3.09 - OPERATING CYCLES: INVESTING, FINANCING, AND PRODUCTION AND CONVERSION CYCLES Flashcards
3.09 - OPERATING CYCLES: INVESTING, FINANCING, AND PRODUCTION AND CONVERSION CYCLES
The objectives of the internal control structure for a production cycle are to provide assurance that transactions are properly executed and recorded, and that
A) Independent internal verification of activity reports is established.
B) Production orders are pre-numbered and signed by a supervisor.
C) Transfers to finished
goods are documented by a completed production report and a quality control
report.
D) Custody of work in process and of finished
goods is properly maintained.
D) Custody of work in process and of finished goods is properly maintained.
In addition to properly executing and recording transactions, the entity is concerned with the custody of items in work in process and finished goods to ensure that they are properly safeguarded.
Pre-numbered production orders provide assurance
that all transactions will be recorded, verification of activity reports reconciles amounts recorded for inventory to the level of
activity reported for the period, and documented transfers ensure proper classification, all of which relate to the proper execution
and recording of transactions.
3.09 - OPERATING CYCLES: INVESTING, FINANCING, AND PRODUCTION AND CONVERSION CYCLES
Which of the following internal control procedures would an entity most likely use to assist in satisfying the
completeness assertion related to long-term investments?
A) The treasurer vouches the acquisition of securities by comparing brokers’ advices with canceled checks.
B) The controller compares the current market prices of recorded investments with the brokers’ advices on
file.
C) Senior management verifies that securities in the bank safe deposit box are registered in the entity’s
name.
D) The internal auditor compares the securities in the bank safe deposit box with recorded investments.
D) The internal auditor compares the securities in the bank safe deposit box with recorded investments.
When performing comparison tests, the entity should trace from the source to the related records; therefore, comparing
the actual securities held in a bank to the related investment records would ensure that all securities were properly recorded
