Internal Control- Transaction Cycles Flashcards
Segregation of Duties
authorizing transactions
recording transactions
maintaining custody of assets
How can one obtain evidence of segregation of duties?
closely observing personnel/employees
Bills of Lading
shipments to customers were invoiced (completeness)
How can you be sure that all bill sales are correctly posted to the A/R ledger?
you have to go first to the population of bills which is the daily sales summaries and then compare it to the A/R ledger
What is the difference between online systems and batch systems?
online systems immediately update records while batch systems take time
Authorization of write-offs should be made by which department?
Treasurer
Which tests of controls ensures that goods shipped are properly billed?
shipping matches sales invoices
Authorizing credit memos
- defalcation
- weakness in IC
- failure in revenue cycle
Bank Lockbox System
-best control over customer receipts which prevents employees to have access over the receipts
What should an employee do first as soon as he or she receives cash?
prepare a remittance listing
Whenever you receive checks what must one do to avoid being lost?
prepare a duplicate listing
When getting checks…
remittance listing->copy of listing should be sent to bookkeeper to update the subsidiary accounts receivable records
what can prevent “lapping”?
segregation of duties
a person who receives remittances from the mailroom should also deposit slips; person should be the one who signed the check last
(custodial function)
true
a person who approves purchase orders also negotiates terms with vendors because they are both authorizing functions; recomputes the calculation on vendor invoices
true
Voucher’s payable department
1) determining the mathematical accuracy of the vendor’s invoice;
2) matching the receiving report with the purchase order; and
3) having an authorized person approve the voucher.
-indicate asset and debit account to be debited
Adequate seg of duties
authorization, custodial, recordkeeping
Treasury functions are custodial functions. Approving invoices is a accounts payable/authorization function
true
debit memo
usually for returning goods
how does one understand an internal control structure?
inquiries of management and staff, inspection of documents and records, and observation of activities and operations
What are management intentions in establishing and maintaining an IC?
1) transactions are executed in accordance with management’s general or specific authorization;
2) transactions are recorded as necessary to permit preparation of the financial statements in accordance with GAAP and to maintain accountability for assets;
3) access to assets is permitted only in accordance with management’s authorization; and
4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and differences are investigated and resolved. (Ensuring that custody of work in process and of finished goods is properly maintained is an example of the third objective)
