CHAPTER 4 SMARTBOOK

Question 1

Internal control includes

Answer 1

compliance with applicable laws and regulations

reliable financial reporting

safeguarding assets

Question 2

When duties are separated

Answer 2

collusion is necessary to commit fraud or theft

the work of one employee acts as a check on the work of another employee

Question 3

Hiring quality employees enhances internal controls because they are

Answer 3

able to perform tasks as expected

able to rotate jobs

Question 4

Requiring employees to take regular vacations enhances internal controls because it

Answer 4

makes it harder to cover up fraudulent activities

Question 5

The SEC requires public companies to evaluate their internal control and to publish those findings with their filings.

Answer 5

False. the SOX is the one who required it

Question 6

Which of the following statements are correct?

Answer 6

Which of the following statements are correct?

Question 7

To help ensure proper segregation of duties, which of the following functions should be performed by separate individuals whenever possible?

Answer 7

authorization

recording

custody of assets

Question 8

When training employees

Answer 8

it is best to train them to perform a variety of tasks

Question 9

To promote the hiring of employees with high levels of personal integrity, employers should

Answer 9

seek recommendations from prior employers or educators

screen job applicants using interviews

perform background checks

Question 10

Which of the following statements about authority and responsibility are true?

Answer 10

Employees are motivated to work harder when they have the authority to use their own judgment.

Employees exercise reasonable caution when they are held responsible for their actions.

Question 11

To help prevent fraudulent employee activities from being covered up,

Answer 11

duties should be rotated periodically

regular vacations should be required

NO “THOSE WHO AUTHORIZE TRANSACTIONS SHOULD ALSO RECORD THEM” because it violates segregation of duties

Question 12

Appropiate accounting processes should be documented in

Answer 12

procedures manual that is routinely updates

Question 13

An examples of separation of duties is

Answer 13

using one person to approve a sales return and a different person to issue credit to the customer

Question 14

Prenumbers forms are used in

Answer 14

Purchase orders
Receiving reports
Invoices
Checks

Question 15

A policy that states “investment decisions are authorized at the division level, while hiring decisions are authorized at the departmental level” is an example of a(n)
authorization.

Answer 15

SPECIFIC AUTHORIZATION

Question 16

Examples of physical controls include

Answer 16

unannounced counts to verify the presence of company-owned equipment

keeping accounting records in a fireproof safe

Inventory kept in a storeroom and not released without proper authorization
Serial numbers on quipment should be recorderd along the name of individual responsible for the equipment
Unannounced prysical counts conducted randomny
Certificated of deposit and markeable secutiries in fireprood vaults
Access to vaults should be limited to authorized personnel

Question 17

Employing a public accounting firm to conduct an audit is an example of

Answer 17

Performance evaluation

Question 18

To help ensure proper segregation of duties, which of the following functions should be performed by separate individuals whenever possible?

Question 19

Prenumbered forms

Answer 19

are used for all important documents

should be simple and easy to use

Question 20

Human error is a common cause of internal control failure.

Answer 20

True

Question 20

Keeping a record of the serial numbers of equipment along with name of the individual who is responsible for the equipment is an example of a(n) Blank______ control

Answer 20

Physical

Question 21

Performance evaluations are necessary because

Answer 21

few people can objectively evaluate their own performance

Question 22

Savings accounts that impose substantial penalties for early withdrawal should be classified as

Answer 22

Investments

Question 23

Which of the following is not an internal control procedure commonly used to safeguard cash?

Answer 23

Keep all cash in one central location: For many businesses, it is not possible to keep cash in one location. For example, many department stores have cash registers located throughout their stores.

Question 24

A good system of internal controls

Answer 24

can be circumvented by collusion

can be compromised by management override

increases the likelihood of early fraud detection

Question 25

Transactions that increase a customer’s checking account balance are described on a bank statement memo.

Answer 25

CREDIT

Question 26

Cash does not include

Answer 26

Postdates checks

Question 27

The bank account is reconciled when the true cash balance has been determined from

Answer 27

both the perspective of the bank and the books

Question 28

Karen Company had an unadjusted bank balance of $1,200. There were $200 of deposits in transit and $400 outstanding checks. The bank erroneously charged Karen a $100 service charge. Based on this information, the Karen’s true cash balance is

Answer 28

1100: $1,200 unadjusted bank balance + $200 deposits in transit - $400 outstanding checks + $100 bank error = $1,100

Question 28

Internal control procedures specifically designed for the safekeeping of cash receipts include

Answer 28

minimizing the amount of cash kept on hand

giving customers who pay cash a copy of the written receipt

depositing cash collected late in the day in a night depository

Question 29

The high ethical standards required by the accounting profession state “a CPA assumes an obligation of Blank______ above and beyond requirements of laws and regulations.

Answer 29

Self-discipline

Question 30

A checking account bank statement normally reports

Answer 30

customer deposits made during the period
the bank account’s beginning balance
checks paid during the period

NO:
The ending balance in the cash account because the ending balance is based on bank records, not cash account

List of outstanding check because the bank has no knowledge of outstanding checks

Question 31

The discrepancy between the ending balance on the bank statement and the balance in the depositor’s cash account on the same day, is normally attributable to

Answer 31

Timing differences

Question 32

Which of the following is not one of the components of the fraud triangle?

Answer 32

Dishonesty

Question 33

A bank reconciliation normally begins with the cash balance reported by the bank which is called the Blank______ balance

Answer 33

unadjusted bank

Question 34

Which of the following are included in the primary roles of an independent auditor (CPA)?

Answer 34

Presents conclusions in an audit report that include an opinion as to whether the statements are prepared in conformity with GAAP

Determines if financial statements are materially correct, rather than absolutely correct.

Assumes both legal and professional responsibilities to the public as well as to the company paying the auditor.

Question 34

A bank failed to give a customer credit for a $350 deposit. To calculate the true cash balance, the $350 must be Blank______ balance.

Answer 34

added to the unadjusted bank

Question 35

All accounting organizations require members to comply with the AICPA’s Code of Professional Conduct

Answer 35

False: The importance of ethical conduct is universally recognized across a broad spectrum of accounting organizations but each organization has their own standards and codes.

Question 36

A financial statement audit includes

Answer 36

a detailed examination of a company’s financial statements and supporting documents

tests of the reliability of the accounting system used to produce the financial reports

Question 37

Which of the following is not a primary role of an independent auditor (CPA)?

Answer 37

Determining if financial statements are absolutely correct.

Question 38

What type of audit opinion means that, for the most part, the company’s financial statements are in compliance with GAAP, but the auditors have reservations about something in the statements?

Answer 38

Qualified

Question 39

Confidentiality rules do not prevent CPAs from disclosing information they have acquired as a result of their accountant-client relationships

Answer 39

In a court of law

Question 40

Which of the following statements regarding financial statement audits are correct?

Answer 40

The audit fee may not be based on the outcome of the audit.

Auditors must be CPAs.

Question 41

Auditors are responsible for providing Blank______ assurance that statements are free from material misstatements, whether caused by errors or fraud.

Answer 41

Reasonable

Question 42

Which of the following are included in the primary roles of an independent auditor (CPA)?

Answer 42

is issued when financial statements do not present a fair picture of the company’s status

is rarely issued by auditors because public companies are required by law to follow GAAP

is the most negative report an auditor can issue

Question 43

Auditors are prohibited from voluntarily disclosing information they have acquired as a result of their accountant-client relationships under the
______ rules in the AICPA’s code of ethics for CPAs.

Answer 43

Confidentiality