ACCT 3300 Ch 14(1)
Which group has the primary responsibility for the establishment, implementation, and monitoring of adequate controls in the posting of accounts receivable? A. Accounting management. B. External auditors. C. Accounts receivable staff. D. Internal auditors.
A. Accounting management.
An audit of the payroll function revealed several instances in which a payroll clerk had added fictitious employees to the payroll and deposited the checks in accounts of close relatives. What control should have prevented such actions? A. Allowing changes to the payroll to be authorized only by the personnel department. B. Having the treasurer's office sign payroll checks. C. Establishing a policy to deal with close relatives working in the same department. D. Using time cards and attendance records in the computation of employee gross earnings.
A. Allowing changes to the payroll to be authorized only by the personnel department.
Organizational independence is required in the processing of customers' orders in order to maintain an internal control structure. Which one of the following situations is not a proper separation of duties in the processing of orders from customers? A. Approval of a sales credit memo because of a product return by the Sales Department with subsequent posting to the customer's account by the Accounts Receivable Department. B. Invoice preparation by the Billing Department and posting to customers' accounts by the Accounts Receivable Department. C. Shipping of goods by the Shipping Department that have been retrieved from stock by the Finished Goods Storeroom Department. D. Approval by Credit Department of a sales order prepared by the Sales Department.
A. Approval of a sales credit memo because of a product return by the Sales Department with subsequent posting to the customer's account by the Accounts Receivable Department.
Which of the following questions would be inappropriate on an internal control questionnaire concerning purchase transactions? A. Are intact cash receipts deposited daily in the bank? B. Are all goods received in a centralized receiving department and counted, inspected, and compared with purchase orders on receipt? C. Are prenumbered purchase orders and receiving reports used and accounted for? D. Are an approved purchase requisition and a signed purchase order required for each purchase?
A. Are intact cash receipts deposited daily in the bank?
An Internet gaming company uses many laptops in its office and needs to ensure that they are adequately safeguarded. Which one of the following best represents a control that the company should use for its laptops? A. Be able to identify the model and serial number for the laptops. B. Ensure that any virus programs have been identified on the laptops. C. Keep a copy of all relevant details on the hard drives of the laptops. D. Bolt the laptops in place or attach them with strong adhesives.
A. Be able to identify the model and serial number for the laptops.
Appropriate control over obsolete materials requires that they be A. Determined by an approved authority to be lacking in regular usability. B. Retained within the regular storage area. C. Carried at cost in the accounting records until the actual disposition takes place. D. Sorted, treated, and packaged before disposition takes place, in order to obtain the best selling price.
A. Determined by an approved authority to be lacking in regular usability.
Which control is not appropriate for property, plant, and equipment? A. Disposal of fully depreciated assets. B. Proper authority for acquisition and retirement of assets. C. Detailed property records and physical controls over assets. D. Written policies for capitalization and expenditure and review of application of depreciation methods.
A. Disposal of fully depreciated assets.
An internal auditor found that employee time cards in one department are not properly approved by the supervisor. Which of the following could result? A. Employees might be paid for hours they did not work. B. The wrong hourly rate could be used to calculate gross pay. C. Duplicate paychecks might be issued. D. Payroll checks might not be distributed to the appropriate payees.
A. Employees might be paid for hours they did not work.
An audit of the receiving function at the company's distribution center revealed inadequate control over receipts. Which of the following controls would be appropriate for the receiving function? A. Ensure that the warehouse receiving department has a purchase order copy with the units described, but both prices and quantities omitted. B. Ensure that the warehouse receiving department has a true copy of the original purchase order. C. Require that all receipts receive the approval of the warehouse manager. D. To ensure adequate separation of duties, the warehouse receiving clerk should work independently from the warehouse manager.
A. Ensure that the warehouse receiving department has a purchase order copy with the units described, but both prices and quantities omitted.
Auditors regularly evaluate controls. Which of the following best describes the concept of control as recognized by internal auditors? A. Management takes action to enhance the likelihood that established goals and objectives will be achieved. B. Control represents specific procedures that accountants and auditors design to ensure the correctness of processing. C. Control procedures should be designed from the "bottom up" to ensure attention to detail. D. Management regularly discharges personnel who do not perform up to expectations.
A. Management takes action to enhance the likelihood that established goals and objectives will be achieved.
Control procedures include physical controls over access to and use of assets and records. A departure from the purpose of such procedures is that A. Only storeroom personnel and line supervisors have access to the raw materials storeroom. B. Only salespersons and sales supervisors use sales department vehicles. C. The mail clerk compiles a list of the checks received in the incoming mail. D. Access to the safe-deposit box requires two officers.
A. Only storeroom personnel and line supervisors have access to the raw materials storeroom.
A retailer of high-priced durable goods operates a catalog-ordering division that accepts customer orders by telephone. The retailer runs frequent price promotions. During these times, the telephone operators enter the promotional prices. The risk of this practice is that A. Operators could collude with outsiders for unauthorized prices. B. Customers could systematically be charged lower prices. C. Operators could give competitors notice of the promotional prices. D. Frequent price changes could overload the order entry system.
A. Operators could collude with outsiders for unauthorized prices.
To control purchasing and accounts payable, an information system must include certain source documents. For a manufacturing organization, these documents should include A. Purchase requisitions, purchase orders, receiving reports, and vendor invoices. B. Receiving reports and vendor invoices. C. Purchase orders, receiving reports, and vendor invoices. D. Purchase requisitions, purchase orders, inventory reports of goods needed, and vendor invoices.
A. Purchase requisitions, purchase orders, receiving reports, and vendor invoices.
In an audit of a purchasing department, which of the following ordinarily would be considered a risk factor? A. Purchases are made from parties related to buyers or other company officials. B. Purchase specifications are developed by the department requesting the material. C. There is a failure to rotate purchases among suppliers included on an approved vendor list. D. Purchases are made against blanket or open purchase orders for certain types of items.
A. Purchases are made from parties related to buyers or other company officials.
Which of the following controls would be the most appropriate means to ensure that terminated employees had been removed from the payroll? A. Reconciling payroll and time-keeping records. B. Establishing direct-deposit procedures with employees' banks. C. Establishing computerized limit checks on payroll rates. D. Mailing checks to employees' residences.
A. Reconciling payroll and time-keeping records.
Effective internal control A. Reduces the need for management to review exception reports on a day-to-day basis. B. Cannot be circumvented by management. C. Eliminates risk and potential loss to the organization. D. Is unaffected by changing circumstances and conditions encountered by the organization.
A. Reduces the need for management to review exception reports on a day-to-day basis.
Internal controls may be preventive, detective, corrective, or directive. Which of the following is preventive? A. Requiring two persons to open mail. B. Reconciling the accounts receivable subsidiary file with the control account. C. Preparing bank reconciliations. D. Using batch totals.
A. Requiring two persons to open mail.
Organizational independence in the processing of payroll is achieved by functional separations that are built into the system. Which one of the following functional separations is not required for internal control purposes? A. Separation of payroll preparation and maintenance of year-to-date records. B. Separation of payroll preparation and paycheck distribution. C. Separation of personnel function from payroll preparation. D. Separation of timekeeping from payroll preparation.
A. Separation of payroll preparation and maintenance of year-to-date records.
Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded? A. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal. B. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. C. The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences they report. D. The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances.
A. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
The frequency of the comparison of recorded accountability with assets (for the purpose of safeguarding assets) should be determined by A. The nature and amount of the asset and the cost of making the comparison. B. The auditor in consultation with client management. C. The amount of assets independent of the cost of the comparison. D. The cost of the comparison and whether the susceptibility to loss results from errors or fraud.
A. The nature and amount of the asset and the cost of making the comparison.
Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? A. The write-off of receivables by personnel who receive cash permits the misappropriation of cash. B. Fictitious transactions are recorded that cause an understatement of revenue and overstatement of receivables. C. Obsolete items included in inventory balances are rarely reduced to the lower of cost or market value. D. Merchandise received is not promptly reconciled to the outstanding purchase order file.
A. The write-off of receivables by personnel who receive cash permits the misappropriation of cash.
One control objective of the financing/treasury cycle is the proper authorization of company transactions dealing with debt and equity instruments. Which of the following controls would best meet this objective? A. Written company policies requiring review of major funding/repayment proposals by the board of directors. B. The company serves as its own registrar and transfer agent. C. Separation of responsibility for custody of funds from recording of the transaction. D. Use of an underwriter in all cases of new issue of debt or equity instruments.
A. Written company policies requiring review of major funding/repayment proposals by the board of directors.
The internal auditor recognizes that certain limitations are inherent in any internal control system. Which one of the following scenarios is the result of an inherent limitation of internal control? A. The comptroller both makes and records cash deposits. B. A security guard allows one of the warehouse employees to remove company assets from the premises without authorization. C. An employee, who is unable to read, is assigned custody of the firm's computer tape library and run manuals that are used during the third shift. D. The firm sells to customers on account, without credit approval.
B. A security guard allows one of the warehouse employees to remove company assets from the premises without authorization.
When considering internal control over securities, the auditor is especially concerned about A. Approval of temporary stock investment purchases by the corporate treasurer or company president. B. Access to stock certificates by the corporate controller. C. Preparation of accrual adjustments on bonds by the corporate controller. D. Access to stock certificates by the corporate treasurer.
B. Access to stock certificates by the corporate controller.
Multiple copies of the purchase order are prepared for recordkeeping and distribution with a copy of the purchase order sent to the vendor and one retained by the Purchasing Department. In addition, for proper informational flow and internal control purposes, a version of the purchase order would be distributed to the A. Accounts Payable, Receiving, and Stores Control Departments. B. Accounts Payable, Receiving, and Inventory Control Departments. C. Accounts Payable, Accounts Receivable, and Receiving Departments. D. Accounts Payable, Receiving, and Production Planning Departments.
B. Accounts Payable, Receiving, and Inventory Control Departments.
The accounting controls surrounding the revenue cycle should provide assurances of all of the following except the A. Accurate recording of customer accounts and finished goods inventories. B. Approval of all credit sales transactions after they are processed. C. Accurate recording, shipping, and billing of all valid sales transactions. D. Proper authorization of all sales return and allowance transactions.
B. Approval of all credit sales transactions after they are processed.
Proper segregation of functional responsibilities to achieve effective internal control calls for separation of the functions of A. Custody, execution, and reporting. B. Authorization, recording, and custody. C. Authorization, execution, and payment. D. Authorization, payment, and recording.
B. Authorization, recording, and custody.
Segregation of duties is a fundamental concept in an effective system of internal control. Nevertheless, the internal auditor must be aware that this safeguard can be compromised through A. Irregular employee reviews. B. Collusion among employees. C. Absence of internal auditing. D. Lack of training of employees.
B. Collusion among employees.
Management wishes to include in its internal controls over factory payroll a procedure to ensure that employees are paid only for work actually performed. To meet this objective, which of the following internal control actions would be most appropriate? A. Have supervisors distribute paychecks to employees in their sections. B. Compare payments with inventory additions from production. C. Keep unclaimed paychecks in a vault. D. Use time cards.
B. Compare payments with inventory additions from production.
Which one of the following situations represents an internal control weakness in accounts receivable? A. The cashier is denied access to customers' records and monthly statements. B. Delinquent accounts are reviewed only by the sales manager. C. Customers' statements are mailed monthly by the accounts receivable department. D. Internal auditors confirm customer accounts periodically.
B. Delinquent accounts are reviewed only by the sales manager.
Which of the following controls would most likely minimize defects in finished goods because of poor quality raw materials? A. Determination of spoilage at the end of the manufacturing process. B. Implementation of specifications for purchases. C. Timely follow-up on unfavorable usage variances. D. Proper handling of work-in-process inventory to prevent damage.
B. Implementation of specifications for purchases.
An internal auditor noted that several shipments were not billed. To prevent recurrence of such nonbilling, the organization should A. Undertake periodic tests of gross margin rates by product line and obtain explanations of significant departures from planned rates. B. Numerically sequence and independently account for all controlling documents (such as packing slips and shipping orders) when sales journal entries are recorded. C. Undertake a validity check with customers as to orders placed. D. Release product for shipment only on the basis of credit approval by the credit manager or other authorized person.
B. Numerically sequence and independently account for all controlling documents (such as packing slips and shipping orders) when sales journal entries are recorded.
Which one of the following describes the most effective preventive control to ensure proper handling of cash transactions? A. The employee who receives deposits from customers via the mail prepares the daily bank deposit, which is deposited by another employee. B. One employee issues prenumbered receipts for all cash collections while another employee reconciles the daily total of the prenumbered receipts to the bank deposits. C. Bank reconciliations are performed by employees not involved with cash collections and then are reviewed by a supervisor. D. Predetermined totals (hash totals) of cash receipts are used to control posting routines.
B. One employee issues prenumbered receipts for all cash collections while another employee reconciles the daily total of the prenumbered receipts to the bank deposits.
If internal control is well designed, two tasks that should be performed by different persons are A. Distribution of payroll checks and approval of sales returns for credit. B. Recording of cash receipts and preparation of bank reconciliations. C. Approval of bad debt write-offs, and reconciliation of the accounts payable subsidiary ledger and controlling account. D. Posting of amounts from both the cash receipts journal and cash payments journal to the general ledger.
B. Recording of cash receipts and preparation of bank reconciliations.
In a retail cash sales environment, which of the following controls is often absent? A. Asset access limited to authorized personnel. B. Segregation of functions. C. Supervision. D. Competent personnel.
B. Segregation of functions.
An adequate system of internal controls is most likely to detect a fraud perpetrated by a A. Group of managers in collusion. B. Single employee. C. Single manager. D. Group of employees in collusion.
B. Single employee.
Which one of the following represents a technique that is most appropriate for an internal auditor to use to test the effectiveness of accounting recordkeeping controls? A. Verify a receivable by comparing it to the accounting documentation. B. Test a loan amount by sending a confirmation to the bank. C. Perform an inquiry as to the timeliness of reconciliation completion. D. Analyze the actual results to the budget and identify variances.
B. Test a loan amount by sending a confirmation to the bank.
Internal control should follow certain basic principles to achieve its objectives. One of these principles is the segregation of functions. Which one of the following examples does not violate the principle of segregation of functions? A. The warehouse clerk, who has the custodial responsibility over inventory in the warehouse, may authorize disposal of damaged goods. B. The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run the check-signing machine. C. The department time clerk is given the undistributed payroll checks to mail to absent employees. D. The sales manager has the responsibility to approve credit and the authority to write off accounts.
B. The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run the check-signing machine.
The treasurer makes disbursements by check and reconciles the monthly bank statements to accounting records. Which of the following best describes the control impact of this arrangement? A. Controls will be enhanced because the treasurer will have two opportunities to discover inappropriate disbursements. B. The treasurer will be in a position to make and conceal unauthorized payments. C. Internal control will be enhanced because these are duties that the treasurer should perform. D. The treasurer will be able to make unauthorized adjustments to the cash account.
B. The treasurer will be in a position to make and conceal unauthorized payments.
Which one of the following would not be considered an internal control structure policy or procedure relevant to a financial statement audit? A. Comparison of physical inventory counts to perpetual inventory records. B. Timely reporting and review of quality control results. C. Maintenance of control over unused checks. D. Periodic reconciliation of perpetual inventory records to the general ledger control account.
B. Timely reporting and review of quality control results.
Auditors document their understanding of internal control with questionnaires, flowcharts, and narrative descriptions. A questionnaire consists of a series of questions concerning controls that auditors consider necessary to prevent or detect errors and fraud. The most appropriate question designed to contribute to the auditors' understanding of the completeness of the expenditure (purchases-payables) cycle concerns the A. Disposition of cash receipts. B. Use and accountability of prenumbered checks. C. Qualifications of accounting personnel. D. Internal verification of quantities, prices, and mathematical accuracy of sales invoices.
B. Use and accountability of prenumbered checks.
Which one of the following situations represents a strength of internal control for purchasing and accounts payable? A. Invoices are approved for payment by the purchasing department. B. Vendors' invoices are matched against purchase orders and receiving reports before a liability is recorded. C. Unmatched receiving reports are reviewed on an annual basis. D. Prenumbered receiving reports are issued randomly.
B. Vendors' invoices are matched against purchase orders and receiving reports before a liability is recorded.
Which of the following activities represents both an appropriate personnel department function and a deterrent to payroll fraud? A. Collection and retention of unclaimed paychecks. B. Distribution of paychecks. C. Authorization of additions and deletions from the payroll. D. Authorization of overtime.
C. Authorization of additions and deletions from the payroll.
Which one of the following actions would most effectively address the issue of internal control risk related to the custody of cash receipts? A. Preparing a control total of cash receipts immediately upon opening incoming payments. B. Assigning a single employee to be responsible for the receipt and posting of cash receipts to customer accounts. C. Establishing a lockbox deposit system at a regional bank. D. Installing a surveillance system to monitor the processing of cash receipts and custody of cash.
C. Establishing a lockbox deposit system at a regional bank.
A utility company with a large investment in repair vehicles would most likely implement which internal control to reduce the risk of vehicle theft or loss? A. Review insurance coverage for adequacy. B. Systematically account for all repair work orders. C. Maintain vehicles in a secured location with release and return subject to approval by a custodian. D. Physically inventory vehicles and reconcile the results with the accounting records.
C. Maintain vehicles in a secured location with release and return subject to approval by a custodian.
An entity's internal control structure (ICS) consists of the policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved. Only some of these objectives, policies, and procedures are relevant to a financial statement audit. Which one of the following would most likely be considered in such an audit? A. Marketing analysis of sales generated by advertising projects. B. Maintenance of statistical production analyses. C. Maintenance of control over unused checks. D. Timely reporting and review of quality control results.
C. Maintenance of control over unused checks.
The cash receipts function should be separated from the related recordkeeping in an organization to A. Prevent paying cash disbursements from cash receipts. B. Establish accountability when the cash is first received. C. Minimize undetected misappropriations of cash receipts. D. Physically safeguard the cash receipts.
C. Minimize undetected misappropriations of cash receipts.
Proper segregation of duties reduces the opportunities for persons to be in positions to both A. Record cash receipts and cash disbursements. B. Establish internal control and authorize transactions. C. Perpetrate and conceal errors or fraud. D. Journalize entries and prepare financial statements.
C. Perpetrate and conceal errors or fraud.
Responsibility for following up on any problems regarding orders of production materials and supplies, such as orders for which no acknowledgment has been received, orders overdue, partial orders, damaged or substandard merchandise received on an order, etc., would be entrusted to the A. Stores Control Department. B. Inventory Control Department. C. Purchasing Department. D. Production Planning Department.
C. Purchasing Department.
Management can best strengthen internal control over the custody of inventory stored in an off-site warehouse by implementing A. Reconciliations of transfer slips to/from the warehouse with inventory records. B. Regular confirmation of the amount on hand with the custodian of the warehouse. C. Regular reconciliation of physical inventories to accounting records. D. Increases in insurance coverage.
C. Regular reconciliation of physical inventories to accounting records.
The procedure that would best discourage the resubmission of vendor invoices after they have been paid is A. The cancellation of vouchers by accounting personnel. B. The mailing of payments directly to payees by accounting personnel. C. The cancellation of vouchers by treasurer personnel. D. A requirement for double endorsement of checks.
C. The cancellation of vouchers by treasurer personnel.
The documents that the Accounts Payable Department must review before it can properly authorize payment for the purchase of materials and supplies are A. Vendor's monthly statement, purchase order, and voucher. B. Vendor's invoice, purchase requisition, and acknowledgment purchase order. C. Vendor's invoice, purchase order, and receiving report. D. Vendor's invoice, acknowledgment purchase order, and receiving report.
C. Vendor's invoice, purchase order, and receiving report.
A company's accounts payable supervisor assigned a vendor code to a storage facility owned by the supervisor, then instructed the company's accounting system to pay monthly rent for a storage unit allegedly leased from the storage facility. This situation is an example of a failure of controls due to the lack of A. An effective internal audit function. B. Commitment to competence in job skills and knowledge. C. Appropriate physical controls. D. Appropriate segregation of duties.
D. Appropriate segregation of duties.
Which one of the following functions performed in an organization is a violation of sound principles of internal control? A. A mail clerk opening the mail compares the check received with the source document accompanying the payment, either confirming or noting the amount paid, then forwards the source documents that accompany the payments (along with a listing of the cash receipts) to Accounts Receivable, on a daily basis, for posting to the Subsidiary Ledger. B. The General Ledger Department compares the summary journal entry, received from the cashier for cash receipts applicable to outstanding accounts, with the batch total for the posting to the Subsidiary Ledger by the Accounts Receivable Department. C. A mail clerk opening the mail compares the check received with the source document accompanying the payment, either confirming or noting the amount paid, then forwards the checks daily (along with a listing of the cash receipts) to the cashier for deposit. D. At the end of the week, the cashier prepares a deposit slip for all of the cash receipts received during the week.
D. At the end of the week, the cashier prepares a deposit slip for all of the cash receipts received during the week.
If employee paychecks are distributed by hand to employees, which one of the following departments should be responsible for the safekeeping of unclaimed paychecks? A. Payroll Department. B. Timekeeping Department. C. Production Department in which the employee works or worked. D. Cashier or Treasurer's Department.
D. Cashier or Treasurer's Department.
The new controller of a company is evaluating her department for proper segregation of duties. Evaluate the following statements and determine which set of duties is acceptable to be performed by the same employee while still maintaining proper segregation of duties. A. Enter expenses into the general ledger and pay the credit card bills. B. Authorize cash disbursements and deliver the payments. C. Receive the company's deposits and record the transaction. D. Collect the cash and checks and take the deposit to the bank.
D. Collect the cash and checks and take the deposit to the bank.
Accounting controls are concerned with the safeguarding of assets and the reliability of financial records. Consequently, these controls are designed to provide reasonable assurance that all of the following take place except A. Comparing recorded assets with existing assets at periodic intervals and taking appropriate action with respect to differences. B. Executing transactions in accordance with management's general or specific authorization. C. Permitting access to assets in accordance with management's authorization. D. Compliance with methods and procedures ensuring operational efficiency and adherence to managerial policies.
D. Compliance with methods and procedures ensuring operational efficiency and adherence to managerial policies.
Which one of the following methods for the distribution of employees' pay would provide the best internal control for the organization? A. Delivery of paychecks to each department supervisor, who in turn would distribute paychecks directly to the employees in his or her department. B. Delivery of paychecks directly to each employee by a representative of the Human Resource Department. C. Delivery of paychecks directly to each employee by the payroll manager. D. Direct deposit in each employee's personal bank account.
D. Direct deposit in each employee's personal bank account.
Internal control cannot be designed to provide reasonable assurance regarding the achievement of objectives related to A. Compliance with applicable laws and regulations. B. Effectiveness and efficiency of operations. C. Reliability of financial reporting. D. Elimination of all fraud.
D. Elimination of all fraud.
Which of the following controls could be used to detect bank deposits that are recorded but never made? A. Consolidating cash receiving points. B. Establishing accountability for receipts at the earliest possible time. C. Linking receipts to other internal accountabilities (i.e., collections to either accounts receivable or sales). D. Having bank reconciliations performed by a third party.
D. Having bank reconciliations performed by a third party.
The reporting of accounting information plays a central role in the regulation of business operations. The importance of sound internal control practices is underscored by the Foreign Corrupt Practices Act of 1977, which requires publicly owned U.S. corporations to maintain systems of internal control that meet certain minimum standards. Preventive controls are an integral part of virtually all accounting processing systems, and much of the information generated by the accounting system is used for preventive control purposes. Which one of the following is not an essential element of a sound preventive control system? A. Documentation of policies and procedures. B. Sound personnel practices. C. Separation of responsibilities for the recording, custodial, and authorization functions. D. Implementation of state-of-the-art software and hardware.
D. Implementation of state-of-the-art software and hardware.
The initiation of the purchase of materials and supplies would be the responsibility of the A. Stores Control Department. B. Purchasing Department. C. Production Department. D. Inventory Control Department.
D. Inventory Control Department.
Which one of the following situations represents an internal control weakness in the payroll department? A. The timekeeping function is independent of the payroll department. B. Payroll records are reconciled with quarterly tax reports. C. Payroll department personnel are rotated in their duties. D. Paychecks are distributed by the employees' immediate supervisor.
D. Paychecks are distributed by the employees' immediate supervisor.
Control risk is the risk that a material misstatement in an account will not be prevented or detected on a timely basis by the client's internal control structure policies or procedures. The best control procedure to prevent or detect fictitious payroll transactions is A. Internal verification of authorized pay rates, computations, and agreement with the payroll register. B. Periodic independent bank reconciliations of the payroll bank account. C. To use and account for prenumbered payroll checks. D. Personnel department authorization for hiring, pay rate, job status, and termination.
D. Personnel department authorization for hiring, pay rate, job status, and termination.
In a well-designed internal control structure in which the cashier receives remittances from the mail room, the cashier should not A. Endorse the checks. B. Deposit remittances daily at a local bank. C. Prepare the bank deposit slip. D. Post the receipts to the accounts receivable subsidiary ledger cards.
D. Post the receipts to the accounts receivable subsidiary ledger cards.
One payroll audit objective is to determine if there is proper segregation of duties. Which of the following activities is incompatible? A. Preparing the payroll and filing payroll tax forms. B. Signing and distributing payroll checks. C. Hiring employees and authorizing changes to pay rates. D. Preparing attendance data and preparing the payroll.
D. Preparing attendance data and preparing the payroll.
The procedure requiring preparation of a prelisting of incoming cash receipts, with copies of the prelist going to the cashier and to accounting, is an example of which type of control? A. Corrective. B. Detective. C. Directive. D. Preventive.
D. Preventive.
A proper segregation of duties requires that an individual A. Maintaining custody of an asset be entitled to access the accounting records for the asset. B. Authorizing a transaction records it. C. Authorizing a transaction maintain custody of the asset that resulted from the transaction. D. Recording a transaction not compare the accounting record of the asset with the asset itself.
D. Recording a transaction not compare the accounting record of the asset with the asset itself.
A means of ensuring that payroll checks are drawn for properly authorized amounts is to A. Witness the distribution of payroll checks. B. Conduct periodic floor verification of employees on the payroll. C. Require that undelivered checks be returned to the cashier. D. Require supervisory approval of employee time cards.
D. Require supervisory approval of employee time cards.
Controls can be classified according to the function they are intended to perform; for example, to discover the occurrence of an unwanted event (detective), to avoid the occurrence of an unwanted event (preventive), or to ensure the occurrence of a desirable event (directive). Which of the following is a directive control? A. Monthly bank statement reconciliations. B. Dual signatures on all disbursements over a specific dollar amount. C. Recording every transaction on the day it occurs. D. Requiring all members of the internal auditing department to be Certified Internal Auditors (CIAs).
D. Requiring all members of the internal auditing department to be Certified Internal Auditors (CIAs).
To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should A. Request internal auditors to confirm selected purchases and accounts payable. B. Specify that all items purchased must pass value-per-unit-of-cost reviews. C. Direct the purchasing department to maintain records on purchase prices paid, with review of such being required each 6 months. D. Rotate purchasing agent assignments periodically.
D. Rotate purchasing agent assignments periodically.
Which of the following credit approval procedures would be the basis for developing a deficiency finding for a wholesaler? A. Customers not meeting trade-credit standards are shipped merchandise on a cash-on-delivery (C.O.D.) basis only. B. Trade-credit standards are reviewed and approved by the finance committee of the board of directors. C. An authorized signature from the credit department, denoting approval of the customer's credit, is to appear on all credit-sales orders. D. Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers.
D. Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers.
An employee should not be able to visit the corporate safe-deposit box containing investment securities without being accompanied by another corporate employee. What would be a possible consequence of an employee being able to visit the safe-deposit box unaccompanied? A. There would be no record of when company personnel visited the safe-deposit box. B. It would be impossible to obtain a fidelity bond on the employee. C. The employee could steal securities, and the theft would never be discovered. D. The employee could pledge corporate investments as security for a short-term personal bank loan.
D. The employee could pledge corporate investments as security for a short-term personal bank loan.
A multinational corporation has an office in a foreign branch with a monetary transfer facility. Effective internal control requires that A. The branch manager not deliver payroll checks to employees. B. The hiring of individual branch employees be approved by the headquarters office. C. Foreign currency translation rates be computed separately by two branch employees in the same department. D. The person making wire transfers not reconcile the bank statement.
D. The person making wire transfers not reconcile the bank statement.
Which of the following observations, made during the preliminary survey of a local department store's disbursement cycle, reflects a control strength? A. Individual department managers use prenumbered forms to order merchandise from vendors. B. Individual department managers are responsible for the movement of merchandise from the receiving dock to storage or sales areas as appropriate. C. The receiving department is given a copy of the purchase order complete with a description of goods, quantity ordered, and extended price for all merchandise ordered. D. The treasurer's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.
D. The treasurer's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.
One characteristic of an effective internal control structure is the proper segregation of duties. The combination of responsibilities that would not be considered a violation of segregation of functional responsibilities is A. Approval of time cards and preparation of paychecks. B. Preparation of paychecks and check distribution. C. Signing of paychecks and custody of blank payroll checks. D. Timekeeping and preparation of payroll journal entries.
D. Timekeeping and preparation of payroll journal entries.
An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after 1 year, or sooner if a bankruptcy or other unusual circumstances are involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following areas could be viewed as an internal control weakness of the above organization? A. Handling of credit memos. B. Monthly aging of receivables. C. Credit approvals. D. Write-offs of delinquent accounts.
D. Write-offs of delinquent accounts.
