acct 2102 ch. 4
Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $3,000; deposits outstanding of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:
$9,910 Reason: Outstanding checks and deposits outstanding have already been recorded by the company. $10,000 - $100 + $10
List the steps for a bank reconciliation in the correct order.
1.) Adjust banks cash balance 2.) adjust the companys cash balance 3.) update the companys cash account by recording the items identified in the previous step
The Sarbanes-Oxley Act requires that lead audit partners are required to rotate every ______ years. 5 7 10 3
5
The Sarbanes-Oxley Act requires auditors to retain work papers for ______ years. Multiple choice question. 7 3 5 10
7
Which of the following steps are necessary to reconcile the bank balance and the cash account balance. Record items that reconcile the bank's cash balance Adjust bank's cash balance Adjust the company's cash balance Record items that reconcile the company's cash balance
Adjust bank's cash balance Adjust the company's cash balance Record items that reconcile the company's cash balance
Which of the following items are included in cash? Accounts receivable from customers Checks from customers Balance in checking accounts Notes receivable from customers Currency and coins
Checks from customers Balance in checking accounts Currency and coins
The framework for designing an internal control system is provided by the Multiple choice question. Securities and Exchange Commission Act of 1934. Financial Accounting Standards Board. Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Public Companies Accounting Oversight Board (PCAOB).
Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
Who must personally certify the financial statements and company disclosures or risk financial penalties and criminal prosecution for fraudulent misstatements? Board of directors of a corporation Corporate executives CPA firms who audit the company SEC staff auditors
Corporate executives
Control environment
Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure
Which of the following led to the passage of the Sarbanes-Oxley Act of 2002? The likely adoption of global accounting standards in the U.S. High profile accounting scandals during the early 2000s The increasing complexity of U.S. GAAP The increasing incidence of financial statement misstatements
High profile accounting scandals during the early 2000s
Risk assessment
Identifies and analyzes factors that could prevent objectives from being achieved
For internal control purposes, risk assessment considers which two types of risk? Multiple choice question. Investor and creditor risks Operating and investing risks Internal and external risks Current and noncurrent risks
Internal and external risks
Reconciliation
Management should periodically determine whether the amount of physical assets of the company (cash, supplies, inventory, and other property) agree with the accounting records.
Audits.
Many companies, such as those companies listed on a stock exchange, are required to have an independent auditor attest to the adequacy of their internal control procedures.
Which of the following are components of internal control? Multiple select question. Accounting standards Monitoring Control activities Risk assessment Control environment
Monitoring Control activities Risk assessment Control environment
Which of the following is classified as part of the control environment? Identification and analysis of internal and external risk factors Formal procedures for reporting control deficiencies Policies and procedures that help ensure that managements' directives are followed Overall ethical tone of the organization with respect to internal control
Overall ethical tone of the organization with respect to internal control
A manager compares the monthly sales revenue to the amount forecasted. Which type of internal control is this? Performance review Segregation of duties Proper authorization Reconciliation
Performance review
Which of the following are preventive controls? Performance reviews Reconciliations Physical controls Separation of duties
Physical controls Separation of duties
Control activities
Policies and procedures that help ensure management's directives are being carried out
What requirements for corporate accountability are included in the Sarbanes-Oxley Act? (Select all that apply.) Corporate management must select the auditor Corporate executives must personally certify the financial statements Corporate executives may be criminally liable for fraudulent financial statements Corporate management must hire the same audit and consulting firm
Corporate executives must personally certify the financial statements Corporate executives may be criminally liable for fraudulent financial statements
The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the
Sarbanes-Oxley Act.
Which of the following allows greater reliance by investors on reported financial statements? High liquidity reported on the balance sheet Increasing profitability of a company Strong internal control systems
Strong internal control systems
Why is it often easy for top level management to commit fraud?
Subordinates feel intimidated and may not report it. Fewer internal controls may be in place at that level. They can override the internal control system.
Performance reviews
The actual performance of individuals or processes should be checked against their expected performance.
performance review
The actual performance of individuals or processes should be checked against their expected performance. ex: the amount of concessions sold should be compared to the number of tickets sold over a period of time
Under the Sarbanes-Oxley Act, who is responsible for the selection of a corporation's auditor? The audit committee of the Board of Directors The American Institute of Certified Public Accountants The Securities and Exchange Commission Corporate management
The audit committee of the Board of Directors
Which of the following is an example of separation of duties in a good system of internal control? The individual who receives the inventory does not have access to the accounting records. The individual who evaluates the employees may not hire employees. The individual who receives the inventory cannot count the inventory. The individual who hires the employees may not manage the employees.
The individual who receives the inventory does not have access to the accounting records.
What is the primary purpose of a bank reconciliation?
To ensure the bank balance per reconciliation is equal to the company balance per reconciliation
Companies that are listed on stock exchanges must have their internal control procedures
audited
Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's:
balance sheet statement of cash flows
The components of internal control are Multiple choice question. required by the SEC. based on the ethical tone set by management. required by state law. required by the American institute of Certified Public Accountants.
based on the ethical tone set by management.
procedures for maintaining separation of duties
control activities
The _____ ______. sets the overall ethical tone of the company with respect to internal control
control environment
overall attitude of a company in respect to internal controls
control environment
The bank will show a customer's deposit on bank statements as a ______.
credit, because a deposit is a liability from the bank's point of view
The bank will show a customer's withdrawal as a _____.
debit, because a withdrawal decreases its liability from the bank's point of view
In a bank reconciliation, an outstanding check is ______.
deducted from the bank balance
Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are
deposits outstanding.
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for
designing an internal control system.
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for Multiple choice question. designing an internal control system. preparing useful financial statements. auditing internal control systems. designing fraud-proof accounting system.
designing an internal control system.
A periodic performance review is an example of a(n)_____ control
detective
Controls designed to find errors or fraud that have occurred are referred to as _____ controls.
detective
The two types of control procedures are preventive and ________
detective
An audit is an example of a(n)
detective control
Short-term investments
have a maturity date no longer than three months from the date of purchase. ex: money market funds, Treasury bills, and certificates of deposit.
Monitoring
includes formal procedures for reporting control deficiencies
Separation of duties requires that two employees may not work on the same project if they are related. the board of directors may not influence the decisions of the top managers. an employee procedures manual must be developed to describe duties. individuals who have physical responsibility for assets should not have access to accounting records.
individuals who have physical responsibility for assets should not have access to accounting records.
Transfer of data from lower managers to top executives for accurate financial reporting
information and communication
Other companies may choose to have
internal control audits
The control environment is most affected by the attitudes and actions of employees. creditors. management. investors.
management.
routine activities that are meant to continually observe internal control activities
monitoring
The element of fraud which is easiest for companies to eliminate is
opportunity
When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?
outstanding checks
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? Multiple select question. payment of employee salaries purchase of supplies with cash interest paid on notes purchase of a building retirement of common stock
payment of employee salaries purchase of supplies with cash interest paid on notes
Separation of duties and E-commerce controls are examples of ______ controls.
preventative
Two types of control activities are
preventive and detective controls
Two types of control activities are preventive and detective controls. investor and creditor controls. asset and liability controls. operating and investing controls.
preventive and detective controls.
Internal control consists of plans to (Select all that apply.) report management errors to the police. provide accurate and reliable accounting information. safeguard company assets. report misuse of company assets to investors.
provide accurate and reliable accounting information. safeguard company assets.
Which of the following are cash outflows from investing activities?
purchase of land purchase of long-term investments purchase of building
Under the Sarbanes-Oxley Act, corporate management is responsible for (Select all that apply.) Multiple select question. the stock price. the financial statements. analyst's reports. internal control. retention of work papers.
the financial statements. internal control.
A bank statement may not agree with the amount of cash recorded by the company in the cash account because of ______ differences and errors
time
The components of internal control are built on the foundation of the ethical tone set by ________. ________ in its control environment
top management
The three elements present in every fraud are commonly referred to as the fraud
trianlge
Which of the following are detective controls? Proper authorization Audits Physical controls Performance reviews Reconciliations
Audits Performance reviews Reconciliations
Periodically, management should verify that amounts related to the company's physical assets agree with the _______ records
accounting
In a bank reconciliation, a deposit outstanding is
added to the bank balance.
The asset most susceptible to fraudulent activity is
cash
Short-term, highly liquid investments such as money market funds or treasury bills are classified as
cash equivalents
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called
checks outstanding
When two or more persons work together to circumvent internal control procedures and commit a fraud, this is called
collusion
The Sarbanes-Oxley Act applies to Multiple choice question. any company organized in the United States. companies that are required to file with the SEC. companies that operate internationally. companies that are formed as partnerships.
companies that are required to file with the SEC.
effectively mitigate the natural risks of running any business without being capable of completely eliminating the risk?
effective internal control ethical employees
A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals
ending balance of cash in the accoutning record
Internal control components are built on the foundation of the _________tone established by top management in its control environment.
ethical
Careful consideration of internal and external factors that may cause harm to a company is called _______ assessment
risk
Careful consideration of internal and external factors that may cause harm to a company is called ________ , assessment.
risk
formal policies to evaluate internal and external threats to achieving company objectives
risk assessment
Internal control consists of plans to (Select all that apply.) Multiple select question. report misuse of company assets to investors. report management errors to the police. safeguard company assets. provide accurate and reliable accounting information.
safeguard company assets. provide accurate and reliable accounting information.
