Internal Control - Purchases Payroll and Other Cycles Flashcards
True or False.
Payroll should be prepared from job time tickets.
FALSE.
Payroll should be prepared from time (cards).
These are the official records of time worked.
What would be the document to (vouch) in order to determine that nonrecurring purchases, initiated by various user organizations, have been properly authorized?
The Purchase Requisitions document
Why? - Because the initiating authorization by the user department is embodied in a properly authorized purchase requisition.
What procedure would help determine whether an approved receiving report has properly accompanied every check request for payment of merchandise?
Select and examine canceled checks and determine whether the related receiving reports are dated no later than the checks.
Note: The checks should not have been written before the dates on the receiving reports
What is an effective control to prevent payment for goods not received, if performed prior to invoice payment?
Approving vendor invoices by a departmental supervisor other than the employee ordering the goods.
What is an example of an effective control that provides assurance that recorded purchases are free of material errors?
Purchase orders, receiving reports, and vendors’ invoices are independently matched in preparing vouchers.
This would provide assurance that a valid transaction has occurred and that the parties have agreed on the terms, such as price and quantity
What would be considered a standard control over Cash Disbursements?
Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.
What authority is based on the acceptance of incoming goods in receiving?
An approved purchase order.
Why? - Because the receiving department should accept merchandise only if a purchase order or approval granted by the purchasing department is on hand.
What would be considered a control design deficiency?
Employees have the opportunity to change their time worked after their time cards have been approved.
NOTE: Design is evaluated to determine whether a control can effectively prevent, or detect and correct, material misstatements.
What functions would be considered proper segregation of duties in a well-designed internal control in the accounts payable area?
The functions of cash disbursements and vendor invoice verification.
The functions of cash disbursements (custody of assets) and invoice verification (recordkeeping) should be segregated for effective internal control.
In what situation would it be beneficial for employees to to sign for their pay?
If the company uses a cash payment payroll function
What would be considered an appropriate organizational control related to the processing of scrap?
Segregating the responsibility for processing scrap materials (Authorizing) from the operational activities that produce the scrap materials (Custodianship)
What would be considered the most important control over the acquisition of property, plant and equipment?
Using a budget to forecast and control acquisitions and retirements
What should an auditor do when reviewing an EDI application using a third-party service provider?
A. Determine whether an independent review of the service provider’s operation has been conducted
B. Verify that the service provider’s contracts include necessary clauses, such as the right to audit
What are the objectives of internal control for a production cycle?
To provide assurance that the custody of work-in-process and of finished goods is properly maintained
i.e. inventories should be in the custody of a storekeeper, and transfers should be properly documented
What is an appropriate internal control activity used to maintain accurate inventory records?
Periodic inventory counts are used to adjust the perpetual inventory records.
