ACCTG 333- AIS Practice Test
Which control is most likely to give the greatest assurance that securities held as investments are safeguarded? A. Access to securities requires the signatures and presence of two designated officials. B. Investment acquisitions are authorized by a member of the board of directors before execution. C. Proceeds from the sale of investments are received by an employee who does not have access to securities. D. There is no access to securities between year-end and the date of the auditor's security count.
A. Access to securities requires the signatures and presence of two designated officials.
Master files maintained as part of the sales order processing system are A. Accounts receivable and finished goods inventory. B. Accounts payable, accounts receivable, and finished goods inventory. C. Accounts receivable and bill of materials. D. Accounts receivable, sales summary, and production operations list.
A. Accounts receivable and finished goods inventory.
Which of the following is a standard control over cash disbursements? A. Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations. B. Checks and supporting documents should be marked "Paid" immediately after the check is returned with the bank statement. C. Checks should be sent directly to the payee by the employee who prepares documents that authorize check preparation. D. Checks should be signed by the controller and at least one other employee of the company.
A. Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.
An employee in the receiving department keyed in a shipment from a remote terminal and inadvertently omitted the purchase order number. The best systems control to detect this error is A. Completeness test. B. Compatibility test. C. Sequence check. D. Reasonableness test.
A. Completeness test.
The purpose of input controls is to ensure the A. Completeness, accuracy, and validity of input. B. Completeness, accuracy, and validity of updating. C. Authorization of access to data files. D. Authorization of access to program files.
A. Completeness, accuracy, and validity of input.
The objectives of internal control for a production cycle are to provide assurance that transactions are properly executed and recorded, and that A. Custody of work-in-process and of finished goods is properly maintained. B. Transfers to finished goods are documented by a completed production report and a quality control report. C. Production orders are prenumbered and signed by a supervisor. D. Independent internal verification of activity reports is established.
A. Custody of work-in-process and of finished goods is properly maintained.
When erroneous data are detected by computer program controls, such data may be excluded from processing and printed on an error report. This error report should be reviewed and followed up by the A. Data control group. B. Systems analyst. C. Computer programmer. D. Computer operator.
A. Data control group.
An entity should consider the cost of a control in relationship to the risk. Which of the following controls best reflects this philosophy for a large dollar investment in heavy machine tools? A. Imprinting a controlled identification number on each tool. B. Placing security guards at every entrance 24 hours a day. C. Having all dispositions approved by the vice president of sales. D. Conducting a weekly physical inventory.
A. Imprinting a controlled identification number on each tool.
In a well-designed internal control system, employees in the same department most likely would approve purchase orders, and also A. Negotiate terms with vendors. B. Authorize requisitions of goods. C. Reconcile the open invoice file. D. Inspect goods upon receipt.
A. Negotiate terms with vendors.
Proper segregation of duties reduces the opportunities to allow persons to be in positions both to A. Perpetrate and conceal fraud and error. B. Record cash receipts and cash disbursements. C. Establish internal control and authorize transactions. D. Journalize entries and prepare financial statements.
A. Perpetrate and conceal fraud and error.
A firm's inventory consisted of 1,000 different items, 20 of which accounted for 70% of the dollar value. The most recent regular quarterly manual count revealed an unnecessary 2 years' supply of several of the more expensive items. The control that would best help to correct this oversupply problem is A. Perpetual inventory of the larger dollar value items in the inventory. B. Use of a control total over the number of unique inventory items. C. Limit check on the total dollar value of the inventory. D. Use of authorizing signatures on requisitions for inventory requested by production.
A. Perpetual inventory of the larger dollar value items in the inventory.
In a large organization, the biggest risk in not having an adequately staffed information center help desk is A. Persistent errors in user interaction with systems. B. Increased likelihood of use of unauthorized program code. C. Inadequate documentation for application systems. D. Increased difficulty in performing application audits.
A. Persistent errors in user interaction with systems.
The primary reason to establish internal control is to A. Provide reasonable assurance that the objectives of the organization are achieved. B. Ensure the accuracy, reliability, and timeliness of information. C. Safeguard the resources of the organization. D. Encourage compliance with organizational objectives.
A. Provide reasonable assurance that the objectives of the organization are achieved.
For several years a client's physical inventory count has been lower than what was shown on the books at the time of the count, and downward adjustments of the inventory account have been required. Contributing to the inventory problem could be material weaknesses in internal control that led to the failure to record some A. Purchases returned to vendors. B. Cash purchases. C. Sales discounts allowed. D. Sales returns received.
A. Purchases returned to vendors.
Data processing activities may be classified in terms of three stages or processes: input, processing, and output. An activity that is not normally associated with the input stage is A. Reporting. B. Verifying. C. Recording. D. Batching.
A. Reporting.
Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded? A. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal. B. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. C. The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences they report. D. The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances.
A. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
company's labor distribution report requires extensive corrections each month because of labor hours charged to inactive jobs. Which of the following data processing input controls appears to be missing? A. Validity test. B. Completeness test. C. Limit test. D. Control total.
A. Validity test.
The relationship between online, real-time database systems and batch processing systems is that A. A firm will have only one processing mode because a single computer cannot do both. B. A firm may use both processing modes concurrently. C. A firm will not use batch processing if it has a large computer. D. A firm will always prefer an online, real-time processing system because batch processing is slow.
B. A firm may use both processing modes concurrently.
Which of the following activities is most likely to prevent the improper disposition of equipment? A. The use of serial numbers to identify equipment that could be sold. B. A segregation of duties between those authorized to dispose of equipment and those authorized to approve removal work orders. C. Periodic comparison of removal work orders with authorizing documentation. D. A periodic analysis of the scrap sales and the repairs and maintenance accounts.
B. A segregation of duties between those authorized to dispose of equipment and those authorized to approve removal work orders.
Which of the following is an internal control weakness related to factory equipment? A. Checks issued in payment of purchases of equipment are not signed by the controller. B. All purchases of factory equipment are required to be made by the department in need of the equipment. C. Proceeds from sales of fully depreciated equipment are credited to other income. D. Factory equipment replacements are usually made when estimated useful lives, as indicated in depreciation schedules, have expired.
B. All purchases of factory equipment are required to be made by the department in need of the equipment.
During the audit of a construction contract, it was discovered that the contractor was being paid for each ton of dirt removed. The contract called for payment based on cubic yards removed. Which internal control might have prevented this error? A. Extension checks of invoice amounts. B. Comparison of invoices with purchase orders or contracts. C. Comparison of invoices with receiving reports. D. Comparison of actual costs with budgeted costs.
B. Comparison of invoices with purchase orders or contracts.
Which of the following represents an internal control weakness in a computer-based system? A. Computer programmers write and revise programs designed by analysts. B. Computer operators have access to operator instructions and the authority to change programs. C. The computer librarian maintains custody and recordkeeping for computer application programs. D. The data control group is solely responsible for distributing reports and other output.
B. Computer operators have access to operator instructions and the authority to change programs.
Which of the following control activities is not usually performed with regard to vouchers payable in the accounting department? A. Having an authorized person approve the voucher. B. Controlling the mailing of the check and remittance advice. C. Matching the receiving report with the purchase order. D. Determining the mathematical accuracy of the vendor's invo
B. Controlling the mailing of the check and remittance advice.
Each of the following is an appropriate control over securities and investments except A. Proper authorization of transactions. B. Custodian separate from treasury function. C. Storage in a safe-deposit box. D. Custodian bonded and separate from investment records.
B. Custodian separate from treasury function.
Which of the following most likely would be the result of ineffective internal control in the revenue cycle? A. Omission of shipping documents could go undetected, causing an understatement of inventory. B. Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme. C. Fictitious transactions could be recorded, causing an understatement of revenues and an overstatement of receivables. D. Fraud in recording transactions in the subsidiary accounts could result in a delay in goods shipped.
B. Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.
A document flowchart represents the A. Possible combinations of alternative logic conditions and corresponding courses of action for each condition in a computer program. B. Flow of forms that relate to a particular transaction through an organization. C. Flow of data through a series of operations in an automated data processing system. D. Sequence of logical operations performed during the execution of a computer program.
B. Flow of forms that relate to a particular transaction through an organization.
Which of the following would be the best protection for a company that wishes to prevent the lapping of trade accounts receivable? A. Request that customers' payment checks be made payable to the company and addressed to the CFO. B. Have customers send payments directly to the company's depository bank. C. Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. D. Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts.
B. Have customers send payments directly to the company's depository bank.
Electronic data interchange (EDI) offers significant benefits to organizations, but it is not without certain major obstacles. Successful EDI implementation begins with which of the following? A. Purchasing new hardware for the EDI system. B. Mapping the work processes and flows that support the organization's goals. C. Standardizing transaction formats and data. D. Selecting reliable vendors for translation and communication software.
B. Mapping the work processes and flows that support the organization's goals.
When an office supply company is unable to fill an order completely, it marks the out-of-stock items as back ordered on the customer's order and enters these items in a back order file that management can view or print. Customers are becoming disgruntled with the company because it seems unable to keep track of and ship out-of-stock items as soon as they are available. The best approach for ensuring prompt delivery of out-of-stock items is to A. Implement electronic data interchange with supply vendors to decrease the time to replenish inventory. B. Match the back order file to goods received daily. C. Increase inventory levels to minimize the number of times that stockouts occur. D. Reconcile the sum of filled and back orders with the total of all orders placed daily.
B. Match the back order file to goods received daily.
A receiving department receives copies of purchase orders for use in identifying and recording inventory receipts. The purchase orders list the name of the vendor and the quantities of the materials ordered. A possible error that this system could allow is A. Delay in recording purchases. B. Overpayment for partial deliveries. C. Payment to unauthorized vendors. D. Payment for unauthorized purchases.
B. Overpayment for partial deliveries.
Which of the following internal control activities most likely justifies reducing the assessment of the risks of material misstatement for plant and equipment acquisitions? A. Approval of periodic depreciation entries by a supervisor independent of the accounting department. B. Periodic physical inspection of plant and equipment by the internal audit staff. C. The review of prenumbered purchase orders to detect unrecorded trade-ins. D. Comparison of current-year plant and equipment account balances with prior-year actual balances.
B. Periodic physical inspection of plant and equipment by the internal audit staff.
A company updates its accounts receivable master file weekly and retains the master files and corresponding update transactions for the most recent 2-week period. The purpose of this practice is to A. Verify run-to-run control totals for receivables. B. Permit reconstruction of the master file if needed. C. Match internal labels to avoid writing on the wrong volume. D. Validate groups of update transactions for each version.
B. Permit reconstruction of the master file if needed.
Sound internal control activities dictate that defective merchandise returned by customers be presented initially to the A. Sales clerk. B. Receiving clerk. C. Shipping department supervisor. D. Accounts receivable supervisor.
B. Receiving clerk.
Which of the following is usually a benefit of using electronic funds transfer for international cash transactions? A. Creation of self-monitoring access controls. B. Reduction of the frequency of data entry errors. C. Improvement of the audit trail for cash receipts and disbursements. D. Off-site storage of source documents for cash transactions.
B. Reduction of the frequency of data entry errors.
What is a possible consequence of an employee's being able to visit the safe-deposit box unaccompanied? A. The employee could steal securities, and the theft would never be discovered. B. The employee could pledge corporate investments as security for a short-term personal bank loan. C. There would be no record of when company personnel visited the safe-deposit box. D. It would be impossible to obtain a fidelity bond on the employee.
B. The employee could pledge corporate investments as security for a short-term personal bank loan.
A manufacturer is considering using bar code identification for recording information on parts used by the manufacturer. A reason to use bar codes rather than other means of identification is to ensure that A. Vendors use the same identification methods. B. The movement of parts is easily and quickly recorded. C. The movement of all parts is recorded. D. Vendors use the same part numbers.
B. The movement of parts is easily and quickly recorded.
Which of the following could indicate source document fraud? A. The same item code appears on different invoices. B. The same invoice number appears on different invoices. C. The same customer purchase order number appears on different customer invoices. D. The same invoice date appears on different invoices.
B. The same invoice number appears on different invoices.
Which of the following features is least likely to be found in a real-time application? A. Preformatted screens. B. Turnaround documents. C. Automatic error correction. D. User manuals.
B. Turnaround documents.
Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor? A. Overstating the accounts receivable subsidiary ledger. B. Understating the sales journal. C. Overstating the accounts receivable control account. D. Understating the cash receipts journal.
B. Understating the sales journal.
In the accounting system of Apogee Company, the quantities counted by the receiving department and entered at a terminal are transmitted to the computer, which immediately transmits the amounts back to the terminal for display on the terminal screen. This display enables the operator to A. Establish the validity of the account number. B. Verify that the amount was entered accurately. C. Verify the authorization of the disbursement. D. Prevent the overpayment of the account.
B. Verify that the amount was entered accurately.
Which of the following is usually a benefit of transmitting transactions in an electronic data interchange (EDI) environment? A. No need to rely on third-party service providers to ensure security. B. A reduced need to test computer controls related to sales and collections transactions. C. A compressed business cycle with lower year-end receivables balances. D. An increased opportunity to apply statistical sampling techniques to account balances.
C. A compressed business cycle with lower year-end receivables balances.
To safeguard the assets through effective internal control, accounts receivable that are written off should be transferred to A. A tax deductions file. B. A credit manager, since customers may seek to reestablish credit by paying. C. A separate ledger. D. An attorney for evidence in collection proceedings.
C. A separate ledger.
Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the A. Internal auditor to investigate the listing for unusual transactions. B. CFO to compare the listing with the monthly bank statement. C. Accounts receivable bookkeeper to update the subsidiary accounts receivable records. D. Entity's bank to compare the listing with the cashier's deposit slip.
C. Accounts receivable bookkeeper to update the subsidiary accounts receivable records.
A mail-order retailer of low-cost novelty items is receiving an increasing number of complaints from customers about the wrong merchandise being shipped. The order code for items has the format wwxxyyzz. The major category is ww, xx is the minor category, yy identifies the item, and zz identifies the catalog. In many cases, the wrong merchandise was sent because adjacent characters in the order code had been transposed. The best control for decreasing the number of orders with the wrong merchandise is to A. Separate the parts of the order code with hyphens to make the characters easier to read. B. Use a master file reference for all order codes to verify the existence of items. C. Add check-digits to the order codes and verify them for each order. D. Require customers to specify the name for each item they order.
C. Add check-digits to the order codes and verify them for each order.
Control activities constitute one of the five components of internal control described in the COSO model. Control activities do not encompass A. Information processing. B. Physical controls. C. An internal auditing function. D. Performance reviews.
C. An internal auditing function.
Which of the following is a step in an auditor's decision to rely on internal controls? A. Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing. B. Perform tests of details of transactions and account balances to identify potential fraud and error. C. Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls. D. Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls.
C. Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls.
An online bank teller system permitted withdrawals from inactive accounts. The best control for denying such withdrawals is a A. Duplicate record check. B. Check-digit verification. C. Master file lookup. D. Proof calculation.
C. Master file lookup.
A wholesaling firm has a computerized billing system. Because of a clerical error while entering information from the sales order, one of its customers was billed for only three of the four items ordered and received. Which of the following controls could have prevented, or resulted in prompt detection and correction, of this situation? A. A completeness check that does not allow a sales invoice to be processed if key fields are blank. B. Prenumbered shipping documents together with a procedure for follow-up any time there is not a one-to-one relationship between shipping documents and sales invoices. C. Matching line control counts produced by the computer with predetermined line control counts. D. Periodic comparison of total accounts receivable per accounts receivable master file with total accounts receivable per accounts receivable control account.
C. Matching line control counts produced by the computer with predetermined line control counts.
In the consideration of internal control, the auditor is basically concerned that it provides reasonable assurance that: A. Management can not override the system. B. Operational efficiency has been achieved in accordance with management plans. C. Misstatements have been prevented or detected. D. Controls have not been circumvented by collusion.
C. Misstatements have been prevented or detected.
Which of the following are essential elements of the audit trail in an electronic data interchange (EDI) system? A. Contingency and disaster recovery plans. B. Message directories and header segments. C. Network and sender-recipient acknowledgments. D. Trading partner security and mailbox codes.
C. Network and sender-recipient acknowledgments.
Which of the following internal control activities most likely would be used to maintain accurate inventory records? A. A just-in-time inventory ordering system keeps inventory levels to a desired minimum. B. Perpetual inventory records are periodically compared with the current cost of individual inventory items. C. Periodic inventory counts are used to adjust the perpetual inventory records. D. Requisitions, receiving reports, and purchase orders are independently matched before payment is approved.
C. Periodic inventory counts are used to adjust the perpetual inventory records.
When performing an audit, a CPA notes that bad-debt expense is unusually high relative to similar firms in the industry. The CPA should recommend which of the following controls? A. Reconcile accounts receivable in the general ledger with the subsidiary ledger. B. Send monthly statements of account to customers with outstanding balances. C. Require credit checks on all new customers. D. Use approved price lists for customer billing.
C. Require credit checks on all new customers.
For the purpose of effective internal control, postdated checks received from customers should be A. Returned to customer. B. Recorded as a cash sale. C. Restrictively endorsed. D. Placed in the joint custody of two officers.
C. Restrictively endorsed.
In order to obtain an initial understanding of internal control sufficient to assess the risk of material misstatement of the financial statements, an auditor would most likely perform which of the following procedures? A. Tests of key controls to determine whether they are effective. B. Analytical procedures to determine the need for specific controls. C. Risk-assessment procedures to evaluate the design of relevant controls. D. Expanded substantive testing to identify relevant controls.
C. Risk-assessment procedures to evaluate the design of relevant controls.
Which of the following internal control activities most likely would deter lapping of collections from customers? A. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. B. Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval. C. Separation of duties between receiving cash and posting the accounts receivable ledger. D. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.
C. Separation of duties between receiving cash and posting the accounts receivable ledger.
If internal control is properly designed, the same employee may be permitted to A. Receive and deposit checks and also approve write-offs of customer accounts. B. Reconcile the bank statements and also receive and deposit cash. C. Sign checks and also cancel supporting documents. D. Approve vouchers for payment and also sign checks.
C. Sign checks and also cancel supporting documents.
3. Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom? A. The cashier prepares the daily deposit. B. The cashier makes the daily deposit at a local bank. C. The cashier posts the receipts to the accounts receivable subsidiary ledger. D. The cashier endorses the checks.
C. The cashier posts the receipts to the accounts receivable subsidiary ledger.
Internal control can provide only reasonable assurance of achieving an entity's control objectives. The likelihood of achieving those objectives is affected by which limitation inherent to internal control? A. The board of directors is active and independent. B. The auditor's primary responsibility is the detection of fraud. C. The cost of internal control should not exceed its benefits. D. Management monitors internal control.
C. The cost of internal control should not exceed its benefits.
Which of the following internal control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments? A. The CFO vouches the acquisition of securities by comparing brokers' advices with canceled checks. B. The controller compares the current market prices of recorded investments with the brokers' advices on file. C. The internal auditor compares the securities in the bank safe-deposit box with recorded investments. D. Senior management verifies that securities in the bank safe-deposit box are registered in the entity's name.
C. The internal auditor compares the securities in the bank safe-deposit box with recorded investments.
5. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? A. Merchandise received is not promptly reconciled to the outstanding purchase order file. B. Obsolete items included in inventory balances are rarely reduced to the lower of cost or market value. C. The write-off of receivables by personnel who receive cash permits the misappropriation of cash. D. Fictitious transactions are recorded that cause an understatement of revenue and overstatement of receivables.
C. The write-off of receivables by personnel who receive cash permits the misappropriation of cash.
Enterprise resource planning (ERP) software packages, such as SAP ERP Central Component and Oracle e-Business Suite, are all-inclusive systems that attempt to provide entity-wide information. ERP systems provide advantages to an organization's auditors because they A. Have proven difficult for some firms to install. B. Have been installed by smaller firms so, to date, few auditors have encountered them. C. Typically have built-in transaction logs and ability to produce a variety of diagnostic reports. D. Typically require firms to reduce the division of duties and responsibilities found in traditional systems.
C. Typically have built-in transaction logs and ability to produce a variety of diagnostic reports.
One of two office clerks in a small company prepares a sales invoice for $4,300; however, the invoice is incorrectly entered by the bookkeeper in the general ledger and the accounts receivable subsidiary ledger as $3,400. The customer subsequently remits $3,400, the amount on the monthly statement. Assuming there are only three employees in the department, the most effective control to prevent this type of error is A. Requiring the bookkeeper to perform periodic reconciliations of the accounts receivable subsidiary ledger and the general ledger. B. Requiring that monthly statements be prepared by the bookkeeper and verified by one of the other office clerks prior to mailing. C. Using predetermined totals to control posting routines. D. Assigning the second office clerk to independently check the sales invoice prices, discounts, extensions, and footings and to account for the invoice serial number.
C. Using predetermined totals to control posting routines.
n auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of A. Occurrence. B. Rights and obligations. C. Valuation. D. Completeness.
C. Valuation.
Which of the following statements about internal control is true? A. Exceptionally effective internal control is enough for the auditor to eliminate substantive procedures on a significant account balance. B. Properly maintained internal control reasonably ensures that collusion among employees cannot occur. C. The establishment and maintenance of internal control are important responsibilities of the internal auditor. D. A limitation of internal control is that management makes judgments about the extent of controls it implements.
D. A limitation of internal control is that management makes judgments about the extent of controls it implements.
The internal control objectives of the revenue cycle include all of the following except A. Transactions relating to revenue are properly recorded. B. Revenue cycle transactions are properly executed. C. Custody over assets resulting from the revenue cycle is properly maintained. D. Appropriate goods are ordered so that sales can be made.
D. Appropriate goods are ordered so that sales can be made.
Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments? A. Accounts payable. B. Credit. C. Accounts receivable. D. CFO.
D. CFO.
Cash receipts should be deposited on the day of receipt or the following business day. What is the most appropriate audit procedure to determine that cash is promptly deposited? A. Review cash register tapes prepared for each sale. B. Review the functions of cash handling and maintaining accounting records for proper segregation of duties. C. Review the functions of cash receiving and disbursing for proper segregation of duties. D. Compare the daily cash receipts totals with the bank deposits.
D. Compare the daily cash receipts totals with the bank deposits.
Which of the following best describe the interrelated components of internal control? A. Organizational structure, management philosophy, and planning. B. Risk assessment process, backup facilities, responsibility accounting, and natural laws. C. Assignment of authority and responsibility, management philosophy, and organizational structure. D. Control environment; risk assessment process; control activities; the information system, including related business processes; and monitoring of controls.
D. Control environment; risk assessment process; control activities; the information system, including related business processes; and monitoring of controls.
In obtaining an understanding of internal control, the auditor may trace several transactions through the control process, including how the transactions interface with any service organizations whose services are part of the information system. The primary purpose of this task is to A. Replace substantive procedures. B. Determine the effectiveness of the control procedures. C. Detect fraud. D. Determine whether the controls have been implemented.
D. Determine whether the controls have been implemented.
Which of the following statements is true concerning the security of messages in an electronic data interchange (EDI) system? A. Security in the transaction phase in EDI systems is not necessary because problems at that level will usually be identified by the service provider. B. Message authentication in EDI systems performs the same function as separation of duties in other information systems. C. When confidentiality of data is the primary risk, message authentication is the preferred control rather than encryption. D. Encryption performed by physically secure hardware devices is more secure than encryption performed by software.
D. Encryption performed by physically secure hardware devices is more secure than encryption performed by software.
Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides for A. Segregation of duties for employees in the accounts payable department. B. Authorization by the board of directors of significant equipment acquisitions. C. Independent verification of invoices for disbursements recorded as equipment acquisitions. D. Investigation of variances within a formal budgeting system.
D. Investigation of variances within a formal budgeting system.
A purchasing agent places an order for inventory whenever a requisition is received from the warehouse. The warehouse clerk issues requisitions based on periodic physical counts because no perpetual records are maintained. Numerous duplicate orders have been placed for goods previously ordered but not received. To prevent this excess ordering, the firm should A. Not use purchase requisitions. B. Count goods in the warehouse less often. C. Use prenumbered purchase orders. D. Keep an adequate record of open purchase orders and review it before ordering.
D. Keep an adequate record of open purchase orders and review it before ordering.
nternal controls are designed to provide reasonable assurance that A. Management's plans have not been circumvented by worker collusion. B. The internal auditing department's guidance and oversight of management's performance is accomplished economically and efficiently. C. Management's planning, organizing, and directing processes are properly evaluated. D. Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.
D. Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.
In assessing risks of material misstatement for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? A. Classification. B. Accuracy. C. Completeness. D. Occurrence.
D. Occurrence.
Which of the following statements is correct concerning internal control in an electronic data interchange (EDI) system? A. Control objectives for EDI systems generally are different from the objectives for other information systems. B. Internal controls in EDI systems rarely permit the risks of material misstatement to be assessed at an acceptably low level. C. Internal controls related to the segregation of duties generally are the most important controls in EDI systems. D. Preventive controls generally are more important than detective controls in EDI systems.
D. Preventive controls generally are more important than detective controls in EDI systems.
Which of the following are not directly involved in the revenue cycle? A. Billing clerk. B. Chief financial officer and controller. C. Sales manager and the credit manager. D. Receiving department clerk.
D. Receiving department clerk.
2. Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both A. Journalize cash receipts and disbursements and prepare the financial statements. B. Monitor internal controls and evaluate whether the controls are operating as intended. C. Adopt new accounting pronouncements and authorize the recording of transactions. D. Record and conceal fraudulent transactions in the normal course of assigned tasks.
D. Record and conceal fraudulent transactions in the normal course of assigned tasks.
A proper segregation of duties requires that an individual A. Authorizing a transaction records it. B. Maintaining custody of an asset be entitled to access the accounting records for the asset. C. Authorizing a transaction maintain custody of the asset that resulted from the transaction. D. Recording a transaction not compare the accounting record of the asset with the asset itself.
D. Recording a transaction not compare the accounting record of the asset with the asset itself.
4. Properly designed internal control will permit the same employee to: A. Receive and deposit checks, and also approve write-offs of customer accounts. B. Approve vouchers for payment, and also receive and deposit cash. C. Reconcile the bank statements, and also receive and deposit cash. D. Sign checks, and also cancel supporting documents.
D. Sign checks, and also cancel supporting documents
Which of the following observations made during the preliminary survey of a local department store's disbursement cycle reflects a control strength? A. Individual department managers are responsible for the movement of merchandise from the receiving dock to storage or sales areas as appropriate. B. The receiving department is given a copy of the purchase order complete with a description of goods, quantity ordered, and extended price for all merchandise ordered. C. Individual department managers use prenumbered forms to order merchandise from vendors. D. The CFO's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.
D. The CFO's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.
The procedure that best discourages the resubmission of vendor invoices after they have been paid is A. A requirement for double endorsement of checks. B. The mailing of payments directly to payees by accounting personnel. C. The cancelation of vouchers by accounting personnel. D. The cancelation of vouchers by CFO personnel.
D. The cancelation of vouchers by CFO personnel.
A client's program that recorded receiving report information entered directly by the receiving department on vendor shipment receipt included a reasonableness or limit test. Which of the following errors would this test likely detect? A. The vendor shipped the wrong item. B. The shipment received from the vendor was past due by 2 weeks. C. The receipt was for a shipment from an unauthorized vendor. D. The receiving department clerk entered the quantity of the product received as 0.
D. The receiving department clerk entered the quantity of the product received as 0.
Misstatements in a batch computer system caused by incorrect programs or data may not be detected immediately because A. Errors in some transactions may cause rejection of other transactions in the batch. B. The processing of transactions in a batch system is not uniform. C. The identification of errors in input data typically is not part of the program. D. There are time delays in processing transactions in a batch system.
D. There are time delays in processing transactions in a batch system.
Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control over the invoicing function allows goods to be shipped that are not invoiced. The inadequate controls could cause an A. Overstatement of revenues, receivables, and inventory. B. Understatement of revenues, receivables, and inventory. C. Overstatement of revenues and receivables and an understatement of inventory. D. Understatement of revenues and receivables and an overstatement of inventory
D. Understatement of revenues and receivables and an overstatement of inventory
A university does not have a centralized receiving function for departmental purchases of books, supplies, and equipment. Which of the following controls will most effectively prevent payment for goods not received, if performed prior to invoice payment? A. Invoices over a specified amount should be approved by the vice president of finance. B. Vendor invoices should be matched with department purchase orders. C. Names and addresses on vendor invoices should be compared to a list of department-authorized vendors. D. Vendor invoices should be approved by a departmental supervisor other than the employee ordering the goods.
D. Vendor invoices should be approved by a departmental supervisor other than the employee ordering the goods.
