Quiz 2 (chpt. 7)

Question 1

internal controls

Answer 1

made by management/director to provide reasonable assurance
-effectiveness and efficiency of operations
-reliability of financial reporting
-compliance with laws and regulations

Question 2

Components of Internal Control

Answer 2

-Control Environment
-Risk Assessment
-Control Activities (specific rules and procedures to prevent fraud)
-information and communication
-monitoring

Question 3

Control Activities

Answer 3

1. Physical Control over our assets and records
2. Documentation procedures (adequate documents and records)
3. Independent Internal Verification (independent checks on performance)
4. Establishment of Responsibilities (Proper Authorization)
5. Separation of Duties
6. Human Resource Controls (mandatory vacation or breaks)
7. Adequate segregation duties

Question 4

What 3 functions should be kept seperate?

Answer 4

1. Custody of Assets
2. Records Keeping
3. Authorization

Question 5

Independent Internal Verification

Answer 5

Should have a second person check work done –> doubling checking your work

Question 6

Establishment of Responsibilities

Answer 6

=Proper Authorization–> true power that someone has to REVIEW criteria, more authority/responsibility

Question 7

Perpetual Inventory System

Answer 7

record inventory right away (record COGS and Inventory right after each sale!) –> better physical control but requires more efforts to get records

Question 8

Periodic Inventory System

Answer 8

Won’t record COGS after each sale–> Wait until end of period to take a physical count.
Not as good of a physical control but it’s easier

Question 9

FOB Origin

Answer 9

Ownership of merchandize leaves right after goods left the seller (should record revenues) Buyer is the one who is paying for the shipping so buyer has ownership during shipping=Frieght-In