ACC210 Chapter 4
For each scenario being described, indicate the most likely control activity being described: The company physically counts its inventory at the end of each year and compares the physical count to its accounting records.
Reconciliations
Example of detective control activity
Reconciliations, Audits, Performance reviews
Formal policies to evaluate internal and external threats to achieving company objectives.
Risk Assessment
For each scenario being described, indicate the most likely control activity being described: The company's inventory buyer places orders but a different person pays for the orders.
Separation of Duties
Which financial statement summarizes a company's cash receipts and cash disbursements for a period of time?
Statement of Cash Flows
On its bank reconciliation for the month of December, Pack Corp. noted it had a NSF check from a customer for $100. Question: In Pack Corp.'s month-end journal entry to record this reconciling item, which of the following is (are) true?
The "Accounts Receivable" account should be debited $100.
On its bank reconciliation for the month of December, Pack Corp. noted that it had made an accounting error. It recorded a cash purchase of equipment as $540 instead of the actual amount of $500. Question: In Pack Corp.'s month-end journal entry to record this reconciling item, which of the following is true?
The "Equipment" account should be credited for $40.
Below is a list of various procedures a local retailer has regarding its cash receipts. Which control has the greatest chance of leading to errors or fraud?
The company discourages its employees from accepting credit or debit cards from customers.
Below is a list of various procedures a local retailer has regarding its cash disbursements. Which procedure has the greatest chance of leading to errors or fraud?
The company uses its petty cash only for large cash disbursements.
One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's corporate executives to personally certify the company's financial statements and its disclosures.
True
One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's management to document and assess the effectiveness of its internal control procedures.
True
The Sarbanes-Oxley Act applies to all companies required to file their financial statements with the SEC.
True
An electronic fund transfer (EFT) occurs when:
a bank automatically transfers a company's cash to another company's bank account.
For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash from the company's perspective. a.) A company sells land previously used in its business for cash. b.) A company pays back the principal on a bank loan evidenced by a promissory note. c.) A company makes a cash purchase of land to be used in its business. d.) A company pays for three-month's worth of rent in advance. e.) A company collects cash from a sale of inventory. f.) A company borrows money from a bank by signing a note payable.
a) Investing activity - Inflow of cash b) Financing activity - outflow of cash c) Investing activity - outflow of cash d) Operating activity - outflow of cash e) Operating activity - Inflow of cash f) Financing activity - Inflow of cash
Companies should have internal control procedures in place to:
safeguard the company's assets. AND improve the accuracy and reliability of the company's accounting information.
Which company asset is most often involved with fraudulent activities?
Cash
Indicate which of the following statements is TRUE with respect to internal controls.
Collusion refers to the act of two or more individual circumventing internal control procedures. Historically, employee tips have been the most common means of detecting employee fraud.
Match each of the following descriptions with the component of internal control being described. Procedures for maintaining separation of duties.
Control Activities
Overall attitude of the company with respect to internal controls.
Control Environment
For financial reporting purposing, which of the following items should be included in the "Cash and Cash Equivalents" total on the balance sheet?
Currency and coins AND Checking account balances AND Short-term investments with a maturity date less than three months from the date of purchase. AND Savings account balances AND Checks received from customers but not yet deposited as of the balance sheet date
The Sarbanes-Oxley Act requires that companies must:
Document internal controls and assess their effectiveness each year
For each scenario being described, indicate the most likely control activity being described: A customers credit card information is encrypted so that only authorized personnel can access it.
E-commerce Control
For each scenario being described, indicate the most likely control activity being described: When an employee is first hired, he or she is given clear instructions regarding the company's internal control procedures as well as how to report any irregular activities the employee discovers.
Employee Management
One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's creditors to test and examine a company's internal controls in detail.
False
The ethical tone set by a company's top management rarely has any effect on a company's internal control environment.
False
Transfer of data from lower managers to top executives for accurate financial reporting,
Information and communication
Routine activities that are meant to continually observe internal control activities.
Monitoring
Which element of the fraud triangle does a company have the greatest influence and ability to eliminate?
Opportunity
For each scenario being described, indicate the most likely control activity being described: Warehouse employees are required to have their personal items (ex. handbags and bookbags) scanned by a machine before they can leave the warehouse.
Physical Controls
Which type of control activities are designed to detect errors or fraud which have already occurred?
detective controls