Allowances 9. Process and Record Uncollectible accounts

Provide 3 examples of specific risks to a company's internal control over financial reporting resulting from IT:

1. Unauthorized changes to data in master files 2. Unauthorized changes to systems or programs 3. Inappropriate manual intervention

what are the seven primary steps of creating a system of controls?

1. Understand the new system 2. Explore possible control breaches 3. Quantify possible control breaches 4. Design Controls 5. Implement the controls 6. Test the system 7. Conduct a post-implementation review

Provide two examples of the inherent limitations of internal control over financial reporting.

1. human judgment 2. failure to understand or take action

List two factors that increase the opportunity to misappropriate assets.

1. inadequate segregation of duties 2. large amounts of cash on hand

definition of completeness

All transactions and events that should have been recorded have been recorded.

definition of accuracy

Amounts and other data relating to recorded transaction and events have been recorded appropriately.

definition of valuation and allocation

Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation adjustments are appropriately recorded.

definition of existence

Assets, liabilities, and equity interests exist.

Explain why auditors need an understanding of the client's industry. What information sources are commonly used by auditors to learn about the client's industry?

Auditors should obtain an understanding of the company and its environment to understand the events, conditions, and companies activities that might be expected to have a significant effect on the risk of material misstatement. This provides a basis for identifying and assessing risks of material misstatement. Auditors use this knowledge to determine the appropriate extent of further audit procedures. Auditors can gain this knowledge by touring plants, inquiring management, reading prior year financial statements, the AICPA audit guide, and regulatory requirements.

Why is the risk of not detecting a material misstatement resulting from fraud higher than the risk of not detecting one resulting from error?

Because fraud may involve sophisticated and carefully organized schemes designed to conceal it, such as forgery, deliberate failure to record transactions, or intentional misrepresentations being made to the auditor. Such attempts at concealment may be even more difficult to detect when accompanied by collusion. Collusion may cause the auditor to believe that audit evidence is persuasive when it is, in fact, false.

what are the internal control principles for control activities?

CGC 1. Control activities selected and developed. 2. General IT controls selected and developed. 3. Controls developed through policies and procedures.

what are the internal control principles for control environment?

CISAP 1. Commitment to integrity and ethical values. 2. Independent board of directors' oversight. 3. Management establishes structures, reporting lines, authorities, and responsibilities. 4. Attract, develop, and retain competent personnel. 5. People held accountable for internal control.

what are the internal control principles for risk assessment?

CRPS 1. Clear objectives specified. 2. Risks identified to achievement of objectives. 3. Potential for fraud is considered. 4. Significant changes identified and assessed.

Which component of the COSO Internal Control framework includes the creation of a code of conduct that applies to all levels of employees?

Control Environment (Integrity and Ethical Values principle)

What is the main purpose of AS No. 2201

Establishes requirements and provides direction that applies when an auditor performs an audit of internal control over financial reporting that is integrated with an audit of the financial statements

what are the 8 COSO ERM steps?

IS EAR AIM: -Internal Environment -Setting Objectives -Event Identification -Assessment of Risk -Risk Response -Activities (Control) -Information and Communication -Monitoring

As the assessed risk of material misstatement increases, does the evidence from substantive procedures that the auditor should obtain increase or decrease?

Increase

what is the definition of internal control? what are the four main functions of internal control?

Internal controls are designed to protect an enterprise and its related business units from the loss/misuse of its assets. The four main functions are to: i. safeguard assets ii. check the accuracy and reliability of its accounting data iii. promote operational efficiency iv. encourage adherence to prescribed managerial polices.

what are the internal control principles for monitoring?

OI 1. Ongoing and/or separate evaluations are conducted. 2. Internal control deficiencies are evaluated and communicated.

Why should there be a mix of preventive and detective controls?

Preventative controls keeps a control breach from occurring, whereas detective controls detect a breach after it has occurred. Both are needed—management needs to prevent control breaches from occurring but needs to detect when they happen.

Explain the importance of proper credit approval for sales. What effect do adequate controls in the credit function have on the auditor's evidence accumulation?

Proper credit approval for sales helps minimize the amount of bad debts and the collection effort for accounts receivable by requiring that each sale be evaluated for collection potential. Adequate controls in the credit function enable the auditor to place more reliance on the client's estimate of uncollectible accounts. Without these controls, the auditor would have to make his or her own credit checks on the customers in order to be convinced that the allowance for uncollectible accounts is reasonable.

what are the internal control principles for information and communication?

QII 1. Quality information is obtained, generated, and used. 2. Internal controls are internally communicated. 3. Internal information is externally communicated.

what is an example of a manual control?

Requiring a second signature on a check payment that exceeds a certain amount

what is the definition of control risk?

Risk that a material misstatement that could occur in a relevant assertion will not be prevented or detected (and corrected) on a timely basis by the entity's internal control a. The function of the effectiveness of the design and operation of the controls

what is the definition of detection risk?

Risk that the auditor will not detect a material misstatement a. Related to the amount of substantive testing that is performed by the auditor

what is the definition of business risk?

Risks that result from significant conditions, events, circumstances, actions, or inactions that could adversely affect a company's ability to achieve its objectives and execute its strategies.

Which type of SOC Report does not include a description of the system or a detailed description of the tests of controls and related test results?

SOC 3

Which type of SOC Report is a general-use report (i.e. may be used by anyone)?

SOC 3

The ABC Corporation publishes an employee handbook that contain employee responsibilities for moral behavior including a Code of Conduct each year. The policy would indicate that:

Sound integrity and ethical values are developed and understood and set the standard of conduct for financial reporting.

what is the definition of inherent risk?

Susceptibility of a relevant assertion to a material misstatement assuming that there are no related controls

what is the definition of risk appetite?

The amount of risk, on a broad level, that an enterprise and its individual managers are willing to accept in their pursuit of value (e.g. high vs. medium vs. low)

definition of rights and obligations

The entity holds or controls the rights to assets, and liabilities are the obligation of the entity.

definition of occurrence

Transaction and events that have been recorded have occurred and pertain to the entity.

definition of cutoff

Transactions and events have been recorded in the correct accounting period.

definition of classification

Transactions and events have been recorded in the proper accounts.

why is segregation of duties important?

Without it, a person can be responsible for approving a payment and administering the check, which increases fraud risk

The granting of credit to a new customer is typically based on: a. A credit application b. Whether goods are in stock c. Automatic waivers by the computer system d. The amount of unused credit

a. A credit application

The separation of duties in cash receipts mandates that: a. Anyone handling cash should not access the customer billing system b. Anyone handing cash does not pick inventory c. Anyone handling cash does not order goods from suppliers d. Anyone handing cash does not plan production

a. Anyone handling cash should not access the customer billing system

what is the difference between general IT controls and application controls?

a. Application controls: cover a specific process b. General IT controls: cover all aspects of IT operations and are necessary for specific application controls to be effective

The human resources staff can be involved in procurement cards: a. By retrieving the cards from terminated employees b. By monitoring spending patterns c. By being the central administrator of procurement cards d. By setting spending levels by card

a. By retrieving the cards from terminated employees

A random petty cash audit: a. Can detect personal use of petty cash by the custodian b. Is rarely needed c. Is only needed for petty cash boxes with larger cash balances d. Should not be started without giving advance warning to the custodian

a. Can detect personal use of petty cash by the custodian

A computerized expense reporting system: a. Can dispense with a standard printed expense reporting form b. Requires the use of an invoice numbering procedure c. Requires the use of a detailed reporting guideline manual d. Is used for purchase requisitions

a. Can dispense with a standard printed expense reporting form

When a fixed asset has a serial number already listed in the fixed asset database and the same serial number appears on a new supplier invoice: a. Employees may have stolen the asset and sold it back to the company b. It was probably moved from one location to another c. There may be an issue with separation of duties d. The mid-month depreciation convention may have been used

a. Employees may have stolen the asset and sold it back to the company

The cashier can assist the collections staff by: a. Immediately updating the accounts receivable records with cash received b. Also engaging in collection activities c. Tracking incoming cash payments d. Monitoring shipments

a. Immediately updating the accounts receivable records with cash received

why isn't inquiry enough to conclude internal controls are effective?

a. Inquiry needs to be combined with other risk assessment methods because word of mouth is not sufficient enough b. We need to assess how the internal controls actually operate rather than someone just telling us that they operate effectively

A useful control for higher-volume treasury transactions: a. Is a workflow system to route approvals to authorizing parties b. Is to use standard investment guidelines c. Is to use a standard investment authorization form d. Is to obtain investment transaction receipts

a. Is a workflow system to route approvals to authorizing parties

A garnishment tracking log: a. Is used to ensure that garnishments are being acted upon b. Is used by the government to track the remaining amount of garnishment c. Is a key source of information for determining gross wages d. Is used by the collections department

a. Is used to ensure that garnishments are being acted upon

Describe three factors that make it more likely that fraud will occur or is occurring in a business? Think of items that a business makes or sells.

a. Large amount of cash on hand b. Easily convertible assets c. Inventory items that are small in size and high in value

what are the 5 COBIT principles?

a. Meeting stakeholder needs b. Covering enterprise end to end c. Applying single framework d. Enabling a holistic approach e. Separating governance from management

An efficient way to document controls is to: a. Post documentation on an intranet site b. Only update them once a year c. Reduce the documentation level for larger businesses d. Require auditors to create their own controls documentation

a. Post documentation on an intranet site

Items to include on an inventory tag do not include: a. Price b. Unit of measure c. Description d. Part number

a. Price

what are 3 reasons why is it important to know the client industry?

a. Risks associated with specific industries may affect the auditor's assessment of client business risk and acceptable audit risk b. Many inherent risks are common to all client in certain industries. c. Many industries have unique accounting requirements that the auditor must understand to evaluate the client's financial statements.

The reported revenue level can be increased by: a. Shifting late shipments into the preceding accounting period b. Requiring customers to pick up their ordered items at the company's location c. Requiring cash on delivery payments d. Cancelling backordered items

a. Shifting late shipments into the preceding accounting period

A publicly held company does not require the participation of: a. The human resources manager b. The chief executive officer c. Outside auditors d. The audit committee

a. The human resources manager

It is essential to review open purchase orders: a. To ensure that materials are received in time for operations to run smoothly b. To ensure that suppliers are billing the correct prices c. Since they are so closely linked to sales orders d. Within the first week of issuance

a. To ensure that materials are received in time for operations to run smoothly

Procurement cards are assigned: a. To those employees most likely to make smaller purchases on behalf of their departments b. With minimal restrictions c. Under the assumption that all users can make charges on behalf of all departments d. To all employees

a. To those employees most likely to make smaller purchases on behalf of their departments

A no-price sales order: a. Usually contains marketing samples b. Contains deep-discount products c. Is billed after the fact d. Contains items paid for in advance

a. Usually contains marketing samples

It is necessary to review master purchase agreements in order to: a. Verify that customers have ordered enough goods to justify reduced prices b. Verify that the customer address is correct c. Verify that the sales tax information is still correct d. Verify that backorders are still valid

a. Verify that customers have ordered enough goods to justify reduced prices

According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of Enterprise Risk Management addresses an entity's reporting deficiencies? a. Monitoring b. Information and Communication c. Risk Response d. Control Activities

a. monitoring

The __________ area should have among the most comprehensive controls in a company. a. Recordkeeping b. Product development c. Sales and marketing d. Maintenance

a. recordkeeping

Best Corporation—company elects to treat the potential damages from hurricanes are part of its business model. This response to potential risks is known as:

acceptance

what is the definition of professional skepticism?

an attitude that includes a questioning mind and a critical assessment of the appropriateness and sufficiency of audit evidence

Best company—management is so fearful of the possibility of storm damage that they elect to divest the company of virtually all properties on the Florida coast. This response to potential risks is known as:

avoidance

If one person orders procurement cards from the bank: a. The person should be authorized to also receive them from the bank b. A different person should receive them from the bank c. That person should first undergo a background check d. That person should not be allowed to use any procurement cards

b. A different person should receive them from the bank

Which of the following items is not a cash forecasting control: a. Use a cash forecast checklist b. A junior staff person prepares the cash forecast c. Obtain additional reviews of the forecast d. The corporate secretary warns of approved dividends

b. A junior staff person prepares the cash forecast

An example of a validation check is to: a. Verify the authority of the person placing the order b. Automatically check quantities on hand c. Send a copy of the sales order to the credit department d. Separate order taking from cash receipts

b. Automatically check quantities on hand

Sequential receipt numbers in an employee expense report: a. Are usually valid receipts b. Can indicate that fake receipts are being submitted c. Are of no concern from a controls perspective d. Are a useful way to record an expense repot with a unique invoice number

b. Can indicate that fake receipts are being submitted

The return merchandise authorization (RMA): a. Is most commonly used in the services industry b. Can prevent bulk returns from retailers and wholesalers c. Is issued by the materials management staff d. Is a contraction of the term "return of materials agreement" clause and is found on many purchase orders

b. Can prevent bulk returns from retailers and wholesalers

The period-end closing for prepaid expenses involves: a. Shifting all of them to expense b. Charging those items that were consumed in the period to expense c. Netting them against accrued liabilities d. Apportioning them to subsidiaries

b. Charging those items that were consumed in the period to expense

A credit decision table is used to: a. Calculate sales discounts b. Consistently determine the amount of credit to be granted c. Determine in advance which customers to sell to d. Calculate profit margins by customer

b. Consistently determine the amount of credit to be granted

The capitalization limit: a. Is used to budget for office supplies b. Is the amount paid for an asset, above which it is recorded as a long-term asset c. Is used for net present value analysis d. Is used to capitalize interest expense

b. Is the amount paid for an asset, above which it is recorded as a long-term asset

When a payment does not identify the invoice being paid: a. It is returned to the customer b. It is recorded in a suspense account c. It is retained by an independent custodian d. It is paid to the state government under escheat laws

b. It is recorded in a suspense account

A purchase requisition is used to: a. Hire someone into the purchasing department b. Request the purchase of goods c. Order goods from a supplier d. Transmit a customer order internally

b. Request the purchase of goods

Controls over asset disposals do not include: a. Disposition reviews b. Reviews for asset retirement obligations c. Monitoring of cash receipts from sales d. Signed supervisor approvals of disposals

b. Reviews for asset retirement obligations

A reasonable control over the collections staff is: a. Restriction of credit levels granted b. Supervisory approval of actions taken c. Three-way matching d. Review of applied cash

b. Supervisory approval of actions taken

A complete set of information for an invoice approver to review includes: a. The purchase requisition b. The authorizing purchase order c. The sales order d. The signature stamp

b. The authorizing purchase order

It may be necessary to request a replacement purchase order from a customer when: a. The company backorders some items b. There is a significant difference in the terms used on the purchase order from those used by the company c. The company cannot deliver on time d. Its credit card payment is rejected

b. There is a significant difference in the terms used on the purchase order from those used by the company

A good control over billing fraud is: a. To compare picked items to the sales order b. To not let the billing clerk apply cash received from customers c. To require a credit review for all orders d. To proofread invoices

b. To not let the billing clerk apply cash received from customers

The shipping log is useful to the accounting department: a. To relieve shipped inventory from the inventory records b. To verify that all shipped items were billed c. To process payroll for the shipping department d. To prove nexus for sales tax purposes

b. To verify that all shipped items were billed

The process integration principle states that: a. A large number of manual controls be used b. Controls be thoroughly intertwined with business processes c. Controls be a separate cluster of activities from business processes d. Controls only be used for repetitive transactions

b. controls be thoroughly intertwined with business processes

According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of Enterprise Risk Management addresses an entity's integrity and ethical values? a. Monitoring b. Internal Environment c. Risk Assessment d. Information and Communication

b. internal environment

Which of the following procedures is designed to prevent the purchasing agent from receiving kickbacks? a. maintaining a list of approved suppliers and requiring all purchases to be made from suppliers on that list b. requiring purchasing agents to disclose any financial investments in potential suppliers c. requiring approval of all purchase orders d. pre-numbering and periodically accounting for all purchase orders

b. requiring purchasing agents to disclose any financial investments in potential suppliers

Which of the following matches is performed in evaluated receipt settlement (ERS)? a. the vendor invoice with the receiving report b. the purchase order with the receiving report c. the vendor invoice with the purchase order d. the vendor invoice, the receiving report, and the purchase order

b. the purchase order with the receiving report

When a customer is being invoiced a non-standard price: a. There is no control needed b. It is acceptable as long as it is lower than the standard price c. A possible control is to confirm the price with the sales manager d. It should be reviewed by the credit manager

c. A possible control is to confirm the price with the sales manager

Petty cash is: a. A part of the payroll function b. A method for depositing cash at a local bank branch c. A system for reimbursing small expenditures in cash d. A system for compensating employees in cash

c. A system for reimbursing small expenditures in cash

A transaction log is intended: a. To monitor the timing of receipt of purchased items b. For the use of infrequent card users c. For the use of frequent card users d. To replace the credit card statement if it does not arrive

c. For the use of frequent card users

A standard collection procedure is most applicable: a. During the first few days when an invoice is overdue b. For the sales staff c. For trainee collection personnel d. For experienced collection personnel

c. For trainee collection personnel

Rejecting excess material at the receiving dock: a. Should be required even for small variances b. Is needed when there are longer production runs c. Is less necessary when the materials are being used on a continuing basis d. Is illegal

c. Is less necessary when the materials are being used on a continuing basis

In the cash receipts process, the mailroom: a. Is not involved b. Passes checks expeditiously to the accounts receivable clerk c. Makes a list of all payments received in the mail d. Is responsible for the bank lockbox

c. Makes a list of all payments received in the mail

If an item is not in stock, a copy of the backorder form goes to the: a. Accounts payable staff b. Billing clerk c. Order entry staff d. Sales manager

c. Order entry staff

Payroll processing does not include the following main step: a. Collect time information b. Calculate gross and net pay c. Pay contractors d. Remit taxes

c. Pay contractors

A bidding trail is needed to: a. Show that an employee found the best price before completing a purchase requisition b. Show that an employee was hired at the lowest possible cost c. Show that the purchasing staff engaged in bidding d. Ensure that purchase orders were fulfilled by suppliers

c. Show that the purchasing staff engaged in bidding

Consolidating the vendor master file is useful for: a. Reducing the number of purchase requisitions outstanding b. Reducing the number of purchase orders outstanding c. Spend management reporting d. Reducing the number of pay-to locations

c. Spend management reporting

Outsourcing payroll processing reduces the need for controls over: a. Time keeping b. Human resources record keeping c. Tax remittances d. Payroll data entry

c. Tax remittances

Expense submission guidelines: a. Are specifically designed to reduce the amount of expense reimbursements b. Are used by the outside auditors to examine expense reports c. Tell employees which expenses will be reimbursed d. Include a comparison to available funding

c. Tell employees which expenses will be reimbursed

Under the positive pay system: a. The company contacts it suppliers regularly to remind them to cash checks b. The company matches all purchase orders against open funding in the budget c. The company sends a list of checks issued to its bank d. The company verifies that cash is available before cutting checks

c. The company sends a list of checks issued to its bank

Three-way matching involves the matching of: a. The purchase requisition, purchase order, and supplier invoice b. The purchase requisition, sales order, and supplier invoice c. The purchase order, receiving document, and supplier invoice d. The purchase requisition, receiving document, and supplier invoice

c. The purchase order, receiving document, and supplier invoice

In order to issue shares: a. The audit committee must authorize the issuance b. The treasurer must sign the new stock certificates c. There must be a sufficient number of authorized shares d. The stock must have a par value

c. There must be a sufficient number of authorized shares

A reasonable control over website entry of a customer invoice is: a. To call and inquire if it was entered properly b. To proofread the entry before pressing "enter" c. To obtain a confirmation from the website d. To obtain a user ID from the website

c. To obtain a confirmation from the website

The sales order is: a. A customer purchase order b. Used to order goods from a supplier c. Used to document a customer order in a company's internal format d. Similar to a price list

c. Used to document a customer order in a company's internal format

By limiting journal entry authority: a. Access to the general ledger is confined to inexperienced employees b. It is impossible to trace who made an entry c. You can avoid the double entry of journal entries d. There will be fewer journal entries

c. You can avoid the double entry of journal entries

An event that can trigger the review of the system of controls is: a. Engaging in the annual strategic planning process b. Hiring a general ledger accountant c. Going public d. Engaging in the annual budgeting process

c. going public

Which document is used to establish a contract for the purchase of goods or services from a supplier? a. vendor invoice b. purchase requisition c. purchase order d. disbursement voucher

c. purchase order

Segregation of duties is an example of a _______________.

control activity

Overall attitude and awareness of those charged with governance is reflected in its

control environment

Which of the following components of an entity's internal control includes the development of personnel manuals documenting employee promotion and training policies?

control environment

The receiving staff should use a list of open return merchandise authorizations: a. As an alternative form of credit approval b. To apply a sales discount c. As the basis for rejecting supplier deliveries d. As the basis for rejecting customer returns

d. As the basis for rejecting customer returns

Controls are more likely to fail: a. When one person circumvents them b. When responsibilities are clearly stated c. In a profitable business d. Because they rely upon the judgment of the people operating them

d. Because they rely upon the judgment of the people operating them

The allowance for doubtful accounts is commonly calculated: a. Under cash basis accounting b. Based on billings that have not yet been issued c. Solely at the end of the calendar year d. By applying a bad debt percentage to each 30-day bucket

d. By applying a bad debt percentage to each 30-day bucket

The advantage of applying cash from check copies is that: a. There is no advantage to applying cash from check copies b. They are more legible than the originals c. Check deposits can be made by the mailroom staff d. Checks can be deposited faster

d. Checks can be deposited faster

A separate bank account is used: a. To fund direct deposit payments b. To fund cash payments c. To fund pay card payments d. For payroll to keep someone from cashing a paycheck that was fraudulently created or altered

d. For payroll to keep someone from cashing a paycheck that was fraudulently created or altered

An invoice numbering guideline is useful when: a. There is an early payment discount involved b. There are unique invoice numbers c. Invoice numbers have trailing zeros d. Invoice numbers have leading zeros

d. Invoice numbers have leading zeros

The amount of cash stored in a petty cash box: a. Is replenished every business day b. Should be reconciled every day c. Is kept high so that fewer replenishments will be needed d. Is kept low in order to be a less tempting target

d. Is kept low in order to be a less tempting target

A petty cash reconciliation: a. Is not needed b. Should be completed once a year c. Is not needed if there is only one petty cash box d. Is used to keep the petty cash records close to reality

d. Is used to keep the petty cash records close to reality

A closing task that can be completed prior to the end of an accounting period is: a. Issuing final invoices to customers b. Counting inventory c. Allocating overhead to inventory d. Issuing recurring customer invoices

d. Issuing recurring customer invoices

A payroll data entry control is to: a. Review gross pay calculations b. Review the preliminary payroll register c. Secure check printing equipment d. Match entered totals to timesheets

d. Match entered totals to timesheets

The vendor master file change log is useful for: a. Tracking purchase order fulfillment b. Tracking purchases by commodity type c. Monitoring changes in the number of active suppliers d. Monitoring changes made to the vendor master file

d. Monitoring changes made to the vendor master file

A good way to ensure a credit review is: a. Not allowing an invoice to be issued without a credit stamp b. Not allowing shipment without a completed pick list attached to the sales order c. Not allowing shipments without a credit stamp on the pick list d. Not allowing shipments without a credit stamp on the sales order

d. Not allowing shipments without a credit stamp on the sales order

In a smaller organization, the following treasury control is usually not required: a. Use standard investment guidelines b. Obtain transaction receipts c. Reconcile investment book balances d. Obtain interest rate quotes

d. Obtain interest rate quotes

A debit block: a. Is a control over the use of journal entries b. Is designed to keep a zero balance in a company's bank account c. Keeps funds from being expended beyond the budgeted amount d. Prevents someone from extracting funds from a bank account with an ACH debit

d. Prevents someone from extracting funds from a bank account with an ACH debit

Billing to the customer is triggered by: a. Receipt of the initial order b. Granting of credit by the credit department c. Picking of goods from stock d. Shipment of the order

d. Shipment of the order

Anyone who receives goods: a. Should not be allowed to engage in collection activities b. Should not also prepare the bank reconciliation c. Is allowed to authorize its purchase d. Should not also authorize its purchase

d. Should not also authorize its purchase

An audit of depreciation calculations does not address: a. The useful life b. The depreciation method c. The salvage value d. The accounts to which depreciation is charged

d. The accounts to which depreciation is charged

Drop shipping is: a. A delivery made by ground freight b. A bulk deliver of multiple items c. Only applicable to prepaid sales d. The process of having a supplier ship goods directly to a customer

d. The process of having a supplier ship goods directly to a customer

A valid control for a cash payment by an employee is: a. Avoided with a policy of not requiring any receipts b. To explicitly deny reimbursement for cash payments c. To pay it with a check d. To have them submit a receipt

d. To have them submit a receipt

From a cash receipts perspective, gross margin trend analysis reveals: a. Product profitability b. Product line profitability c. Days sales outstanding d. When employees take cash at the point of sale and destroy evidence of the sale

d. When employees take cash at the point of sale and destroy evidence of the sale

By locking up the credit approval stamp: a. You can prevent fraudulent check payments b. You can reduce wear and tear on the stamp c. You can prevent the issuance of purchase orders d. You can prevent a sales order from being fulfilled without a credit review

d. You can prevent a sales order from being fulfilled without a credit review

What is the best control procedure for paying the same invoice twice? a. segregate the check preparation and check signing functions b. prepare checks only for invoices that have been matched to receiving reports and purchase orders c. require two signatures on all checks above a certain limit d. cancel all supporting documents when the check is signed

d. cancel all supporting documents when the check is signed

According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of Enterprise Risk Management addresses an entity's assignment of authority and responsibility? a. Monitoring b. Information and Communication c. Control Activities d. Internal Environment

d. internal environment

Which of the following items is one of the eight components of COSO's Enterprise Risk Management Framework? a. Compliance b. Reporting c. Operations d. Monitoring

d. monitoring

Which element of the internal environment includes clear lines of authority and responsibility?

enterprise organizational structure

what is the purpose of PCAOB no. 5?

establishes requirements and provides direction that applies when an auditor is engaged to perform an audit of management's assessment of the effectiveness of internal control over financial reporting that is integrated with an audit of the financial statements

T/F: Cloud computing means the same thing as storage management virtualization.

false

the fact that a company's allowance for doubtful accounts is based on significant assumptions made by management affects which type of risk?

inherent

the fact that the auditor identified numerous material misstatements during the prior year audit engagement affects which type of risk?

inherent

The continuous monitoring of internal controls is often performed by _______________.

internal auditors

Commitment to competence is a part of what aspect of the COSO ERM Framework

internal environment

Which of the following components of the COSO Internal Control Framework addresses an entity's timely reporting of identified internal control deficiencies

monitoring

Within the COSO Internal Control Framework, which component is designed to ensure that internal controls continue to operate effectively?

monitoring

what is a service organization?

provide outsourcing services that affect the operation of the contracting enterprise

Best Corporation—elects to balance its portfolio of risk with property investments on the coast of other states and in Florida's interior. This response to potential risks is known as

reduction

Which element of the internal environment includes the shared beliefs and attitudes of management that impact the entire organization?

risk management philosophy

Best Corporation elects to insure its properties and "buy down" standard deductibles with additional premium payments. Potential risks is known as:

sharing

who has the primary responsibility for the prevention and detection of fraud?

the company's management

what is the use of pre-numbered documents meant to prevent?

the failure to bill or record sales as well as to prevent duplicate billings and recordings.

what is the definition of audit risk?

the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated a. Can be due to error or fraud b. Provide reasonable assurance not absolute assurance

Which term means that information should be available from information systems when needed?

timely

T/F: Confidentiality and integrity are both important internal control and security characteristics of a wireless application.

true

T/F: ERM is part of the overall governance process

true