CHAPTER 4 SMARTBOOK Flashcards
Internal control includes
compliance with applicable laws and regulations
reliable financial reporting
safeguarding assets
When duties are separated
collusion is necessary to commit fraud or theft
the work of one employee acts as a check on the work of another employee
Hiring quality employees enhances internal controls because they are
able to perform tasks as expected
able to rotate jobs
Requiring employees to take regular vacations enhances internal controls because it
makes it harder to cover up fraudulent activities
The SEC requires public companies to evaluate their internal control and to publish those findings with their filings.
False. the SOX is the one who required it
Which of the following statements are correct?
Which of the following statements are correct?
To help ensure proper segregation of duties, which of the following functions should be performed by separate individuals whenever possible?
authorization
recording
custody of assets
When training employees
it is best to train them to perform a variety of tasks
To promote the hiring of employees with high levels of personal integrity, employers should
seek recommendations from prior employers or educators
screen job applicants using interviews
perform background checks
Which of the following statements about authority and responsibility are true?
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.
To help prevent fraudulent employee activities from being covered up,
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
Appropiate accounting processes should be documented in
procedures manual that is routinely updates
An examples of separation of duties is
using one person to approve a sales return and a different person to issue credit to the customer
Prenumbers forms are used in
Purchase orders
Receiving reports
Invoices
Checks
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.
SPECIFIC AUTHORIZATION
Examples of physical controls include
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
Employing a public accounting firm to conduct an audit is an example of
Performance evaluation
To help ensure proper segregation of duties, which of the following functions should be performed by separate individuals whenever possible?
Prenumbered forms
are used for all important documents
should be simple and easy to use
Human error is a common cause of internal control failure.
True
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
Physical
Performance evaluations are necessary because
few people can objectively evaluate their own performance
Savings accounts that impose substantial penalties for early withdrawal should be classified as
Investments
Which of the following is not an internal control procedure commonly used to safeguard cash?
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.
A good system of internal controls
can be circumvented by collusion
can be compromised by management override
increases the likelihood of early fraud detection
Transactions that increase a customer’s checking account balance are described on a bank statement memo.
CREDIT
Cash does not include
Postdates checks
The bank account is reconciled when the true cash balance has been determined from
both the perspective of the bank and the books
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
1100: $1,200 unadjusted bank balance + $200 deposits in transit - $400 outstanding checks + $100 bank error = $1,100
Internal control procedures specifically designed for the safekeeping of cash receipts include
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
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.
Self-discipline
A checking account bank statement normally reports
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
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
Timing differences
Which of the following is not one of the components of the fraud triangle?
Dishonesty
A bank reconciliation normally begins with the cash balance reported by the bank which is called the Blank______ balance
unadjusted bank
Which of the following are included in the primary roles of an independent auditor (CPA)?
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.
A bank failed to give a customer credit for a $350 deposit. To calculate the true cash balance, the $350 must be Blank______ balance.
added to the unadjusted bank
All accounting organizations require members to comply with the AICPA’s Code of Professional Conduct
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.
A financial statement audit includes
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
Which of the following is not a primary role of an independent auditor (CPA)?
Determining if financial statements are absolutely correct.
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?
Qualified
Confidentiality rules do not prevent CPAs from disclosing information they have acquired as a result of their accountant-client relationships
In a court of law
Which of the following statements regarding financial statement audits are correct?
The audit fee may not be based on the outcome of the audit.
Auditors must be CPAs.
Auditors are responsible for providing Blank______ assurance that statements are free from material misstatements, whether caused by errors or fraud.
Reasonable
Which of the following are included in the primary roles of an independent auditor (CPA)?
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
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.
Confidentiality
