chapter 9 Flashcards
Kagan Enterprises is a manufacturer of specialized diving gear. What internal control could be tested by its auditor to support the objective of proper period cutoff for their Cost of Goods Sold accounts?
The warehouse manager prepares a detailed shipping document for all inventory items that leave the warehouse.
The control objective intended to reduce the probability that a credit sale transaction will get debited to cash instead of accounts receivable is:
classification
new CFO was hired on September 11, 2017. As part of his incentive package, he is to be awarded 1% of every sale that occurs before year-end, December 31, 2017. In January of the new year, the company recorded a record-breaking amount of sales. Since the accounting books were yet to be finalized, the CFO instructed the financial analyst to book the January 2018 sales as part of December 2017 sales. This way, he would be able to have those sales included as part of his incentive package. What control objective and financial statement assertions are breached by this action?
Proper period cutoff, existence, completeness, ownership, and presentation and disclosure
Which internal control could be tested by the auditors of Mickey Corp. to support the objective of authorization for the cash account?
All cheques issued for an amount equal to or greater than $5,000 require two signatures (CFO and VP, Finance).
Control tests are required for:
obtaining evidence about the operating effectiveness of company control procedures.
A bridge working paper shows the connection between:
control evaluation findings and subsequent audit procedures.
A customer’s order was not approved for credit because the credit manager had not yet finished searching the customer’s credit rating information. Yet the goods were shipped, invoiced, and charged to the customer without requiring payment in advance. Which control objective is not being met?
Authorization
A company’s application control procedure is:
an action taken by company personnel for the purpose of preventing, detecting, and correcting errors and irregularities in transactions.
The control objective intended to reduce the probability that fictitious transactions get recorded in the accounts is:
validity
Which of the following is a tool designed to help the audit team obtain evidence about the control environment and the accounting and control procedures of an audit client?
An internal control questionnaire
The auditee’s computerized exception-reporting system helps an auditor to conduct a more-efficient audit because it:
highlights abnormal conditions.
In late December, a retail store received a number of online orders. One sales rep was covering for three different functions because a number of employees were taking vacation. Bombarded with work, the sales rep packed all the online purchases but forgot to record them in the accounting book. Which financial statement assertion(s) were affected?
Ownership and completeness
Management’s responsibilities for internal control over financial reporting include:
designing and implementing effective internal controls.
When performing an audit, the auditor must obtain an understanding of the internal controls relevant to the audit. Which of the controls below would be considered the least relevant to an audit?
The front entrance of the building is always locked and can only be unlocked when employees scan their access cards.
Why is it a GAAS requirement for auditors to specifically examine the adjusting entries made by management as part of the closing process at the end of the accounting period to prepare the financial statements?
These entries can be used by management to implement fraudulent financial reporting
Which of the following can an auditor observe as a general control activity used by companies?
Segregation of functional responsibilities
