Risk and Procedures for Control MCQs

One of the financial statement auditor’s major concerns is to ascertain whether internal control is designed to provide reasonable assurance that

Profit margins are maximized, and operational efficiency is optimized.
The chief accounting officer reviews all accounting transactions.
Corporate morale problems are addressed immediately and effectively.
Financial reporting is reliable.

The primary responsibility for establishing and maintaining internal control rests with

The external auditor.
Management
The controller.
The treasurer.

Internal controls are designed to provide reasonable assurance that

Material errors or fraud will be prevented or detected and corrected within a timely period by employees in the course of performing their assigned duties.
Management’s plans have not been circumvented by worker collusion.
The internal auditing department’s guidance and oversight of management’s performance is accomplished economically and efficiently.
Management’s planning, organizing, and directing processes are properly evaluated

Which of the following are considered control environment factors? Detection Risk Personnel Policies and Practices

Yes Yes
Yes No
No Yes
No No

Basic to a proper control environment are the quality and integrity of personnel who must perform the prescribed procedures. Which is not a factor in ...

Segregation of duties.
Hiring practices.
Training programs.
Performance evaluations.

A director of a corporation is best characterized as a(n)

Agent.
Trustee.
Fiduciary.
Principal.

Seymore was recently invited to become a director of Buckley Industries, Inc. If Seymore accepts and becomes a director, he along with the other direc...

Lack of reasonable care.
Honest errors of judgment.
Declaration of a dividend that the directors know will impair legal capital.
Diversion of corporate opportunities to themselves.

A corporate director commits a breach of duty if

The director’s exercise of care and skill is minimal.
A contract is awarded by the company to an organization owned by the director.
An interest in property is acquired by the director without prior approval of the board.
The director’s action, prompted by confidential information, results in an abuse of corporate opportunity.

Audit committees have been identified as a major factor in promoting the independence of both internal and external auditors. Which of the following i...

Audit committees may be composed of independent directors. However, those directors may have close personal and professional friendships with management.
Audit committee members are compensated by the organization and thus favor an owner’s view.
Audit committees devote most of their efforts to external audit concerns and do not pay much attention to the internal audit activity and the overall control environment.
Audit committee members do not normally have degrees in the accounting or auditing fields.

The audit committee may serve several important purposes, some of which directly benefit the internal audit activity. The most significant benefit pro...

Protecting the independence of the internal audit activity from undue management influence.
Reviewing annual engagement work schedules and monitoring engagement results.
Approving engagement work schedules, scheduling, staffing, and meeting with the internal auditors as needed.
Reviewing copies of the procedures manuals for selected organizational operations and meeting with organizational officials to discuss them.

Which of the following is an appropriate responsibility of an audit committee?

Performing a review of the procurement function of the organization.
Reviewing the internal audit activity’s (IAA’s) engagement work schedule submitted by the chief audit executive (CAE).
Reviewing the engagement records of the public accounting firm to determine the firm’s competence.
Recommending the assignment of specific internal auditing staff members for specific engagements.

To avoid creating conflict between the chief executive officer (CEO) and the audit committee, the chief audit executive (CAE) should

Submit copies of all engagement communications to the CEO and audit committee.
Strengthen independence through organizational status
Discuss all pending engagement communications to the CEO with the audit committee.
Request board establishment of policies covering the internal audit activity’s (IAA’s) relationships with the audit committee.

Which of the following actions is an appropriate response by organizations wishing to improve the public’s perception of their financial reporting?

Increased adoption of audit committees composed of outside directors.
Viewing internal auditing as a transient profession -- a stepping stone to managerial positions.
Requiring internal auditors to report all significant observations of illegal activity to the chief executive officer.
Keeping external and internal auditing work separated to maintain independence.

Which of the following is not an appropriate member of an audit committee?

The vice president of the local bank used by the organization.
An academic specializing in business administration.
A retired executive of a firm that had been associated with the organization.
The organization’s vice president of operations.

Which of the following audit committee activities is of the greatest benefit to the internal audit activity?

Review and approval of engagement work programs.
Assurance that the external auditor will rely on the work of the internal audit activity whenever possible.
Review and endorsement of all internal auditing engagement communications prior to their release.
Support for appropriate monitoring of the disposition of recommendations made by the internal audit activity.

Which of the following features of a large manufacturer’s organizational structure is a control weakness?

The information systems department is headed by a vice president who reports directly to the president
The chief financial officer is a vice president who reports to the chief executive officer.
The audit committee of the board consists of the chief executive officer, the chief financial officer, and a major shareholder.
The controller and treasurer report to the chief financial officer.

The audit committee strengthens the control processes of an organization by

Assigning the internal audit activity responsibility for interaction with governmental agencies.
Using the chief audit executive as a major resource in selecting the external auditors.
Following up on recommendations made by the chief audit executive.
Approving internal audit activity policies. Question: 1720 An audit committee of the board of directors of an organization

An audit committee of the board of directors of an organization is being established. Which of the following is normally a responsibility of the commi...

Approval of the selection and dismissal of the chief audit executive (CAE).
Development of the annual engagement work schedule.
Approval of engagement work programs.
Determination of engagement observations appropriate for specific engagement communications.

Corporate directors, management, external auditors, and internal auditors all play important roles in creating a proper control environment. Top manag...

Establishing a proper environment and specifying an overall internal control structure.
Reviewing the reliability and integrity of financial information and the means used to collect and report such information.
Ensuring that external and internal auditors adequately monitor the control environment.
Implementing and monitoring controls designed by the board of directors.

Certain management characteristics may heighten the auditor’s concern about the risk of material misstatements. The characteristic that is least lik...

Operating and financing decisions are made by numerous individuals.
Commits to unduly aggressive forecasts.
Has an excessive interest in increasing the entity’s stock price through use of unduly aggressive accounting practices.
Is interested in inappropriate methods of minimizing earnings for tax purposes.

When management of the sales department has the opportunity to override the system of internal controls of the accounting department, a weakness exist...

Risk management
Information and communication
Monitoring.
The control environment.

Risk assessment is a process

Designed to identify potential events that may affect the entity.
That establishes policies and procedures to accomplish internal control objectives
Of identifying and capturing information in a timely fashion
That assesses the quality of internal control throughout the year.

Some account balances, such as those for pensions or leases, are the results of complex calculations. The susceptibility to material misstatements in ...

Audit risk.
Detection risk.
Sampling risk.
Inherent risk.

Which of the following is not a component of internal control?

Control risk.
Monitoring.
Information and communication
The control environment.

A restaurant food chain has over 680 restaurants. All food orders for each restaurant are required to be input into an electronic device which records...

The restaurant manager reconciles the cash received with the food orders recorded on the computer.
All food orders must be entered on the computer, and segregation of duties is maintained between the food servers and the cooks.
Management prepares a detailed analysis of gross margin per store and investigates any store that shows a significantly lower gross margin.
Cash is transmitted to corporate headquarters on a daily basis.

Audit risk consists of inherent risk, control risk, and detection risk. Which of the following statements is true?

Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
The risk that material misstatement will not be prevented or detected on a timely basis by internal control can be reduced to zero by effective controls.
Detection risk is a function of the efficiency of an auditing procedure.
The existing levels of inherent risk, control risk, and detection risk can be changed at the discretion of the auditor

Audit risk is a combination of three separate risks at the account-balance or class-of-transactions level. The first risk is inherent risk. The second...

The auditor will reject a correct account balance as incorrect.
Material misstatements that occur will not be detected by the audit.
The auditor will apply an inappropriate audit procedure.
The auditor will apply an inappropriate measure of audit materiality.

Audit risk is a combination of three separate risks at the account-balance or class-oftransactions level. The first risk is inherent risk. The second...

The auditor will reject a correct account balance as incorrect.
Material misstatements that occur will not be detected by the audit
The auditor will apply an inappropriate audit procedure.
The auditor will apply an inappropriate measure of audit materiality.

There are three components of audit risk: inherent risk, control risk, and detection risk. Inherent risk is

The susceptibility of an assertion to a material misstatement, assuming that there are no related internal control structure policies or procedures.
The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated.
The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity’s internal control structure policies or procedures
The risk that the auditor will not detect a material misstatement that exists in an assertion.

The basic concepts implicit in internal accounting controls include the following:  The cost of the system should not exceed benefits expected to b...

Limitations.
Management responsibility.
Methods of data processing.
Reasonable assurance.

Which one of the following options would be most effective in deterring the commission of fraud?

Policies of strong internal control, segregation of duties, and requiring employees to take vacations.
Policies of strong internal control and punishments for unethical behavior.
Employee training, segregation of duties, and punishment for unethical behavior.
Hiring ethical employees, employee training, and segregation of duties.

The COSO model component of Risk Assessment focuses on

Identifying the risks in all areas and establishing the vulnerability of the organization.
The attitude of management at all levels toward operations and the concept of risk.
The controls such as approvals and documentation that addresses an organization’s risk.
The timely communication of information relative to identified risks to management.

The statement below that best illustrates the importance of personnel policies and procedures is that personnel policies and procedures

Are integral to an efficient control environment.
Should be implemented where it is cost beneficial.
Should be evaluated for compliance by an external firm.
Should be implemented where risks have been identified.

Which one of the following statements about internal control risk is correct?

The establishment and maintenance of an internal control system within a company can effectively eliminate internal control risk.
The internal audit function is responsible for the establishment and maintenance of a company’s internal control system.
Management has the responsibility to maintain controls that provide reasonable assurance that adequate control exists over the entity’s assets and records.
Management’s responsibility regarding internal control risk is limited to controls that provide assurance regarding the reliability of financial reporting.

Which one of the following statements is the best example of inherent risk?

The risk that the auditor did not detect a material misstatement in the financial statements.
The risk that a material misstatement could occur and will not be prevented.
The risk that the auditor failed to modify his or her opinion on materially misstated information.
The risk that there will be a material misstatement, assuming no related internal control strategy.

Which one of the following characteristics related to management’s philosophy and operating style best indicates management’s commitment to strong...

Decisions are controlled by a small group of top-level executives.
Attitudes toward financial reporting are very aggressive.
Funds are allocated annually to update and improve the entity’s information systems.
Strong emphasis is placed on meeting earnings projections.

Proper segregation of duties reduces the opportunities for persons to be in positions to both

Journalize entries and prepare financial statements.
Record cash receipts and cash disbursements.
Establish internal control and authorize transactions.
Perpetrate and conceal errors or fraud.

A proper segregation of duties requires that an individual

Authorizing a transaction records it.
Authorizing a transaction maintain custody of the asset that resulted from the transaction.
Maintaining custody of an asset be entitled to access the accounting records for the asset
Recording a transaction not compare the accounting record of the asset with the asset itself.

The frequency of the comparison of recorded accountability with assets (for the purpose of safeguarding assets) should be determined by

The amount of assets independent of the cost of the comparison.
The nature and amount of the asset and the cost of making the comparison.
The cost of the comparison and whether the susceptibility to loss results from errors or fraud.
The auditor in consultation with client management.

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

Are an approved purchase requisition and a signed purchase order required for each purchase?
Are prenumbered purchase orders and receiving reports used and accounted for?
Are all goods received in a centralized receiving department and counted, inspected, and compared with purchase orders on receipt?
Are intact cash receipts deposited daily in the bank?

When considering internal control over securities, the auditor is especially concerned about .

Access to stock certificates by the corporate controller.
Access to stock certificates by the corporate treasurer.
Preparation of accrual adjustments on bonds by the corporate controller.
Approval of temporary stock investment purchases by the corporate treasurer or company president.

In a retail cash sales environment, which of the following controls is often absent? .

Competent personnel.
Segregation of functions.
Supervision.
Asset access limited to authorized personnel.

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

A requirement for double endorsement of checks.
The cancellation of vouchers by accounting personnel.
The cancellation of vouchers by treasurer personnel.
The mailing of payments directly to payees by accounting personnel.

Organizational independence in the processing of payroll is achieved by functional separations that are built into the system. Which one of the follo...

Separation of timekeeping from payroll preparation.
Separation of personnel function from payroll preparation.
Separation of payroll preparation and paycheck distribution.
Separation of payroll preparation and maintenance of year-to-date records.

An employee should not be able to visit the corporate safe-deposit box containing investment securities without being accompanied by another corporat...

The employee could pledge corporate investments as security for a shortterm personal bank loan.
The employee could steal securities, and the theft would never be discovered.
It would be impossible to obtain a fidelity bond on the employee.
There would be no record of when company personnel visited the safe deposit box.

Which control is not appropriate for property, plant, and equipment?

Disposal of fully depreciated assets.
Proper authority for acquisition and retirement of assets.
Detailed property records and physical controls over assets.
Written policies for capitalization and expenditure and review of application of depreciation methods.

Internal control should follow certain basic principles to achieve its objectives. One of these principles is the segregation of functions. Which one ...

The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run the check-signing machine.
The warehouse clerk, who has the custodial responsibility over inventory in the ware house, may authorize disposal of damaged goods.
The sales manager has the responsibility to approve credit and the authority to write off accounts.
The department time clerk is given the undistributed payroll checks to mail to absent employees.

If internal control is well designed, two tasks that should be performed by different persons are

Approval of bad debt write-offs, and reconciliation of the accounts payable subsidiary ledger and controlling account.
Distribution of payroll checks and approval of sales returns for credit.
Posting of amounts from both the cash receipts journal and cash payments journal to the general ledger.
Recording of cash receipts and preparation of bank reconciliations.

Which one of the following situations represents an internal control weakness in the payroll department?

Payroll department personnel are rotated in their duties.
Paychecks are distributed by the employees’ immediate supervisor.
Payroll records are reconciled with quarterly tax reports.
The timekeeping function is independent of the payroll department.

Which of the following activities represents both an appropriate personnel department function and a deterrent to payroll fraud?

Distribution of paychecks.
Authorization of overtime.
Authorization of additions and deletions from the payroll.
Collection and retention of unclaimed paychecks.

Which one of the following situations represents a strength of internal control for purchasing and accounts payable?

Pre numbered receiving reports are issued randomly.
Invoices are approved for payment by the purchasing department.
Unmatched receiving reports are reviewed on an annual basis.
Vendors’ invoices are matched against purchase orders and receiving reports before a liability is recorded.

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...

Review insurance coverage for adequacy.
Systematically account for all repair work orders.
Physically inventory vehicles and reconcile the results with the accounting records.
Maintain vehicles in a secured location with release and return subject to approval by a custodian.

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

Rotate purchasing agent assignments periodically.
Request internal auditors to confirm selected purchases and accounts payable.
Specify that all items purchased must pass value-per-unit-of-cost reviews.
Direct the purchasing department to maintain records on purchase prices paid, with review of such being required each 6 months.

Management can best strengthen internal control over the custody of inventory stored in an off-site warehouse by implementing

Reconciliations of transfer slips to/from the warehouse with inventory records.
Increases in insurance coverage.
Regular reconciliation of physical inventories to accounting records.
Regular confirmation of the amount on hand with the custodian of the warehouse.

Auditors document their understanding of internal control with questionnaires, flowcharts, and narrative descriptions. A questionnaire consists of a s...

Internal verification of quantities, prices, and mathematical accuracy of sales invoices.
Use and accountability of prenumbered checks.
Disposition of cash receipts.
Qualifications of accounting personnel.

Control procedures include physical controls over access to and use of assets and records. A departure from the purpose of such procedures is that

Access to the safe-deposit box requires two officers.
Only storeroom personnel and line supervisors have access to the raw materials storeroom.
The mail clerk compiles a list of the checks received in the incoming mail.
Only salespersons and sales supervisors use sales department vehicles.

Which of the following controls could be used to detect bank deposits that are recorded but never made?

Establishing accountability for receipts at the earliest possible time.
Linking receipts to other internal accountabilities (i.e., collections to either accounts receivable or sales).
Consolidating cash receiving points.
Having bank reconciliations performed by a third party.

When an organization has strong internal control, management can expect various benefits. The benefit least likely to occur is

Reduced cost of an external audit.
Elimination of employee fraud.
Availability of reliable data for decision-making purposes.
Some assurance of compliance with the Foreign Corrupt Practices Act of 1977.

An adequate system of internal controls is most likely to detect a fraud perpetrated by a

Group of employees in collusion.
Single employee.
Group of managers in collusion.
Single manager.

One payroll audit objective is to determine if there is proper segregation of duties. Which of the following activities is incompatible?

Hiring employees and authorizing changes to pay rates.
Preparing the payroll and filing payroll tax forms.
Signing and distributing payroll checks.
Preparing attendance data and preparing the payroll.

Which one of the following would not be considered an internal control structure policy or procedure relevant to a financial statement audit?

Maintenance of control over unused checks.
Periodic reconciliation of perpetual inventory records to the general ledger control account.
Comparison of physical inventory counts to perpetual inventory records.
Timely reporting and review of quality control results.

Appropriate control over obsolete materials requires that they be

Carried at cost in the accounting records until the actual disposition takes place.
Sorted, treated, and packaged before disposition takes place, in order to obtain the best selling price.
Determined by an approved authority to be lacking in regular usability.
Retained within the regular storage area.

A company has computerized sales and cash receipts journals. The computer programs for these journals have been properly debugged. The auditor discove...

Credit memoranda being improperly recorded
Lapping of receivables.
Receivables not being properly aged.
Statements being intercepted prior to mailing.

An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit departm...

Write-offs of delinquent accounts.
Credit approvals.
Monthly aging of receivables
Handling of credit memos.

One control objective of the financing/treasury cycle is the proper authorization of company transactions dealing with debt and equity instruments. Wh...

Separation of responsibility for custody of funds from recording of the transaction.
Written company policies requiring review of major funding/repayment proposals by the board of directors.
Use of an underwriter in all cases of new issue of debt or equity instruments.
The company serves as its own registrar and transfer agent.

The cash receipts function should be separated from the related record keeping in an organization to

Physically safeguard the cash receipts.
Establish accountability when the cash is first received.
Prevent paying cash disbursements from cash receipts.
Minimize undetected misappropriations of cash receipts.

In an audit of a purchasing department, which of the following ordinarily would be considered a risk factor?

Purchase specifications are developed by the department requesting the material.
Purchases are made against blanket or open purchase orders for certain types of items.
Purchases are made from parties related to buyers or other company officials.
There is a failure to rotate purchases among suppliers included on an approved vendor list.

Management wishes to include in its internal controls over factory payroll a procedure to ensure that employees are paid only for work actually perfor...

Compare piecework records with inventory additions from production.
Have supervisors distribute paychecks to employees in their sections.
Use time cards.
Keep unclaimed paychecks in a vault.

Which of the following credit approval procedures would be the basis for developing a deficiency finding for a wholesaler?

Trade-credit standards are reviewed and approved by the finance committee of the board of directors.
Customers not meeting trade-credit standards are shipped merchandise on a cash-on-delivery basis
Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers.
An authorized signature from the credit department, denoting approval of the customer’s credit, is to appear on all credit-sales orders.

A means of ensuring that payroll checks are drawn for properly authorized amounts is to

Conduct periodic floor verification of employees on the payroll
Require that undelivered checks be returned to the cashier.
Require supervisory approval of employee time cards.
Witness the distribution of payroll checks.

An internal auditor noted that several shipments were not billed. To prevent recurrence of such nonbilling, the organization should

Numerically sequence and independently account for all controlling documents (such as packing slips and shipping orders) when sales journal entries are recorded.
Undertake a validity check with customers as to orders placed.
Release product for shipment only on the basis of credit approval by the credit manager or other authorized person.
Undertake periodic tests of gross margin rates by product line and obtain explanations of significant departures from planned rates.

Controls can be classified according to function they are intended to perform; for example, to discover the occurrence of an unwanted event (detective...

Monthly bank statement reconciliations.
Dual signatures on all disbursements over a specific dollar amount.
Recording every transaction on the day it occurs.
Requiring all members of the internal auditing department to be Certified Internal Auditors (CIAs).

An audit of the payroll function revealed several instances in which a payroll clerk had added fictitious employees to the payroll and deposited the c...

Using time cards and attendance records in the computation of employee gross earnings.
Establishing a policy to deal with close relatives working in the same department.
Having the treasurer’s office sign payroll checks.
Allowing changes to the payroll to be authorized only by the personnel department.

An audit of the receiving function at the company’s distribution center revealed inadequate control over receipts. Which of the following controls w...

To ensure adequate separation of duties, the warehouse receiving clerk should work independently from the warehouse manager.
Ensure that the warehouse receiving department has a purchase order copy with the units described, but both prices and quantities omitted.
Require that all receipts receive the approval of the warehouse manager.
Ensure that the warehouse receiving department has a true copy of the original purchase order.

The director of internal auditing at a large multinational firm is evaluating the draft of a new travel policy that requires preparation of a travel p...

Avoid involvement in reviewing policies and procedures because such involvement would impair audit independence.
Ensure that examples of all signatures are on file to use during travel reimbursement procedures.
Suggest that a copy of the travel planning form should be sent to the internal audit department.
Address whether the new travel approval policy is an effective control and an efficient use of time for the supervisors and vice presidents involved.

Which one of the following situations represents an internal control weakness in accounts receivable?

Internal auditors confirm customer accounts periodically.
Delinquent accounts are reviewed only by the sales manager.
The cashier is denied access to customers’ records and monthly statements.
Customers’ statements are mailed monthly by the accounts receivable department.

Control risk is the risk that a material misstatement in an account will not be prevented or detected on a timely basis by the clientâ€™s interna...

To use and account for prenumbered payroll checks.
Personnel department authorization for hiring, pay rate, job status, and termination.
Internal verification of authorized pay rates, computations, and agreement with the payroll register.
Periodic independent bank reconciliations of the payroll bank account.

One characteristic of an effective internal control structure is the proper segregation of duties. The combination of responsibilities that would not ...

Signing of paychecks and custody of blank payroll checks.
Preparation of paychecks and check distribution.
Approval of time cards and preparation of paychecks.
Timekeeping and preparation of payroll journal entries.

According to SAS 55 (AU 319), Consideration of Internal Control in a Financial Statement Audit, an entity’s internal control structure (ICS) consist...

Timely reporting and review of quality control results.
Maintenance of control over unused checks.
Marketing analysis of sales generated by advertising projects.
Maintenance of statistical production analyses.

Auditors regularly evaluate controls. Which of the following best describes the concept of control as recognized by internal auditors?

Management regularly discharges personnel who do not perform up to expectations.
Management takes action to enhance the likelihood that established goals and objectives will be achieved.
Control represents specific procedures that accountants and auditors design to ensure the correctness of processing.
Control procedures should be designed from the “bottom up” to ensure attention to detail.

Which group has the primary responsibility for the establishment, implementation, and monitoring of adequate controls in the posting of accounts recei...

External auditors.
Accounts receivable staff
Internal auditors.
Accounting management.

A retailer of high-priced durable goods operates a catalog-ordering division that accepts customer orders by telephone. The retailer runs frequent pri...

Customers could systematically be charged lower prices.
Frequent price changes could overload the order entry system.
Operators could give competitors notice of the promotional prices.
Operators could collude with outsiders for unauthorized prices.

ABC is a major retailer with over 52 department stores. The marketing department is responsible for 1. Conducting marketing surveys 2. Recommending lo...

The store manager can require items to be closed out, thus affecting the potential performance evaluation of individual product managers.
The product manager negotiates the purchase price and sets the selling price.
Evaluating product managers by total gross profit generated by product line will lead to dysfunctional behavior.
There is no receiving function located at individual stores.

ABC is a major retailer with over 52 department stores. The marketing department is responsible for 1. Conducting marketing surveys 2. Recommending lo...

II and III.
I, II, and III.
I only.
III only.

In an automated payroll processing environment, a department manager substituted the time card for a terminated employee with a time card for a fictit...

Batch total.
Record count.
Hash total.
Subsequent check.

Payroll systems should have elaborate controls to prevent, detect, and correct errors and unauthorized tampering. The best set of controls for a payro...

Batch and hash totals, record counts of each run, proper separation of duties, special control over unclaimed checks, and backup copies of activity and master files.
Employee supervision, batch totals, record counts of each run, and payments by check.
Passwords and user codes, batch totals, employee supervision, and record counts of each run.
Sign tests, limit tests, passwords and user codes, online edit checks, and payments by check.

Accounting controls are concerned with the safeguarding of assets and the reliability of financial records. Consequently, these controls are designed ...

Permitting access to assets in accordance with management’s authorization
Executing transactions in accordance with management’s general or specific authorization.
Compliance with methods and procedures ensuring operational efficiency and adherence to managerial policies.
Comparing recorded assets with existing assets at periodic intervals and taking appropriate action with respect to differences.

The reporting of accounting information plays a central role in the regulation of business operations. The importance of sound internal control pract...

Separation of responsibilities for the recording, custodial, and authorization functions.
Sound personnel practices.
Documentation of policies and procedures.
Implementation of state-of-the-art software and hardware.

The document that is used to record the actual work performed for a specific product by each factory employee is called a(n)

Payroll register
Production order cost summary.
Operations list.
Job time ticket.

If employee paychecks are distributed by hand to employees, which one of the following departments should be responsible for the safekeeping of uncla...

Payroll Department.
Timekeeping Department.
Production Department in which the employee works or worked.
Cashier Department.

The document that is the authorization to initiate the manufacture of goods is referred to as a

Daily production schedule.
Raw materials requisition.
Bill of materials.
Production order.

Internal control cannot be designed to provide reasonable assurance regarding the achievement of objectives concerning

Reliability of financial reporting.
Elimination of all fraud.
Compliance with applicable laws and regulations.
Effectiveness and efficiency of operations.

Effective internal control

Reduces the need for management to review exception reports on a day-to-day basis
Eliminates risk and potential loss to the organization.
Cannot be circumvented by management.
Is unaffected by changing circumstances and conditions encountered by the organization.

A reason to establish internal control is to

Safeguard the resources of the organization.
Provide reasonable assurance that the objectives of the organization are achieved.
Encourage compliance with organizational objectives.
Ensure the accuracy, reliability, and timeliness of information.

Internal controls may be preventive, detective, corrective, or directive. Which of the following is preventive?

Requiring two persons to open mail.
Reconciling the accounts receivable subsidiary file with the control account.
Using batch totals.
Preparing bank reconciliations

The internal auditor recognizes that certain limitations are inherent in any internal control system. Which one of the following scenarios is the resu...

The comptroller both makes and records cash deposits.
A security guard allows one of the warehouse employees to remove company assets from the premises without authorization.
The firm sells to customers on account, without credit approval.
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.

The treasurer makes disbursements by check and reconciles the monthly bank statements to accounting records. Which of the following best describes the...

Internal control will be enhanced because these are duties that the treasurer should perform.
The treasurer will be in a position to make and conceal unauthorized payments.
The treasurer will be able to make unauthorized adjustments to the cash account.
Controls will be enhanced because the treasurer will have two opportunities to discover inappropriate disbursements.

The procedure requiring preparation of a prelisting of incoming cash receipts, with copies of the prelist going to the cashier and to accounting, is a...

Preventive.
Corrective.
Detective.
Directive

A multinational corporation has an office in a foreign branch with a monetary transfer facility. Effective internal control requires that

The person making wire transfers not reconcile the bank statement.
The branch manager not deliver payroll checks to employees.
Foreign currency translation rates be computed separately by two branch employees in the same department.
The hiring of individual branch employees be approved by the headquarters office.

Which of the following describes the most effective preventive control to ensure proper handling of cash receipt transactions?

Bank reconciliations are prepared by an employee not involved with cash collections and then are reviewed by a supervisor.
One employee issues a prenumbered receipt for all cash collections; another employee reconciles the daily total of prenumbered receipts to the bank deposits.
Predetermined totals (hash totals) of cash receipts are used to control posting routines.
The employee who receives customer mail receipts prepares the daily bank deposit, which is then deposited by another employee.

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Risk and Procedures for Control MCQs