Chapter 7 possible questions

5 primary components of an internal control system?

(1) control environment (2) risk assessment (3) control activities (4) information and communication (5) monitoring

Control procedure used for over-the-counter receipts?

1. A cash register's tape is locked in the register and only a supervisor can access it 2. Providing the customers with an itemized receipt 3. Use of a cash register where the amount rung up is clearly visible to the customer

Which of the following is least likely to contribute to a company's internal control system?

Preparing an extensive marketing plan

Which of the following was not a result of the Sarbanes-Oxley Act?

Companies must file financial statements with the Internal Revenue Service

Results of the Sarbanes-Oxley Act?

1. All publicly traded companies must maintain adequate internal controls. 2. Corporate executives and boards of directors must ensure that these controls are reliable and effective. 3. Companies that fail to comply are subject to fines and company officers can be imprisoned. 4. All publicly traded corporations must use accrual accounting 5. Executives are routinely paid in cash, stock, and stock options even after the Sarbanes-Oxley Act. 6. Independent outside auditors must attest to the internal control system.

For which item below might a bank issue a credit memorandum to a depositor's account?

1. Collection of a note receivable 2. Interest earned

6 principles of control activities?

1. Establishment of responsibility 2. Segregation of duties 3. Documentation procedures 4. Physical Controls 5. Independent Internal Verification 6. Human resources control

Which of the following requires an adjusting entry on the company's books as the result of a bank reconciliation?

1. NSF Checks 2. A bank service charges

3 elements of the fraud triangle?

1. Opportunity 2. Financial Pressure 3. Rationalization

Which of the following statements is false with regards to internal controls?

1. Publicly-traded companies must eliminate redundant internal controls 2. Stockholders of publicly-traded companies can be imprisoned if their companies fail to comply with internal control rules 3. Publicly-traded companies internal control system are evaluated by internal auditors but not by independent auditors 4. Companies must develop a system of internal control even if they are not publicly-traded

Which of the following is an effective internal control over cash disbursements?

1. Use of pre-numbered checks 2. Safeguarding of blank checks 3. Separation of check authorization from preparation of checks

A company's system of internal control

1. is expected to provide reasonable assurance of the reliability of a company's accounting records. 2. can be rendered ineffective by employee collusion.

Internal control consists of all of the methods and measures adopted within an organization to do what 4 things?

1. safeguard assets 2. enhance the reliability of accounting records 3. increase efficiency of operations 4. ensure compliance with laws and regulations

Which internal control principle is important in a control system for handling cash receipts?

6 principles of internal control

Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated?

Segregation of duties

Which of the following is not an effective internal control over cash disbursements?

The person signing the checks is the person who records cash disbursements

What is the rationale for the internal control principle known as segregation of duties?

The work of one employee should, without duplication of effort, provide a reliable basis for evaluating the work of another employee.

Internal control consists of all of the methods and measures adopted within an organization to do all of the following except

To attract new investors

Why should a bank reconciliation be prepared?

To identify errors by either the bank or the company in recording transactions

Obtaining insurance protection against dishonest employees an example of?

Bonding

Which one of the following would not result in a bank issuing a debit memorandum?

Collection of a note receivable

A NSF check should appear in which section of the bank reconciliation?

Deduction from the balance per books.

Which of the following will not require an adjusting entry on the company's books as a result of a bank reconciliation?

Deposits in transit

Record keeping for bank reconciliations. do require journal entry? do not?

Do: 1. NSF Checks Do Not: 1. Deposits in transit 2. Bank errors 3. Outstanding checks

Handy Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied?

Establishment of responsibility

A bank reconciliation should be prepared periodically to?

Explain any difference between the depositor's balance per books and the balance per bank

During a given year, several parties examine the financial records of ABC Company. These parties include internal auditors, independent auditors, and Internal Revenue Service agents. Which of these parties are considered employees of ABC Company?

Internal Auditors

Internal auditors

Internal auditors

For which of the following might a bank issue a debit memorandum to a depositor's account?

Monthly service charges

Which of the following would be added to the balance per books on a bank reconciliation?

Notes collected by the bank

Which of the following would be deducted from the balance per bank on a bank reconciliation?

Outstanding Checks

A very small company would have the most difficulty in implementing which of the following internal control activities?

Segregation of duties

Which of the following would be deducted from the balance per books on a bank reconciliation?

Service Charges

Reasonable assurance rests on the premise that?

The costs of establishing controls should not exceed their expected benefit

The use of prenumbered checks is an example of?

documentation procedures.

Allowing only the treasurer to sign checks is an example of?

establishment of responsibility

Certain computer programs are used to limit unauthorized access to certain files. This is an example of?

physical controls

An accounts payable clerk also has access to the approved supplier master file which lists all of the company's suppliers from which the company makes its purchases. The control principle of

segregation of duties is violated

If employees are bonded...

they have been insured against misappropriation of assets.