CHAPTER 16 - 17

D. All of these

Which of the following is an example of fraud in the acquisition and payment cycle? A. Executives inappropriately recording higher values for existing inventory B. Theft of inventory by an employee C. Employee schemes involving fictitious vendors a means to transfer payments to themselves D. All of these

A. All of these

Which of the following is included as term "inventories"? A. All of these B. Goods in the process of production C. Goods on hand ready for sale D. Goods to consumed directly or indirectly in production.

D. Receive a customer purchase order.

Which of the following is not an activity associated with the acquisition and payment cycle? a. Purchase of goods and services. B. Approval of items for payments. C. Receipt of, and accounting for, goods and services. D. Receive a customer purchase order.

a. mortgages and trust deeds,

Which of the following is not major subgroups of property, plant and equipment? a. mortgages and trust deeds, B. Buildings, machinery, equipment and land improvements subject to depreciation C. Natural resources (wasting assets) are subject to depletion. D. Land, used in the operation of the not being subject to depletion

A. None of these is false.

Which of the following statements is false regarding fraud risk factors related to long-lived assets? A. None of these is false. B. Potential fraud scheme involves not removing sold assets from the books. C. Management might use unreasonably long depreciable lives in an effort to reduce expenses. D. Because long-lived assets are typically an audit area of low risk, auditors do not need to perform brainstorming activities related long-lived assets.

D. Recalculate interest expense

Which of the following would an auditor typically not perform as part of gaining an understanding of the client's control related to debt obligations? A. Inquire of management about the process for reviewing compliance with debt covenants. B. Review policies related to approval required for new debt C. Review the client's documentation controls. D. Recalculate interest expense

true

Accounts payable is often referred to as vouchers payable for a voucher system.

false

Accounts receivable is used to describe short-term obligations arising from the purchase of goods and services in the ordinary course of business.

C. first statement is true, the second statement is false

All changes in share capital accounts should received formal advance approval by the board of directors. If plant and equipment, services, or any consideration other than cash is to be accepted in payment for shares, the Chief Executive Officer must establish the valuation on the noncash assets received. A. Both statements are false . B. The first statement is false, the second statement is true. C. first statement is true, the second statement is false . D. Both statements are true.

true

Any company large enough to issue bonds and able to find a ready market for securities will almost always utilize the services of a large bank as an independent trustee.

false

By placing the responsibility for handling share capital certificates in separate and independent organizations, the corporation forfeits to the fullest extent the internal control concept of separation of duties.

a. statement is false, the second statement is true.

Cash balances are maintained at excessive levels by forecasting expected cash receipts and payments related to normal operations. The need for obtaining loans for investing excess cash is thus made known on a timely basis. a. statement is false, the second statement is true. b. Both statements are false. c. Both statements are true. d. The first statement is true , the second statement is false .

false

Collusion can be accomplished by one person.

c. Incentives for dishonest reporting, such as undue emphasis on meeting unrealistic sales or earnings targets, should be commended.

Control environment is very important to effective internal control over revenue and receivables. Which of the following is not effective ? A. There should be effective internal audit function. b. An independent audit committee of the board of directors must monitor management's judgments about revenue recognition principles and estimates. c. Incentives for dishonest reporting, such as undue emphasis on meeting unrealistic sales or earnings targets, should be commended. d. Management should establish a tone at the top of the organization that encourages integrity and ethical financial reporting.

true

Control risk is the risk that misstatement could occur but may not be detected and corrected or prevented by business's internal control mechanism.

true

Derivatives are financial instruments that "derive" their value from other financial investments, underlying assets, or indexes.

a. Both statements are true.

Effective internal control over debt begins with the authorization to incur the debt. The bylaws of a corporation usually requires that the board of directors approve borrowing. a. Both statements are true. b. The first statement is true, the second statement is false . c. Both statements are false . d. The first statement is false, the second statement is true.

B. not recording cost of goods sold nor reduction of inventory

Identify the possible inventory of cost of goods sold manipulation that might occur when inventory is sold. A. overstate returns B. not recording cost of goods sold nor reduction of inventory C. overcount inventory D. under-record purchases

false

In a voucher system accounts receivable is often referred to as vouchers payable.

false

Interest-bearing obligations should be excluded in accounts payable but shown jointly as bonds, notes, mortgages, or installment contracts.

true

Invoices and statements from suppliers usually evidence accounts payable arising from the purchase of goods or services and most other liabilities.

true

Joint control means that neither of the two custodians may have access to the securities except in the present of the other.

c. Both statements are true.

Management should establish a tone at the top of the organization that encourages integrity and ethical financial reporting. Also, incentives for dishonest reporting, such as undue emphasis on meeting unrealistic sales or earnings targets, should be eliminated. a. The first statement is true , the second statement is false . b. Both statements are false. c. Both statements are true. d. The first statement is false, the second statement is true.

d. first statement is true, the second statement is false .

Many corporations assign the entire task of paying interest to the trustee for either bearer bonds or registered bonds. Highly effective control is then achieve, since the company will no longer issue a check for the payment of the semiannual interest payment on the entire bond issue. a. Both statements are false . b. The first statement is false, the second statement is true. c. Both statements are true. d. first statement is true, the second statement is false .

d. The first statement is false, the second statement is true.

Most of the processes relating to cash handling are the responsibility of the finance department, under the direction of the auditor. In addition, the finance department must forecast cash requirements and make both short-term and , long term financing arrangements. a. The first statement is true , the second statement is false . b. Both statements are false. c. Both statements are true. d. The first statement is false, the second statement is true.

true

Periodic inventory counts are used to adjust the perpetual inventory records.

true

Recording franchise revenue when the franchises are sold even though an obligation to perform significant services still exists an example of misstatement of revenue/receivables account which most likely is caused by fraud.

true

Segregation of the functions of custody and record keeping of investment securities is achieved by the use of an independent safekeeping agent, such as stockholder, bank or trust company.

true

Separation of duties is referred to as when the management divides responsibilities between two or more people. The purpose is to limit fraud and promote accuracy in accounting record.

true

Serially numbered capital work orders are a convenient means of recording authorizations.

D. establishes the valuation on the noncash assets received

Services of independent trustee for handling bonds includes the following, except a. cancels old bond certificates and issues new ones when bonds change ownership B. follows procedures to prevent over issuance of bond certificates C. maintains detailed records of names and addresses of the registered owners of bonds. D. establishes the valuation on the noncash assets received

c. Both statements are true.

Since many types of inventories are composed of items not particularly susceptible to theft, management may consider controls to be unnecessary in this area. Such thinking ignores the fact that controls for inventories affect nearly all the functions involved in producing and disposing of the company's products. a. Both statements are false . b. The first statement is true, the second statement is false . c. Both statements are true. d. The first statement is false, the second statement is true.

true

Small businesses have more control risk exposure because of less resources to hire highly trained employees.

false

Stock splits and changes in par or stated value of shares do not require formal authorization by the board of directors.

B. Permit any one employee to handle a transaction from beginning to end.

The following are guidelines for achieving internal control over cash, except A. Deposit cash receipts (intact) daily. B. Permit any one employee to handle a transaction from beginning to end. C. Encourage customers to obtain receipts and observe cash register totals. D. Record cash receipts on a timely basis.

a. Monthly bank reconciliation prepared by employees responsible for the issuance of checks.

The following are guidelines for achieving internal control over handling of cash, except a. Monthly bank reconciliation prepared by employees responsible for the issuance of checks. b. Separate cash handling from record keeping. c. Encourage customers to obtain receipts and observe cash register totals. d. Centralize receiving of cash to the extent practical

B. possible solutions of internal control problems

The following are included in the report of the treasurer of the corporation on any proposed financing, except a. explanation for the need for funds B. possible solutions of internal control problems C. the estimated effect of borrowing upon future earnings D. alternative methods of raising funds

true

The independent trustee for handling bonds is charge with the protection of the creditors' interest and with monitoring the issuing company's compliance with the provisions of the indenture.

c. Registration of securities must be in the name of an officer having custody of securities of the company.

The major elements of adequate internal control over financial investments include the following. except a. Determination of appropriate accounting for complex financial instruments by competent personnel. b. Formal investment policies that limit the nature if investments in securities and other financial investments. c. Registration of securities must be in the name of an officer having custody of securities of the company. d. An investment committee of the board of directors that authorizes and reviews financial investment activities for compliance with investment policies.

C. authorizing the sale of other negotiable assets

The processes relating to cash handling includes the following, except A. maintaining custody of cash and marketable securities B. investing idle cash C. authorizing the sale of other negotiable assets D. handling and depositing cash receipts

false

The term property, plant and equipment includes all tangible assets with a service life of at least one year that are used in the operation of the business and are not acquired for the purpose of resale.

D. Insurance

Typical transactions creating accounts payable include the credit purchases of the following, except A. plant assets B. merchandise C. raw materials D. Insurance

C. Interest Income

Which of the following accounts would least likely be included in the audit of debt obligations? A. Interest Expense B. Bonds Payable C. Interest Income D. Notes Payable

C. All of these

Which of the following can be used by the firms for financing? A. Bonds B. Promissory Notes C. All of these D. Mortgages

c. Recording purchases of the current period in subsequent period.

Which of the following examples in inventory/cost of goods sold is most likely to cause misstatement of financial statements due to error? a. Intentional misstatement of inventory prices. b. Items are stolen with no journal entry reflecting the theft. c. Recording purchases of the current period in subsequent period. d. Intentional recording of purchases in the subsequent period.

b. Purchases of equipment erroneously reported in maintenance and repairs expense account.

Which of the following examples of misstatement of plant, property, and equipment account is caused most likely by error? a. Purchases journal "closely early" with this period's purchases recorded as having occurred in subsequent period. b. Purchases of equipment erroneously reported in maintenance and repairs expense account. c. Office Equipment are ordered but delivered to an inappropriate address and stolen. d. Expenditures for repairs and maintenance expenses recorded as property, plant and equipment acquisitions to overstate income.

c. Amount of revenue earned on franchises is miscalculated.

Which of the following examples of misstatement of revenue/receivables account is caused most likely by error? a. Intentional overshipment of goods b. Holding the sales journal open to record next year's sales as having occurred in the current year. c. Amount of revenue earned on franchises is miscalculated. d. Recording sales when the customer is likely to return the goods.

a. recording fictitious sales without receiving a customer order or shipping goods.

Which of the following examples of misstatement of revenue/receivables account is caused most likely by fraud? a. recording fictitious sales without receiving a customer order or shipping goods. b. recording sales based on the receipt of orders from customers rather than the shipment of goods. c. inaccurate billing and recording of sales. d. recording cash that represents as revenue.

d. ineffective accounting procedures

Which of the following internal control weaknesses is most likely to cause misstatement of financial statements due to error? a. undue pressure by the top management to meet earnings targets. b. ineffective board of directors c. "tone of the top" not conducive to ethical conduct d. ineffective accounting procedures