Chapter 4 Accounting

Which of the following statements about materiality is not true? A. Any error greater than $5,000 is considered material in a financial statement audit B. Material misstatements should not exist in order for a company to receive unqualified audit opinion C. A material error would change the opinion of the average prudent investor D. Materiality is different for each company

A. Any error greater than $5,000 is considered material in a financial statement audit

Which of the following is not considered an accounting control? A. Performance evaluations B. Use of pre numbered documents C. Bonding of employees D. Requiring employees to take vacations

A. Performance evaluations

Which of the following is not considered an accounting control? A. Performance evaluations B. Bonding of employees C. Requiring employees to take vacations D. Use of prenumbered documents

A. Performance evaluations

An audit is useful to financial statement users because it A. Provides reasonable assurance that the financial statements do not have material misstatements B. Assures users that confidentiality is maintained C. Guarantees that management has not been involved in misappropriation of assets D. Guarantees that the financial statements are accurate and correct

A. Provides reasonable assurance that the financial statements do not have material misstatements

Which of the following is not a common feature of ethical misconduct? A. The assistance of others B. The capacity to rationalize C. The existence of pressure leading to an incentive D. The presence of an opportunity

A. The assistance of others

Which of the following is not a procedure to maintain internal controls over cash payments? A. Voided checks should be defaces and retained B. A receipt should be provided to each cash customer C. All checks should be prenumbered D. Checks should be properly authorized with approval signatures

B. A receipt should be provided to each cash customer

Policies and procedures designed to reduce the opportunities for fraud are often called: A. Accounting standards B. Internal controls C. Financial systems D. Asset source transaction

B. Internal controls

Which of the following is not a component of the fraud triangle? A. Rationalization B. Reliance C. Opportunity D. Pressure

B. Reliance

Which internal control procedure addresses the idea that the likelihood of employee fraud of theft is reduced if collusion is required to accomplish it? A. Physical controls B. Separation of duties C. Use of prenumbered documents D. Fidelity bonds

B. Separation of duties

The most favorable audit opinion that a company can receive is a(n): A. Qualified opinion B. Unqualified opinion C. Disclaimer of opinion D. Adverse opinion

B. Unqualified opinion

In establishing a strong internal control system at Banks Company, management is concerned with administrative controls. Administrative controls include: A. maintenance of accurate inventory records B. performance evaluation C. keeping cash in a safe D. accuracy of the recording procedures

B. performance evaluation

If the financial statements cannot be relied upon because they contain one or more material departures from GAAP, the auditor will issue the following type of audit opinion: A. Disclaimer B. Unqualified opinion C. Adverse opinion D. Qualified opinion

C. Adverse opinion

Which of the following is not a primary role of an independent auditor? A. Determine whether a company's financial statements are materially correct B. Assume legal and professional responsibilities to the public C. Advise client on tax strategies D. All of the answers are correct

C. Advise client on tax strategies

Which of the following is not one of the purposes of an internal control system? A. The evaluation of performance B. Safeguarding the company's assets C. Ensuring that the company is using the most effective marketing plan D. The assessment of the degree of compliance with company policies and public laws

C. Ensuring that the company is using the most effective marketing plan

Which of the following is not an internal control procedure for the control of cash receipts? A. All cash should be deposited frequently B. Immediate preparation of records of all cash receipts C. Use of prenumbered checks D. Customers should be given written receipts for all monies paid

C. Use of prenumbered checks

Which of the following is an internal control procedure used to safeguard a company's assets? A. Timely deposits of cash receipts into a checking account B. Reconciliation of the bank statements C. Separation of duties D. All of these answers are correct

D. All of these answers are correct

Which of the following is not a motive for the embezzlement of cash by employees? A. Ownership of cash is difficult to prove B. Small quantities of high denomination can represent significant amounts of value C. Cash has universal appeal D. Cash is the common unit of measurement

D. Cash is the common unit of measurement

Which of the following is not a generally recognized internal control procedure? A. Establishment of clear lines of authority B. Requiring regular vacations for certain employees C. Having employees covered by a fidelity bond D. Customer service comment cards

D. Customer service comment cards

Which of the following statements accurately describes a fidelity bond? A. Proper procedures for processing transactions B. Procedures to provide reasonable assurance that the objectives of a company are accomplished C. Guidelines or policies that limit the actions of different levels of management D. Insurance that the company buts to protect itself from loss due to employee dishonesty

D. Insurance that the company buts to protect itself from loss due to employee dishonesty

Chester Company has established internal control policies and procedures in order to achieve the following objectives: 1. effective evaluation of management performance 2. assure that the accounting records contain reliable information 3. safeguard the company's assets 4. assure that employees comply with company policy Which of these objectives are achieved by accounting controls? A. All four objectives B. Objectives 1 and 2 C. Objectives 3 and 4 D. Objectives 2 and 3

D. Objectives 2 and 3

Which of the following statements concerning internal controls is true? A. Internal administrative controls are designed to limit the amount of funds spent on investments B. Internal accounting controls are limited to the policies and procedures used to protect the company from embezzlement C. The control procedure, separation of duties, prohibits the employment of husband and wife or other closely related parties within the same company. D. Strong internal controls provide reasonable assurance that the objectives of a company will be accomplished

D. Strong internal controls provide reasonable assurance that the objectives of a company will be accomplished

Effective internal controls for cash include: A. cash deposited in the bank on a timely basis B. written cash receipts given to customers as evidence of payment C. disbursements made by prenumbered checks D. all of these answers are correct

D. all of these numbers are correct