CIS

Question 1

An auditor tests an entity’s policy of obtaining credit approval before shipping goods to customers in support of management’s financial statement assertion of

Answer 1

C. Existence or occurrence.

Question 2

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

Answer 2

A. The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances.

Question 3

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?

Answer 3

C. Employees involved in the credit-granting function are separated from the sales function.

Question 4

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?

Answer 4

B. Credit.

Question 5

Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and

Answer 5

B. Deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts.

Question 6

During the consideration of a small business client’s internal control, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?

Answer 6

C. The owner reviews credit memos after they are recorded.

Question 7

When a customer fails to include a remittance advice with a payment, it is common practice for the person opening the mail to prepare one. Consequently, mail should be opened by which of the following four company employees?

Answer 7

D. Accounts receivable clerk.

Question 8

Which of the following business functions is associated with the revenue/receipt cycle?

Answer 8

B. Resources are distributed to outsiders in exchange for promises of future payments.

Question 9

Which of the following is not a common activity in the revenue/receipt cycle?

Answer 9

C. Inventory control.

Question 10

The cash account is involved in which cycle?

Answer 10

A. Revenue and collection.

Question 11

Which of the following is an appropriate audit procedure to test cancelled checks for authorized signatures?

Answer 11

C. Examine a representative sample of signed checks and trace their signatures to the specimen signature book of authorized signatories.

Question 12

Which of the following is not likely a source of information about the accounting system in the revenue area?

Answer 12

A. Direct inquiry of customers.

Question 13

Which of the following gives an indication of a potential fraudulent activity?

Answer 13

B. Internal auditor cannot locate several credit memoranda to support reductions of customers’ balances.

Question 14

Which of the following control procedures could prevent or detect errors or frauds arising from shipments made to unauthorized parties?

Answer 14

D. Prepare and periodically update the lists of authorized customers.

Question 15

Which of the following control procedures would most likely assure that access to shipping, billing, inventory control, and accounting records is restricted to personnel authorized by management?

Answer 15

A. Segregate the responsibilities for authorization, execution, and recording, and prenumber and control the custody of documents.

Question 16

An entity has implemented a control procedure which requires that authorized personnel reconcile the total of individual customer accounts receivable with control totals. This control relates to which of the following control objectives?

Answer 16

B. Recorded accounts receivable balances should reflect underlying transactions and events.

Question 17

Which of the following internal control procedures most likely would deter lapping of collections from customers?

Answer 17

C. Segregation of duties between receiving cash and posting collections to the accounts receivable ledger.

Question 18

What sequence of steps does an auditor undertake when identifying control procedures that are potentially reliable in assessing control risk below the maximum?

Answer 18

C. Identify control objectives, consider the errors or frauds that might occur, determine control procedures, and design tests of controls.

Question 19

Assuming cash receipts from credit sales have been misappropriated, which of the following is likely to conceal the misappropriation and unlikely to be detected?

Answer 19

D. Overstating the cash receipts journal.

Question 20

Which of the following is most likely to provide management with incentives to overstate earnings?

Answer 20

A. Projected quarterly dividends.

Question 21

Under which of the following circumstances does management have some discretion in timing the recognition of revenue?

Answer 21

A. The timing of revenue is not reasonably determinable and the earnings process is not complete.

Question 22

After preparing a flowchart of internal control for sales and cash receipts transactions and evaluating the design of the system, the auditor would perform tests of controls on all control procedures

Answer 22

C. That are considered to be strengths that the auditor plans to rely on in assessing control risk.

Question 23

Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room?

Answer 23

A. The cashier posts the receipts to the accounts receivable subsidiary ledger.

Question 24

Which of the following is not a universal rule for achieving control over cash?

Answer 24

B. Decentralize the receiving of cash as much as possible.

Question 25

On conducting an audit in which point in an ordinary sales transaction of a wholesaling business is a lack of specific authorization of least concern to the auditor?

Answer 25

B. Shipment of goods.

Question 26

A company has computerized sales and cash receipts journals. The computer programs for these journals have been properly debugged. The auditor discovered that the total of the accounts receivable subsidiary accounts differs materially from the accounts receivable control account. This discrepancy could indicate

Answer 26

A. Lapping of receivables.

Question 27

To achieve control when there is no billing department, the billing function should be performed by the

Answer 27

A. accounting department.

Question 28

The person who opens the mail commonly prepares a remittance advice when a customer fails to return one with the payment. Consequently, mail should be opened by the

Answer 28

D. accounts receivable clerk.

Question 29

Which of the following control procedures will likely prevent the concealment of a cash shortage that was, perpetrated by improperly writing off a trade account receivable?

Answer 29

A. Write off must be approved by a responsible officer after reviewing the credit department's recommendations and supporting evidence.

Question 30

Which of the following would unlikely improve control over an entity's cash?

Answer 30

C. Processing of checks in batches, rather than intermittently.

Question 31

Which of the following would best protect a company that wishes to prevent lapping?

Answer 31

B. Segregating duties so that no employee has access both to checks from customers and money from daily cash receipts.

Question 32

Which of the following is the greatest drawback of using subsequent collections that are evidenced only by a deposit slip as an alternative procedure when responses to positive accounts receivable confirmations are not received?

Answer 32

D. By examining a deposit slip only, the auditor does not know whether the payment is for the receivable at the balance sheet date or a subsequent transaction.

Question 33

In considering internal control within the revenue/receipt cycle, what is the purpose of a transaction walk through?

Answer 33

B. To confirm the results of the auditor's understanding of the internal control structure.

Question 34

Which of these assignments of duties would least likely lead to an embezzlement or theft?

Answer 34

D. Financial vice president receives the checks payable to suppliers and the supporting invoices, signs the checks, and mails them to the payees.

Question 35

Standard control procedures over customer remittances received through the mail include the policy that requires the mailroom personnel to

Answer 35

B. Open the mails, restrictively endorses the checks, and then prelist each remittance in triplicate copies.

Question 36

After making the deposit, the daily cash summaries and the validated deposit slips should be forwarded by the cashier directly to the:

Answer 36

C. General accounting.

Question 37

The accounting and the cash receipts functions should be handled by which department(s)?

Answer 37

C. The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions.

Question 38

When auditing cash, the auditor should mostly be concerned with:

Answer 38

B. Inherent risk.

Question 39

What should the company Treasurer control?

Answer 39

The Treasurer should have control of cash receipt functions.

Question 40

What should the company Controller control?

Answer 40

The Controller should have control of accounting functions.

Question 41

What is the auditor mostly concerned with when auditing cash?

Answer 41

Detective risk.

Question 42

Which situation is most likely to indicate fraud?

Answer 42

Several overpayments are made for goods received from a supplier.

Question 43

What is the example of Jolas embezzling P50,000 from the company's account?

Answer 43

This is an example of kiting.

Question 44

How can a client conceal an overdraft from the auditor?

Answer 44

Draw a check for at least P10,000 on Bank A for deposit in Bank B. Record the disbursement but not the receipt and list the disbursement as an outstanding check.

Question 45

For which employees is the policy of rotating assigned duties most important?

Answer 45

Employees who handle cash receipts.

Question 46

What could inadequate internal control procedures over invoicing cause?

Answer 46

An understatement of revenues, receivables, and inventory.

Question 47

What control procedure may prevent failure to bill customers for shipments?

Answer 47

Each shipment should be supported by a pre-numbered sales invoice that is accounted for.

Question 48

What is the most effective control for ensuring customers are billed only for goods shipped?

Answer 48

Implement a policy that prevents the mailing of sales invoices to customers in the absence of a properly approved shipping order and a bill of lading signed by the carrier.

Question 49

Where should defective merchandise returned by customers be delivered?

Answer 49

To the Receiving clerk.

Question 50

What control would offset the weakness of an accounts receivable clerk approving credit memos and having access to cash?

Answer 50

The owner reviews credit memos after they are recorded.

Question 51

What is the most effective control to prevent unbilled and unrecorded shipments of finished goods?

Answer 51

Require all outgoing shipments to be accompanied by a prenumbered shipping order and bill of lading signed by the carrier.

Question 52

Controls over approving credit relate to which assertion?

Answer 52

Completeness assertion.

Question 53

What should an auditor sample to determine if internal control minimizes errors of failure to bill a customer?

Answer 53

Shipping records file.