Audit Gleim 7.1

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

Receiving department

Which of the following internal control activities most likely addresses the completeness assertion for inventory?

Receiving reports are prenumbered and periodically reconciled.

Operating control of the check-signing machine normally should be the responsibility of the

Treasury function

The authority to accept incoming goods in receiving should be based on a(n)

Approved purchase order.

Which of the following internal control activities is not usually performed in the CFO's department?

Approving vendors' invoices for payment.

In a well-designed internal control system, employees in the same department most likely would approve purchase orders, and also

Negotiate terms with vendors.

Which of the following situations most likely could lead to an embezzlement scheme?

Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement.

Which of the following internal control activities is not usually performed in the vouchers payable department?

Accounting for unused prenumbered purchase orders and receiving reports.

Which of the following constitutes the best evidence of the transfer of accountability for incoming material from the receiving department to other departments or activities?

An authorized signature on the prescribed transfer form.

Which of the following questions is inappropriate on an internal control questionnaire concerning purchase transactions?

Are intact cash receipts deposited daily in the bank?

Which of the following questions should not appear in an internal control questionnaire relating to cash disbursements?

Are prelistings made of all cash receipts?

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases?

Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? Select and examine

Canceled checks and ascertain that the related receiving reports are dated no later than the checks.

Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?

Canceling supporting documentation after payment.

To avoid potential errors and fraud, well-designed internal control in the accounts payable area should include a segregation of which of the following functions?

Cash disbursements and vendor invoice verification.

Which of the following items in a communication about control deficiencies in internal control over cash receipts and disbursements is least significant?

Checks are signed by one person.

As an in-charge auditor, you are reviewing a communication about significant deficiencies and material weaknesses related to internal control over cash receipts and disbursements. Which of the following conditions, standing alone, should cause you the least concern?

Checks are signed by only one person.

Which of the following is a standard control over cash disbursements?

Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.

A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Clerk 1 Reviews vendor invoices for proper signature approval. Clerk 2 Enters vendor invoices into the accounting system and verifies payment terms. Clerk 3 Posts entered vendor invoices to the accounts payable ledger for payment and mails checks. Treasurer Reviews the vendor invoices and signs each check. Which of the following would indicate a weakness in the company's internal control?

Clerk 3 mails the checks and remittances after they have been signed.

During the audit of a construction contract, it was discovered that the contractor was being paid for each ton of dirt removed. The contract called for payment based on cubic yards removed. Which internal control might have prevented this error?

Comparison of invoices with purchase orders or contracts.

Which of the following control activities is not usually performed with regard to vouchers payable in the accounting department?

Controlling the mailing of the check and remittance advice.

The objectives of internal control for a production cycle are to provide assurance that transactions are properly executed and recorded, and that

Custody of work-in-process and of finished goods is properly maintained.

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the

Debit memo

The primary audit objective regarding the purchasing of materials by the client is to

Determine the reliability of financial reporting by the purchasing function.

An administrative tool that aids in the control of the financial management function is a cash budget. The principal aim of a cash budget is to

Ensure that sufficient funds are available at all times to satisfy maturing liabilities.

For effective internal control, the accounts payable department ordinarily should

Establish the agreement of the vendor's invoice with the receiving report and purchase order.

An essential procedural control to ensure the accuracy of the recorded inventory quantities is

Establishing a cutoff for goods received and shipped.

A client's materials purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to

Evaluate the reliability of information generated by the purchasing process.

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also

Is responsible for mailing the checks.

A purchasing agent places an order for inventory whenever a requisition is received from the warehouse. The warehouse clerk issues requisitions based on periodic physical counts because no perpetual records are maintained. Numerous duplicate orders have been placed for goods previously ordered but not received. To prevent this excess ordering, the firm should

Keep an adequate record of open purchase orders and review it before ordering.

In a well-designed internal control system, the same employee may be permitted to

Mail signed checks and also cancel supporting documents.

Effective controls relevant to purchasing of raw materials should usually include all of the following except

Obtaining third-party written quality and quantity reports prior to payment for the raw materials.

In assessing risks of material misstatement for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?

Occurrence

A receiving department receives copies of purchase orders for use in identifying and recording inventory receipts. The purchase orders list the name of the vendor and the quantities of the materials ordered. A possible error that this system could allow is

Overpayment for partial deliveries.

Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if

Partial payments to vendors are continuously made in the ordinary course of business.

Which of the following controls most likely would assist in reducing the risks of material misstatement related to the existence or occurrence of manufacturing transactions?

Perpetual inventory records are independently compared with goods on hand.

Which of the following controls is most effective in providing assurance that recorded purchases are free of material errors?

Purchase orders, receiving reports, and vendors' invoices are independently matched in preparing vouchers.

Your objective is to determine that nonrecurring purchases, initiated by various user organizations, have been properly authorized. If all purchases are made through the purchasing department, to which of the following documents should you vouch purchases?

Purchase requisitions

For several years a client's physical inventory count has been lower than what was shown on the books at the time of the count, and downward adjustments of the inventory account have been required. Contributing to the inventory problem could be material weaknesses in internal control that led to the failure to record some

Purchases returned to vendors.

In a properly designed internal control system, the same employee most likely would match vendors' invoices with receiving reports and also

Recompute the calculations on vendors' invoices.

Under which of the following circumstances would an auditor be most likely to intensify an audit of a $500 imprest petty cash fund?

Reimbursement occurs twice each week.

To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should

Require competitive bidding.

An audit team has concluded that inventory is highly susceptible to misappropriation and that a potential misstatement would be material to the financial statements. How should the audit team address the audit procedures to the increased risk?

Review the client's control procedures over the safeguarding of inventory and perform a physical inventory count on the last day of the current year.

If internal control is properly designed, the same employee may be permitted to

Sign checks and also cancel supporting documents.

An effective control that protects against the preparation of improper or inaccurate disbursements is to require that all checks be

Signed by an officer after necessary supporting evidence has been examined.

Which of the following circumstances most likely would cause an auditor to suspect that there are material misstatements in an entity's financial statements?

Significant differences between the physical inventory count and the accounting records are not investigated.

Mailing disbursement checks and remittance advices should be controlled by the employee who

Signs the checks last.

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is

Stamped "paid" by the check signer.

Fraudulent use of corporate credit cards will be minimized by which of the following controls?

Subjecting credit card charges to the same expense controls as those used on regular company expense forms.

Based on observations made during an audit, the auditor should discuss with management the effectiveness of the company's controls that protect against the purchase of

Supplies individually ordered, without considering possible volume discounts.

The procedure that best discourages the resubmission of vendor invoices after they have been paid is

The cancelation of vouchers by CFO personnel.

Which of the following observations made during the preliminary survey of a local department store's disbursement cycle reflects a control strength?

The CFO's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.

Which of the following describes a weakness in accounts payable procedures?

The accounts payable manager issues purchase orders.

Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice?

The check signer reviews and cancels the voucher packets.

Which of the following events occurring in the year under audit would most likely indicate that internal controls utilized in previous years may be inadequate in the year under audit?

The chief financial officer waived approvals on all checks to one vendor to expedite payment.

In planning to assess control risk for purchasing and disbursement procedures, the auditor will be least influenced by

The strength or weakness of internal control in other areas, e.g., sales and accounts receivable.

Effective controls relevant to the efficiency of purchases will result in proper evaluation of the time for ordering merchandise. When making this evaluation, the purchasing company should give primary consideration to

The trade-off between the cost of owning and storing excess merchandise and the risk of loss by not having merchandise on hand

A university does not have a centralized receiving function for departmental purchases of books, supplies, and equipment. Which of the following controls will most effectively prevent payment for goods not received, if performed prior to invoice payment?

Vendor invoices should be approved by a departmental supervisor other than the employee ordering the goods.