CHAPTER 3 QUIZ Flashcards
Management can expect various benefits to follow from implementing a system of strong internal control. Which of the following benefits is least likely to occur?
a. reduction of cost of an external audit
b. prevention of employee collusion to commit fraud
c. availability of reliable data for decision-making purposes
d. some assurance of compliance with the Foreign Corrupt Practices Act of 1977
e. some assurance that important documents and records are protected
b. prevention of employee collusion to commit fraud
Which of the following situations is NOT a segregation of duties violation?
a. The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run the check-signing machine.
b. The warehouse clerk, who has custodial responsibility over inventory in the warehouse, selects the vendor and authorizes purchases when inventories are low.
c. The sales manager has the responsibility to approve credit and the authority to write off accounts.
d. The department time clerk is given the undis-tributed payroll checks to mail to absent employees.
a. The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run the check-signing machine.
The underlying assumption of reasonable assurance regarding implementation of internal control means that
a. auditor is reasonably assured that fraud has not occurred in the period.
b. auditors are reasonably assured that employee carelessness can weaken an internal control structure.
c. implementation of the control procedure should not have a significant adverse effect on efficiency or profitability.
d. management assertions about control effectiveness should provide auditors with reasonable assurance.
e. a control applies reasonably well to all forms of computer technology.
c. implementation of the control procedure should not have a significant adverse effect on efficiency or profitability.
To conceal the theft of cash receipts from customers in payment of their accounts, which of the following journal entries should the bookkeeper make?
a. DR, Miscellaneous Expense CR, Cash
b. DR, Petty Cash CR, Cash
c. DR, Cash CR, Accounts Receivable
d. DR, Sales Return CR, Accounts Receivable
e. None of the above
d. DR, Sales Return CR, Accounts Receivable
Which of the following controls would best prevent the lapping of accounts receivable?
a. Segregate duties so that the clerk responsible for recording in the accounts receivable subsidiary ledger has no access to the general ledger.
b. Request that customers review their monthly statements and report any unrecorded cash payments.
c. Require customers to send payments directly to the company’s bank.
d. Request that customers make checks payable to the company.
a. Segregate duties so that the clerk responsible for recording in the accounts receivable subsidiary ledger has no access to the general ledger.
Providing timely information about transactions in sufficient detail to permit proper classification and financial reporting is an example of
a. the control environment.
b. risk assessment.
c. information and communication.
d. monitoring.
c. information and communication.
Ensuring that all material transactions processed by the information system are valid and in accordance with management’s objectives is an example of
a. transaction authorization.
b. supervision.
c. accounting records.
d. independent verification.
a. transaction authorization.
Which of the following is often called a compensating control?
a. transaction authorization
b. supervision
c. accounting records
d. independent verification
b. supervision
Which of the following is NOT an element of the
fraud triangle?
a. ethics
b. justifiable reliance
c. situational pressure
d. opportunity
b. justifiable reliance
The fraud scheme that is similar to the “borrowing from Peter to pay Paul” scheme is
a. expense account fraud.
b. bribery.
c. lapping.
d. transaction fraud.
C. Lapping
The fraud scheme that is similar to the “borrowing from Peter to pay Paul” scheme is
a. expense account fraud.
b. bribery.
c. lapping.
d. transaction fraud.
Lapping
Which of the following is often called a compensating control?
a. Transaction authorization
b. Supervision
C. Accounting records
d. Independent verification
b. Supervision
Ensuring that all materials transactions processed by the information system are valid and in accordance with management’s objectives is an example of
a.Transaction authorization
b. Supervision
C. Accounting records
d. Independent verification
a.Transaction authorization
Providing timely information about transactions in sufficient detail to permit proper classification and financial reporting is an example of
a. The control environment
b. Risk assessment
c. Information and communication
d. Monitoring
c. Information and communication
A coding scheme in the form of acronyms and other combinations that convey meaning is a(n)
a. Sequential code
b. Block code
c. Alphabetic code
d. Mnemonic code
d. Mnemonic code
A chart of accounts would best be coded using a(n)
coding scheme.
a. Alphabetic
b. Mnemonic
c. Block
d. Sequential
c. Block
Real-time systems might be appropriate for all of the following except
a. Airline reservations
b. Payroll
c. Point-of-sale transactions
d. Air traffic control systems
e. All of these applications typically utilize real time processing
b. Payroll
Which of the following is true of the relationship between subsidiary ledgers and general ledger accounts?
a. The two contain different and unrelated data.
b. All general ledger accounts have subsidiaries.
c. The relationship between the two provides an audit trail from the financial statements to the source documents.
d. The total subsidiary ledger accounts usually exceed the total in the related general ledger account.
c. The relationship between the two provides an audit trail from the financial statements to the source documents.
Which of the following is NOT a true statement?
a. Transactions are recorded on source documents and are posted to journals.
b. Transactions are recorded in journals and are posted to ledgers.
c. Infrequent transactions are recorded in the general journal.
d. Frequent transactions are recorded in special journals.
a. Transactions are recorded on source documents and are posted to journals.
The documentation skills that accountants require vary with their job function. However, they should at least be able to do which of the following?
a. Read documentation to determine how the system works.
b. Critique and correct documentation that others prepare.
c. Prepare documentation for a newly developed information system.
d. Teach others how to prepare documentation.
a. Read documentation to determine how the system works.
