Fraud detection involves ____________
a. Finding frauds
b. Finding fraud indicators
c. Finding the perpetrator
d. None of the above
Fraud detection involves identifying indicators of fraud that suggest a need for further investigation
The pattern of numbers associated with Benford Anaylsis involves ____________
a. First digit numbers that are randomly distributed
b. First digit numbers beginning with 1 being more likely to appear than those beginning with 8
c. First digit numbers beginning with 8 being more likely to appear than those beginning with 1
d. None of the above
Benford Analysis exploits an interesting pattern relating to the first digit of numbers appearing in a random data set. Specifically the number 1 is more likely to appear than the number 2 which is more likely to appear than the number 3 so on and so forth. The number 1 is about six times more likely to appear as the first digit than number 9
A false positive signal by a fraud indicator is an example of a ___________
a. Type 1 error
b. Type 2 error
c. Either a Type 1 or Type 2 error
d. All of the above
A type 1 error occurs when a fraud indicator falsely signals fraud. A type 2 error occurs when a fraud indicator fails to signal fraud.
The main objective of a fraud investigation is to ____________
a. Prove that a given person has committed fraud
b. Ensure that guilty persons are punished, regardless of their importance in the organization
c. Systematically gather evidence for the purpose of documenting the presence or absence of fraud
d. None of the above
Fraud investigation is the process of systematically gathering and reviewing evidence for the purpose of documenting the presence or absence of fraud.
Which of the following is true regarding fraud incident reports?
a. They do not take on legal significance
b. Once an incident report is made, an investigation is required
c. They are of internal interest but never of interest to law enforcement
d. None of the above
A fraud incident report can be anything from a red flag to a formal report written by a responsible person. Not all incident reports lead to fraud investigations. The incident report can take on legal significance and if it is created by law enforcement it can serve as the basis of a probable-cause justification.
A bookkeeper embezzles $1,000 over a period of 2 years. He then quits his job, leaving the cash receipts and accounts receivable records in poor condition, with many incomplete records and missing source documents. In this case, filing a police report is likely to
a. Spur a thorough police investigation
b. Spur little or no investigation
c. Spur an investigation if the assistance of a private, independent fraud investigator is offered
d. None of the above
Which of the following questions should be asked first in a fraud investigation?
The basic questions asked by fraud investigators are who, what, when, where, how, and why. That is, who did it; what did he do; when, where, how, and why did he do it. The first question always asked is "what" because if there is no fraud then there is nothing to investigate.
Regarding the issue of a suspect's guilt, which of the following is the best answer?
a. The fraud investigator should never state that a suspect is guilty
b. The fraud investigator should only state that a suspect is guilty if the suspect provides a proper confession
c. The fraud investigator can and should routinely provide an expert opinion regarding a suspect's guilt
d. The fraud investigator can and should provide an expert opion regarding a suspect's guilt if such an opinion is justified by the evidence
Regardless of how strongly a theory may be confirmed by the evidence, the investigator never "points the finger" at a suspect and declares that person guilty of fraud. The investigator merely summarizes and presents evidence as it appears. It is up to the courts and attorneys to interpret the evidence and make decisions regarding guilt.
Seizing evidence in a suspect's home would typically require _________
a. A normal subpoena
b. A silent subpoena
c. The approval of a law enforcement official
d. None of the above
None of the above is correct because a search warrant would be required
Handwriting analysis ____________
a. Can typically provide a definitive match between a sample and an exemplar
b. Can typically provide a likely match between a sample and an exemplar
c. Cannot provide any kind of match between a sample and an exemplar
d. None of the above
Handwriting analysis can lead to the conclusion that provider of the exemplar either did or did not author a fraudulent document. Handwriting analysis is not a definitive science, and in court the handwriting expert is likely to couch expert opinions using qualifiers such as "likely". for example, the expert might say that the exemplar is a likely match to the handwriting in the questioned document.
a. Can typically catch fraudsters in the act
b. Can typically provide circumstantial evidence of a fraudster's guilt
c. Both a and b
d. None of the above
Invigilation is a commonly used observation technique. This involves observing a suspect's behavior before, during, and after an announced investigation. This could provide circumstantial evidence of guilt
The main benefit of calibration in an interview is ______________
a. Confronting suspects so as to obtain a confession
b. Establishing rapport with the interviewee
c. Observing suspect's behavior in the presence of non-incriminating questions
d. None of the above
Calibration is the process of carefully observe suspects demeanor when they are asked non-sensitive and non-incrimintating questions.
What is the best order for interviews?
a. Begin with suspects and end with non-suspects
b. Begin with non-suspects and end with suspects
c. Begin with non-suspects and end with non-suspects
d. Begin with suspects and end with suspects
Accepting a fraud loss without punishment or recovery from the perpetrator is __________
a. Never a good option because it sets a bad example
b. Always a good option because pursuing perpetrators is generally fruitless
c. Is sometimes a good option in order to avoid embarrassing publicity
d. None of the above
Loss recovery options include accepting the loss, collecting insurance if available, and pursing the perpetrator in court. In many cases, simply accepting the loss is the preferred solution. This is simple and fast, avoids embarrassing publicity, and avoids costly litigation.
Expert consultants __________
a. Are never subject to discovery
b. Are always subject to discovery
c. Are subject to discovery is they are expected to testify
d. Are subject to discovery if they are not expected to testify
Discovery is the process in which opposing parties can require each other and relevant parties to produce out-of-court evidence. Expert consultants are not subject to discovery unless they are expected to testify because that would make them expert witnesses and are then fully subject to discovery.
Manipulation or management of earnings by company officials is _______
a. An act of financial statement fraud
b. An act of financial statement fraud under the right circumstances
c. Never an act of financial statement fraud
d. Not an issue related to financial statement fraud
Financial statement fraud is the intentional misrepresentation of any information included as part of a financial statement or report.
Financial statement fraud is more likely to occur in __________
a. Small companies
b. Medium-sized companies
c. Large companies
d. The size of the company doesn't matter
We know from the SEC published enforcement actions that financial statement fraud tends to occur most often in relatively small companies.
Check washing generally involves _____
a. Fake checks printed by the perpetrator
b. Fake checks purchased on the black market
c. Paperless transactions
d. None of the above
None of the above because check washing involves stolen checks with the fill-in details chemically erased and replaced with fraudulent data.
Roughly half of financial statement frauds involve the _______ transaction cycle.
Roughly half of all financial statement frauds may involve overstating revenues. This is perhaps because there are so many ways revenues can be overstated. These methods include sham sales, premature revenue recognition, revenue recognition for sales subject to contingencies, extending the closing date for the sales account, ect.
The type of fraud involving the receipt of substandard goods is typically ______
a. Employee fraud
b. Production Fraud
c. Vendor Fraud
d. None of the above
The vendor can only get away with this scheme if the buyer does not properly inspect incoming goods, and/or trace returns from customers back to vendors
For most types of office-based software, passwords can __________
a. Be cracked
b. Be obtained from the manufacturer
c. Not be cracked
d. None of the above
Passwords can be easily cracked for most of the typical office-based software applications
What type of EDP system is characterized by data that are assembled from more than one location and records that are updated immediately?
a. Personal computer system
b. Minicomputer system
c. batch-processing system
d. online, real-time system
With real-time processing, transactions are processed immediately. Online, real-time systems (OLRS) process transactions immediately after they are input and can provide immediate output to users.
An EDP technique that collects data into groups to permit convenient and efficient processing is known as
a. Document-count processing
c. batch processing
d. generalized-audit processing
Batch processing systems, transactions are process periodically in batches. Manually prepared input forms are usually processed in batches. Even though batch processing leads to files that could be out of date, it is still convenient and efficient for processes that do not benefit from automatic updating.
Which of the following is not a characteristic of a batch-processed computer system?
a. The collection of like transactions that are sorted and processed sequentially against a master file
b. key transcription of transactions, followed by machine processing
c. the production of numerous printouts
d. the posting of a transaction, as it occurs, to several files without intermediate printouts
Batch processing occurs in groups at a predetermined time. Transactions are posted in groups not immediately as they occur. This is an example of real time processing not batch processing.
What is the computer process called when data processing is performed concurrently with a particular activity, and the results are available soon enough to influence the particular course of action being taken or the decision being made?
a. real-time processing
b. batch processing
c. random-access processing
d. integrated data processing
Real-time processing is defined by its immediate output of results. The other processes are do not provide immediate access to data. Batch-processing, random-access processing, and integrated data processing would not be able to provide timely access to output to influence the decision.
The real-time feature normally would be least useful when applied to accounting for a firm's
a. bank account balances
b. property and depreciation
c. customer accounts receivable
d. merchandise inventory
The real-time feature would be least useful when applied to a firm's property and depreciation account because it is the only account listed that is a long term asset account where a current real-time balance would be less meaningful. The other accounts are all current short term asset accounts and would it would be meaningful to know real-time balances for these accounts.
An EDP input control is designed to ensure that
a. machine processing is accurate
b. only authorized personnel have access to the area
c. data received for processing are properly authorized and converted to machine-readable form
d. electronic data processing has been performed as intended for the particular application
Submission of input data should be accompanied by the completion of an input document control form.This form ensures that data that is sent to the processing department has been properly authorized and reviewed before it is input into the system to processed. This control prevent false, fraudulent, or unauthorized transactions from entering the processing system.
When erroneous data are detected by computer program controls, such data may be excluded from processing and printed on an error report. This error report should be reviewed and followed up by the
a. Computer operator
b. Systems analyst
c. EDP control group
d. Computer programmer
A separate EDP control group is often established to monitor EDP operations. The EDP control group is frequently part of the internal audit function. Procedures should be established to provide assurance that errors found in the processing system are reported to the EDP control group. These procedures must ensure that these errors are entered into controls, corrected, and reentered properly in the system to be processed further.
Which of the following would lessen internal control in an EDP system?
a. The computer librarian maintains custody of computer program instructions and detailed program listings
b. Computer operators have access to operator instructions and detailed program listings
c. The control group maintains sole custody of all computer output
d. Computer programmers write and debug programs that perform routines designed by the systems analyst
An internal administrative control sometimes used in connection with procedures to detect unauthorized or unexplained computer usage is
a. Maintenance of a computer tape library
b. Use of file controls
c. Maintenance of a computer console log
d. Control over program tapes
A procedural control used in the management of a computer center to minimize the possibility of data or program file destruction through operator error includes
a. Control figures
b. Crossfooting tests
c. Limit checks
d. External lables
If a control total were to be computed on each of the following data items, which would best be identified as a hash total for a payroll EDP application?
a. Net Pay
b. Department numbers
c. Hours worked
d. Total debits and total credits
In designing a payroll system, it is known that no individual's paycheck can amount to more than $300 for a single week. As a result, the payroll program has been written to bypass writing a check and will print out an error message if any payroll calculation results in more than $300. This type of control is called
a. A limit or reasonableness test
b. Error review
c. A data validity test
d. A logic sequence test
The value of a numeric field is compared to another numeric field in the same record. This check ensures that erroneous data is not processed. By creating a "reasonable" limit that means any value exceeding this limit is not a reasonable value and thus does not pass the reasonableness check and would thus cause an error.
Where disk files are used, the grandfather-father-son updating backup concept is relatively difficult to implement because the
a. location of information points on disks in an extremely time-consuming task
b. magnetic fields and other environmental factors cause off-site storage to be impractical
c. information must be dumped in the form of hard copy if it is to be reviewed before being used in updating
d. process of updating old records is destructive
A customer inadvertently ordered part number 12368 rather than part number 12638. In processing this order, the error would be detected by the vendor with which of the following controls?
a. batch total
b. key verifying
c. self-checking digit
d. an internal consistency check
In the weekly computer run to prepare payroll checks, a check was printed for an employee who had been terminated the previous week. Which of the following controls, if used properly, would have been most effective in preventing the error or ensuring its prompt detection?
a. a control total for hours worked, prepared from time cards collected by the timekeeping department
b. requiring the treasurer's office to account for the numbers of the pre numbered checks issued to the EDP department for the processing of the payroll
c. use of a check digit for employee numbers
d. use of a header label for the payroll input sheet
Accounting functions that are normally considered incompatible in a manual system ofter are combined in an EDP system by using an EDP program or a series of programs. This necessitates an accounting control that prevents unapproved
a. access to the magnetic tape library
b. revisions to existing computer programs
c. use of computer program tapes
d. testing of modified computer programs
Totals of amounts in computer-record data fields that are not usually added for other purposes but are used only for data processing controls purposes are called
a. record totals
b. hash totals
c. processing data tools
d. field tools
The use of a header label in conjunction with magnetic tape is more likely to prevent errors by the
a. compter operator
b. data entry clerk
c. compter programmer
d. maintenance technician
Where computers are used, the effectiveness of internal accounting control depends in part on whether the organizational structure includes any incompatible combinations. Such a combination would exist when there is no separation of the duties between the
a. documentation librarian and the merger of programming
b. programmer and the console operator
c. systems analyst and the programmer
d. processing control clerk and the data entry supervisor
The basic form of backup used in magnetic tape operations is called
a. odd parity check
b. dual-head processing
c. file protection rings
d. the son-father-grandfather concept
When an online, real time (OLRT) EDP system is in use, internal control can be strengthen by
a. providing for the separation of duties between data entry and error-listing operations
b. attaching plastic file protection rings to reels of magnetic tape before new data can be entered on the file
c. preparing batch tools to provide assurance that file updates are made for the entire input
d. making a validity check of an identification number before a user can obtain access to the computer files
Which of the following most likely constitutes a weakness in the internal accounting control of an EDP system?
a. The control clerk establishes control over data received by the EDP department and reconciles control totals after processing
b. The application programmer identifies programs required by the systems design and flowcharts the logic of these programs
c. the systems analyst reviews output and controls the distribution of output from the EDP department
d. The accounts payable clerk prepares data for computer processing and enters the data into the computer
An effective control designed to provide reasonable assurance that hourly payroll information has been entered accurately into the computer system is to
a. establish the use of batch control totals for total hours to be processed
b. review the contents of the computer master file
c. limit access to the online terminals
d. circulate to user departments periodic reports containing the contents of the master file
Which of the following activities most likely would be performed in the EDP department?
a. initiation of changes to master records
b. conversion of information to machine-readable form
c. correction of transactional errors
d. initiation of changes to existing applications
Carmela Department Stores has a fully integrated EDP accounting system and is planning to issue credit cards to creditworthy customers. To strengthen internal control by number, the company's independent auditor has suggested the inclusion of a check digit that should be placed
a. at the beginning of a valid account number only
b. in the middle of a valid account number only
c. at the end of a valid account number only
d. consistently in any position
One of the major problems in an EDP system is that incompatible functions may be performed by the same individual. One compensating control for this is use of
a. a tape library
b. a self-checking digit system
c. computer-generated hash totals
d. a computer log
The primary documentation on which a company should rely for an explanation of how a particular program operates is the
a. run manual
b. periodic memory dump
c. maintenance of three generations of master files
d. echo check printout
The use of external labels in conjunction with magnetic tape storage is most likely to prevent errors that might be made by which of the following?
a. a computer programmer
b. a systems analyst
c. a data entry clerk
d. a computer operator
An online sales order processing system most likely would have an advantage over a batch sales order processing system by
a. detecting errors in the data entry process more easily by the use of edit programs
b. enabling shipment of customer orders to be initiated as soon as the orders are received
c. recording more secure backup copies of the database on magnetic tape files
d. maintaining more accurate records of customer accounts and finished goods inventories
Which of the following is a general control that most likely would assist an entity whose systems analyst left in the middle of a major project?
a. grandfather-father-son record retention
b. input and output validation routines
c. systems documentation
d. check-digit verification
The internal auditor is reviewing shipping procedures of a manufacturing company. The auditor should be greatly concerned when
a. merchandise is shipped without an approved customer's order
b. invoiced prices on merchandise are not checked before orders are shipped
c. the sales department is not notified promptly when merchandise is shipped
d. only one quotation on transportation costs is obtained
e. transportation tariffs are not checked before merchandise is shipped
Which of the following is an effective internal accounting control over accounts received?
a. only people who handle cash receipts should be responsible for preparing documents that reduce accounts receivable balances
b. responsibility for approval of the write-off of uncollectible accounts receivable should be assigned to the cashier
c. Balances in the subsidiary accounts receivable ledger should be reconciled to the general ledger control account once a year, preferably at year end
d. the billing function should be assigned to people other than those responsible for maintaing accounts receivable records
Which of the following would be the best protection for a company that wishes to prevent the lapping of trade accounts receivable?
a. segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail
b. segregate duties so that no employee has access tot both checks from customers and currency from daily cash receipts
c. have customers send payments directly to the company's depository bank
d. request that customers' payment checks be made payable to the company and addressed to the treasurer
To determine whether the system of internal accounting control operated effectively to minimize errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the
a. customer order file
b. bill of lading file
c. open invoice file
d. sales invoice file
For effective internal accounting control, employees maintaing the accounts receivable subsidiary ledger should not also approve
a. employee overtime wages
b. credit granted to customers
c. write-offs to customer accounts
d. cash disbursements
Which of the following control procedures may prevent the failure to bill customers for some shipments?
a. Each shipment should be supported by a prenumbered sales invoice that is accounted for
b. each sales order should be approved by authorized personnel
c. Sales journal entries should be reconciled to daily sales summaries
d. Each sales invoice should be supported by a shipping document
To achieve good internal accounting control, which department should perform the activities of matching shipping documents with sales orders and preparing daily sales summaries?
d. sales order
Shipping documents should be compared with sales records or invoices to
a. determine whether payments are applied properly to customer accounts
b. ensure that shipments are billed to customers
c. determine whether unit prices billed are in accordance with sales contracts
d. ascertain whether all sales are supported by shipping documents
As payments are received, one mailroom employee is assigned the responsibility of prelisting receipts and preparing the deposit slip prior to forwarding the receipts, deposit slip, and remittance advices to accounts receivable for posting. Accounts receivable personnel refoot the deposit slip, stamp a restrictive endorsement on the back of each check, and then forward the receipts and deposit slip to the treasury department. Evaluate the internal control of the described process. Which of the following is a reasonable assessment of internal control in this process?
a. Adequate internal control
b. Inadequate internal control because mailroom employees should not have access to cash
c. Inadequate internal control because treasury employees should prepare the deposit slip
d. Inadequate internal control because of a lack of segregation of duties
Which of the following internal control procedures will most likely prevent the concealment of a cash shortage resulting from the improper write-off of a trade account rreceivable?
a. write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence
b. write-offs must be supported by an aging schedule showing that only receivables overdue several months have been written off
c. write-offs must be approved by the cashier who is in a position to know if the receivables have, in fact, been collected.
d. Write-offs must be authorized by company field sales employees who are in a position to determine the financial standing of the customers
For the purpose of proper accounting control, post dated checks remitted by customers should be
a. restrictively endorsed
b. returned to the customer
c. recorded as a cash sale
d. placed in the joint custody of two officers
A company policy should clearly indicate that defective merchandise returned by customers is to be delivered to the
a. Sales clerk
b. receiving clerk
c. inventory control check
d. Accounts Receivable clerk
To conceal he defalcations involving receivables, the auditor would expect an experienced bookkeeper to charge which of the following accounts
a. miscellaneous income
b. petty cash
c. miscellaneous expense
d. sales returns
The most likely result of ineffective internal control policies and procedures in the revenue cycle is that
a. irregularities in recording transactions in the subsidiary accounts could result in a delay in getting shipped
b. omission of shipping documents could go undetected, causing an understatement of inventory
c. Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme
d. fictitious transactions could be recorded, causing an understatement of revenue is an overstatement of receivables
Proper authorization procedures in the revenue cycle usually provide for the approval of bad debt write-offs by an employee in which of the following departments?
d. accounts Receivable
Tracing bills of lading to sales invoices provides evidence that
a. shipments to customers were invoiced
b. shipments to customers were recorded as sales
c. Recorded sales were shipped
d. invoiced sales were shipped
A sales clerk at Schackne company correctly prepared a sales invoice for $5200, but the invoices was entered as $2500 in the sales journal and similarly posted to the general ledger and accounts receivable ledger. The customer remitted only $2500, the amount and his or her monthly statement. The most effective procedure for preventing this type of error is to
a. use predetermined totals to control posting routines
b. have an independent check of sales invoice serial numbers, prices, discounts, extensions, and footings.
c. have the bookkeeper prepare monthly statements that are verified and mailed by a responsible person other than the bookkeeper.
d. have a responsible person, who is independent of the accounts receivable department, promptly investigate unauthorized remittance deductions made by customers or other matters in dispute.
For good internal control, the billing department should be under the direction of the
b. credit manager
c. sales manager
Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write offs?
a. employees responsible for authorizing sales and bad-debt write-offs are denied access to cash.
b. shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.
c. employees involved in the credit granting function are separated from the sales function.
d. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.
Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?
a. the billing department supervisor sends copies of approved sales orders to the credit department for comparison with authorized credit limits and current customer account balances.
b. the accounting department supervisor independently reconciles the accounts receivable subsidiary ledger with the Accounts Receivable control account monthly
c. the accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers
d. the billing department supervisor matches prenumbered shipping documents with entries in the sales journal
An entity with a large volume of customer remittances by mail most likely could reduce the risk of employee misappropriation of cash by using
a. employee fidelity bonds
b. independently prepared mailroom pre lists
c. daily check summaries
d. a bank lock-box system
Which of the following would the auditor considered to be an incompatible operation if the cashier receives remittances from the mailroom?
a. the cashier prepares the daily deposit
b. the cashier makes the daily deposit at a local bank
c. the cashier post the receipts to the Accounts Receivable subsidiary ledger cards
d. the cashier endorses the checks
The most effective way to prevent an employee for misappropriating cash and then altering the accounting records to conceal the shortage is to
a. perform bank reconciliations on a timely basis
b. deposit promptly all cash receipts in the company's bank account
c. remember all cash receipts documents
d. enforce a segregation of duties between employees who have custody of cash receipts and those who account for them
Which of the following is not a universal rule for achieving strong internal control over cash?
a. separate the cash handling and record keeping functions
b. decentralize the receiving of cash as much as possible
c. deposit each day's cash receipts by the end of the day
d. have bank reconciliations performed by employees independent with respect to handling cash
Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?
a. understanding the sales journal
b. overstating the Accounts Receivable control account
c. overstating the accounts receivable subsidiary ledger
d. understating the cash receipts journal
Which of the following procedures provide substantial assurance that invoices are paid for merchandise actually ordered and received in satisfactory condition?
a. the purchasing department sends copies of the purchase requisition to the accounts payable department and the supplier
b. the receiving department counts all merchandise received
c. the accounts payable department sends purchase requisitions to the purchasing department and the stores department
d. the accounts payable department matches the purchase requisition, purchase order, receiving report, and invoice
e. the stores department sends copies of the invoices to the receiving department and the insurance department
Which of the following in an internal control procedure would prevent a paid disbursement voucher from being presented for payment a second time?
a. voucher should be prepared by individuals who are responsible for signing disbursement checks
b. disbursement vouchers should be approved by at least two responsible management officials
c. the date on a disbursement voucher should be within a few days of the date the vouchers presented for payment
d. the official signing the check should compare the check with the voucher and should deface the voucher documents
An effective internal accounting control measure that protects against the preparation of improper or inaccurate disbursements would be to require that all checks be
a. signed by an officer after necessary supporting evidence has been examined
b. reviewed by the treasurer before mailing
c. numbered sequentially and accounted for by internal auditors
d. perforated or otherwise effectively canceled when they are returned with the bank statement
Which of the following is an effective internal accounting control over cash payments?
a. signed check should be mailed under the supervision of the check signer
b. spoiled checks that have been voided should be disposed of immediately
c. checks should be prepared only by people responsible for cash receipts and cash disbursements
d. a check-signing machine with two signatures should be used
In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system is to
a. cancel the supporting documents
b. enter the check amount in the check register
c. approve the voucher for payment
d. Post the voucher amount to the expense ledger
For the most effective internal accounting control, monthly bank statement should be received directly from the banks and reviewed by the
b. cash receipts accountant
c. Cash disbursements accountant
d. internal auditor
In a properly designed internal accounting control system, the same employee may be permitted to
a. receive and deposit checks and also approve write-offs of customer accounts
b. approve vouchers for payment and also sign checks
c. reconcile the bank statements and also receive and deposit cash
d. sign checks and also cancel supporting documents
In a properly designed internal accounting control system, the same employee should not be permitted to
a. sign checks and cancel supporting documents
b. receive merchandise and prepare a receiving report
c. prepare disbursement vouchers and sign checks
d. initiate a request to order merchandise and approve merchandise received
For a effective internal accounting control the accounts payable department should compare the information on each vendor's invoice with the
a. receiving report and the purchase order
b. receiving report and the voucher
c. vendor's packing slip and the purchase order
d. vendor's packing slip and the voucher
Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received?
a. Count goods on receipt in the storeroom
b. Match purchase order, receiving report, and vendor's invoice for each voucher in the accounts payable department
c. compared goods received with goods requisitioned in the receiving department
d. verify vouchers for accuracy and approval in the internal audit Department
The mailing of disbursement checks and remittance advices should be controlled by the employee who
a. signed the checks last
b. approved the vouchers for payment
c. matched the receiving reports, purchase orders, and vendor's invoices
d. verified the mathematical accuracy of the vouchers and remittance advices
To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consist of all
a. vendor's invoices
b. purchase orders
c. receiving reports
d. canceled checks
Which of the following control procedures is not usually performed in the vouchers payable department?
a. determining the mathematical accuracy of the vendor's invoice
b. having an authorized person approve the voucher
c. controlling the mailing of the checks and remittance advice
d.matching the receiving report with the purchase order
For effective internal control purposes, the vouchers payable department should generally
a. stamp, perforate, or otherwise cancel supporting documentation after payment is mailed
b. ascertain each requisition is approved as to price, quantity, and quality of an authorized employee
c. obliterate the quantity ordered on the receiving department copy of the purchase order
d. establish the agreement of the vendors invoice with the receiving report and the purchase order
Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?
a. comparing the vendor's invoice with the receiving report
b. canceling supporting documentation after payment
c. verifying the mathematical accuracy of the vendor's invoice
d. signing the voucher for payment by an authorized person
Mailing disbursement checks in remittance advices should be controlled by the employee who
a. approves the vouchers for payment
b. matches the receiving report, purchase orders, and vendors' invoices
c. maintains possession of the mechanical check-signing device
d. signs the checks last
Matching the supplier's invoice, the purchase order, and the receiving report normally should be the responsibility of the
a. warehouse receiving function
b. purchasing function
c. general accounting function
d. treasury function
To avoid potential errors and irregularities, a well-designed system of internal accounting control in the accounts payable area should include a separation of which the following functions?
a. cash disbursements and vendor invoice verification
b. vendor invoice verification and merchandise ordering
c. physical handling of merchandise received and preparation of receiving reports
d. check signing and cancellation of payment documentation
It would be appropriate for the payroll accounting department to be responsible for which the following functions?
a. approving employee time records
b. maintaining records of employment, discharges, and pay increases
c. Preparing periodic government reports as to employees' earnings and withholding taxes
d. temporarily retaining unclaimed employee checks
Jackson, the purchasing agent of Judd hardware wholesalers, has a relative who owns a retail hardware store. Jackson arranged for hardware to be delivered by manufacturers to the retail store on a COD basis, thereby enabling his relative to buy at Judd's wholesale prices. Jackson probably was able to accomplish this because of Judd's poor internal control over
a. purchase orders
b. purchase requisitions
c. cash receipts
d. perpetual inventory records
Which of the following departments should have the responsibility for authorizing payroll rate changes?
Which of the following constitutes the most significant risk within the purchasing cycle?
a. receiving department personnel sign receiving documents without inspecting or counting the goods
b. large quantities of relatively inexpensive parts are stored in open areas near workstations to reduce production slowdowns
c. poor records of transfers between warehouses often result in unnecessary purchases and excess inventories
d. warehouse personnel do not compare quantities received to quantities shown on transfer tickets
On the receipt of requisition, the stores manager initiates a three part purchase order. Two copies go to the vendor, and one copy stays in the stores file. On receipt of goods, the stores manager matches the purchase order with the invoice and forwards them to accounts payable for payment. Which of the following statements best describes the internal control over purchasing?
a. adequate internal control exists
b. inadequate separation of duties exists
c. inadequate control over accounts payable exists
d. inadequate control over the requisition process exists
An appropriate compliance test to confirm that only valid employees are on the payroll is to ensure that
a. separate personnel folders are originated for each new employee
b. payroll checks are delivered directly to each supervisor by the payroll clerk
c. personnel places names on payroll only on the basis of written, prenumbered authorizations
d. payroll bank accounts are reconciled monthly to appropriate personnel
Which of the following would be the most appropriate test to determine whether purchase orders are being processed on a timely basis?
a. determine the dates of unpaid accounts payable invoices
b. compare dates of selected purchase orders with those of purchase requisitions
c. select a block of used purchase order numbers and account for all numbers in the block
d. discuss processing procedures with operating personnel and observe actual processing of purchases
Which of the following procedures, noted by an auditor during a preliminary survey of the payroll function, indicates inadequate control?
a. all changes to the payroll data are documented by the personnel department on authorized change forms
b. prior to distribution, payroll checks are verified to a computer-produced payroll register
c. a separate payroll bank account is used, and payroll checks are signed by the treasurer and distributed by personnel from the treasurer's office
d. all unclaimed payroll checks are returned to the payroll clerk for disposition
Proper internal control over the cash payroll function would mandate which the following?
a. the payroll clerk should fill the envelopes with cash and a computation of the net wages
b. unclaimed pay envelope should be retained by the paymaster
c. each employee should be asked to sign a receipt
d. a separate checking account for payroll should be maintained
A CPA reviews a clients payroll procedures. The CPA would consider internal control to be less than effective if the payroll department supervisor was assigned the responsibility for
a. reviewing and approving time reports for subordinate employees
b. distributing payroll checks to employees
c. hiring subordinate employees
d. initiating request for salary adjustments for subordinate employees
Internal accounting control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the
a. department that initiated the requisition
b. receiving department
c. purchasing agent
d. accounts payable department
The following controls would be most effective in ensuring that recorded purchases are free of material errors?
a. receiving department compares the quantity ordered on purchase orders with the quantity received on receiving reports
b. vendor's invoices are compared with purchase orders by an employee who is independent of the receiving department
c. receiving reports require the signature of the individual who authorized the purchase
d. purchase orders, receiving report, and vendor's invoices are matched independently in preparing vouchers
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the
a. administrative controls from the internal accounting controls
b. HR function from the controllership function
c. operation responsibility from the record-keeping responsibility
d. authorization of transactions from the custody of related assets
When goods are received, the receiving clerk should match the goods with the
a. purchase order and the requisition form
b. vendor's invoice and the receiving report
c. vendor's shipping document and the purchase order
d. authorization of transactions from the custody of related assets
Effective internal control procedures over the payroll function may include
a. reconciliation of totals on job-time tickets with job reports by employees responsible for those specific jobs
b. verification of agreement of job-time tickets with employee clock card hours by a payroll department employee
c. preparation of payroll transaction journal entries by an employee who reports to the supervisor of the personnel department
d. custody of rate authorization records by the supervisor of the payroll department
For internal control purposes, which of the following individuals preferably should be responsible for the distribution of payroll checks?
b. payroll clerk
The authority to accept incoming goods in receiving should be based on a (an)
a. vendor's invoice
b. Materials requisition
c. Bill of lading
d. approved purchase order
Which of the following procedures most likely would be considered a weakness in entity's internal controls over payroll?
a. a voucher for the amount of the payroll is prepared in the Gen. accounting department based on the payroll department's payroll summary
b. payroll checks are prepared by the payroll department and signed by the treasurer
c. the employee who distributes payroll checks returns unclaimed payroll checks to the payroll department
d. the personnel department sends employee's termination notices to the payroll department
For several years, a client's physical inventory count has been lower than what was shown on the books at the time of the count, requiring downward adjustments to the inventory account. Contributing to the inventory problem could be weaknesses in internal control that led to the failure to record some
a. purchases return to vendors
b. sales returns received
c. sales discounts allowed
d. cash purchases
Ball company, which has no perpetual inventory records, takes a monthly physical inventory and reorders any item that is less than its reorder point. On February 5, 20XX, Ball ordered 5000 units of item A. On February 6, 20XX, Ball received 5000 units of item A, which had been ordered on January 3, 20XX. To prevent this excess ordering, Ball should
a. keep an adequate record of open purchase orders and review it before ordering
b. use perpetual inventory records that indicate goods received, issued, and amounts on hand
c. use prenumbered purchase orders
d. prepare purchase orders only on the basis of purchase requisitions
Sanbor Corporation has an inventory of parts consisting of thousands of different items of small value individually but significant in total. Sanbor could establish effective internal accounting over the parts by requiring
a. approval of requisitions for inventory parts by a company officer
b. maintenance of inventory records for all parts included in the inventory
c. physical counts of the parts on a cycle basis rather than than at year end
d. separation of the store-keeping function from the production and inventory record-keeping functions
To achieve effective internal accounting control over fixed-asset additions, a company should establish procedures that require
a. capitalization of the cost of fixed-asset additions in excess of a specific dollar amount
b. performance of recurring fixed-asset maintenance work solely by maintenance department employees
c. classifying as investments those fixed-asset additions that are not used in the business
d. authorization and approval of major fixed-asset additions
Which of the following is the most important internal control over acquisitions of property, plant, and equipment?
a. establishing a written company policy distinguishing between capital and revenue expenditures
b. using a budget to forecast and control acquisitions and retirements
c. analyzing monthly variances between authorized expenditures and actual costs
d. requiring acquisitions to be made by user departments
Which of the following is an internal accounting control weakness related to factory equipment?
a. checks issued in payment of purchase of equipment are not signed by the controller
b. all purchases of factory equipment are required to be made by the department in need of the equipment
c. factory equipment replacements generally are made when estimated useful lives, as indicated in depreciation schedules, have expired
d. proceeds from sales of fully depreciated equipment are credited to other income
Which of the following internal accounting control procedures could best prevent direct labor from being charged to manufacturing overhead?
a. reconciliation of WIP inventory with cost records
b. comparison of daily journal entries with the factory labor summary
c. comparison of periodic costs budgets and time cards
d. reconciliation of unfinished job summary and production cost records
Which of the following is a question the auditor would expect to find on the production cycle section of an internal accounting control questionnaire?
a. are vendor's invoices for raw materials approved for payment by an employee who is independent of the cash disbursements function?
b. are signed checks for the purchase of raw materials mailed directly after signing without being returned to the person who authorized the invoice processing?
c. are all releases by storekeepers of raw materials from storage based on approved requisition documents?
d. are details of individual disbursements for raw materials balanced with the total to be posted to the appropriate general ledger account?
Which of the following is the most important element of internal control relating to the raw materials inventory of a manufacturing company?
a. physical inventory count should be made by personnel independent of the inventory custodians
b. Materials from vendors should be received directly by the production department that will be using the materials
c. shortages in shipments from vendors should be reported immediately to the production department that will be using the materials
d. issues from inventory should be supported by sales invoices
A well-functioning system of internal control over the inventory/production functions would provide that finished goods are to be excepted for stock only after presentation of a completed production order and a(an)
a. shipping order
b. Materials requisition
c. Bill of lading
d. inspection report
If preparation of the periodic scrap report is essential in order to maintain adequate control over the manufacturing process, the data for this report should be accumulated in the
a. accounting department
b. production department
c. warehousing department
d. budget department
Which of the following control procedures would most likely be used to maintain accurate perpetual inventory records?
a. independent storeroom count of goods received
b. periodic independent reconciliation of control and subsidiary records
c. Periodic independent comparison of records with goods on hand
d. independent matching of purchase orders, receiving reports, and vendor's invoices
Which of the following procedures is most likely to prevent the improper disposition of equipment?
a. separation of duties between those authorized to dispose of equipment and those authorized to approve removal work orders
b. the use of serial numbers to identify equipment that could be sold
c. periodic comparison of removal work orders to authorizing documentation
d. a periodic analysis of the scrap sales and the repairs and maintenance accounts
Which of the following controls would be most effective in ensuring that the proper custody of assets in the investing cycle is maintained?
a. direct access to securities in the safety deposit box is limited to only one corporate officer
b. personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger
c. the purchase and sale of investments are executed on the specific authorization of the Board of Directors
d. the recorded balances in the investment subsidiary ledger are compared periodically with the contents of the safety deposit box by independent personnel
The objectives of the internal control structure for a production cycle are to provide assurance that transactions are executed and recorded properly and that
a. independent internal verification of activity reports is established
b. transfers to finished goods are documented by a completed production report and a quality control report
c. production orders are prenumbered and signed by a supervisor
d. custody of WIP and of finished goods is properly maintained
Independent internal verification of inventory occurs when employees who
a. issue raw materials obtain materials requisitions for each issue and prepare daily totals of materials issued
b. compare records of goods on hand with physical quantities do not maintain the records or have custody of the inventory
c. obtain receipts for the transfer of completed work to finished goods prepare a completed production report
d. are independent of issuing production orders update records from completed job cost sheets and production cost reports on a timely basis