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Flashcards in Study Unit 7: questions Deck (37)
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1
Q

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also

A

Is responsible for mailing the checks.

2
Q

Who is responsible for approving vendors’ invoices for payment?

A

The accounts payable department is responsible for compiling documentation to support an account payable. This approval process is performed in the accounting department.

3
Q

What are the procedures performed for the CFO?

A

Verifying the accuracy of checks and vouchers.
Canceling payment vouchers when paid.
Controlling the mailing of checks to vendors.

4
Q

What is one way to make sure an invoice does not get paid twice?

A

The check signer reviews and cancels the voucher packets.
A control should be implemented to prevent an invoice from being paid twice. This can be accomplished by canceling the voucher and supporting documents.

5
Q

Checks should be sequentially numbered and the numerical sequence should be accounted for by:

A

by the person preparing bank reconciliations.
The sequential numbering of checks provides a standard control over cash disbursements. The numerical sequence of canceled checks should be accounted for by the person preparing bank reconciliations. Physical control over blank checks should be maintained by the CFO. A major objective is to detect unrecorded and unauthorized checks.

6
Q

What is the AP department responsible for?

A

The accounts payable department is responsible for matching the vendor’s invoice against the corresponding purchase order and receiving report. This procedure provides assurance that a valid transaction has occurred and that the parties have agreed on the terms, such as price and quantity.

7
Q

The authority to accept incoming goods in receiving should be based on a(n)

A

Approved purchase order.
A receiving department should accept merchandise only if a purchase order or approval granted by the purchasing department is on hand.

8
Q

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the

A

Debit memo.
A debit memo indicates a reduction in the amount owed to a vendor because goods have been returned. The debit memo authorizes the accounting department to debit the appropriate payable.

9
Q

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

A

Receiving department.
A receiving department should accept merchandise only if a purchase order or approval granted by the purchasing department is on hand. A standard control is to delete the quantity from the receiving department’s copy of the purchase order. If the receiving clerk does not know the quantity ordered, an independent count is more likely.

10
Q

Can an accounts payable manager issue POs?

A

No, to maintain a proper segregation of duties, the purchasing agent, not the accounts payable manager, should issue purchase orders. The accounts payable manager performs a recording function. (S)he should not be able to authorize transactions or have custody of assets.

11
Q

When the auditor tests for unauthorized nonrecurring purchases, (s)he should vouch purchases to:

A

to the purchase requisitions. The initiating authorization by the user department is embodied in a properly authorized purchase requisition.

12
Q

What is more effective: inventory count at the end of the year or at interim dates?

A

Counts at period end are more effective procedures than counts at interim dates.

13
Q

The primary audit objective regarding the purchasing of materials by the client is to

A

Determine the reliability of financial reporting by the purchasing function.
The auditor should obtain an understanding of internal control. The purpose of internal control is to address business risks that threaten the achievement of the following entity objectives: (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with laws and regulations (AU-C 315).

14
Q

The auditor should obtain an understanding of internal control. The purpose of internal control is to address business risks that threaten the achievement of the following entity objectives:

A

(1) reliability of financial reporting,
(2) effectiveness and efficiency of operations, and
(3) compliance with laws and regulations

15
Q

Who accounts for unused prenumbered POs?

A

he purchasing department accounts for unused prenumbered purchase orders. The receiving department accounts for unused prenumbered receiving reports.

16
Q

To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should

A

Require competitive bidding.
The primary function of a purchasing department is to ensure the authorized acquisition of goods of a specified quality on a timely basis at an economical price. Competitive bidding procedures should reduce both costs and the likelihood that a purchasing agent will show favoritism to a vendor.

17
Q

Under which of the following circumstances would an auditor be most likely to intensify an audit of a $500 imprest petty cash fund?
A. Reimbursement vouchers are not prenumbered.
B. The custodian occasionally uses the cash fund to cash employee checks.
C. The custodian endorses reimbursement checks.
D. Reimbursement occurs twice each week.

A

Reimbursement occurs twice each week.
If the auditor determines that reimbursement occurs twice each week, (s)he should intensify the audit of the imprest cash fund. The frequent need for reimbursement suggests that the fund is not functioning as planned.

18
Q

The vouchers payable clerk:

A

(1) matches purchase orders, vendors’ invoices, and receiving reports;
(2) tests the calculations and terms on the vendors’ invoices; and
(3) prepares a disbursement voucher.

19
Q

Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if partial payments to vendors are continuously made in the ordinary course of business. Why?

A

If a firm makes partial payments to vendors, tracking the amounts still due on vouchers may be difficult. An accounts payable subsidiary ledger provides a continuous record of amounts due to vendors.

20
Q

What is MRP?

A

MRP (materials requirement planning) is a computer-based information system designed to plan and control materials used in production. It determines the quantity of finished goods that will be required and the point when they will be needed. The system requires prompt notice of changes in production schedules.

21
Q

Before sending or receiving EDI messages, a company should execute a trading partner agreement with its customers and suppliers. For example, all parties should understand:

A

(1) their responsibilities,
(2) the messages each will initiate,
(3) how they will interpret messages,
(4) the means of authenticating and verifying the completeness and accuracy of messages,
(5) the moment when the contract between the parties is effective, and
(6) the required level of security.

22
Q

In the initial phase of EDI implementation, what must be done?

A

understanding the organization’s mission and an analysis of its activities as part of an integrated solution to the organization’s needs.

23
Q

True or False? EDI transactions are formatted using strict standards that have been agreed to worldwide.

A

True: Organizations such as the American National Standards Institute (ANSI) have defined virtually every type of business transaction in terms of their fields and information content. These are termed transmission sets. When a trading partner sends a transmission set, the receiving computer can expect to receive the specified information in a specified format.

24
Q

What is a benefit of EDI in regards to year end receivables balances?

A

EDI transactions are typically transmitted and processed in real time. Thus, EDI compresses the business cycle by eliminating delays. The time required to receive and process an order, ship goods, and receive payment is greatly reduced compared with that of a typical manual system. Accordingly, more rapid receipt of payment minimizes receivables and improves cash flow.

25
Q

Are preventive controls or detective controls more important in EDI systems?

A

In general, preventive controls are more important than detective controls because the benefits typically outweigh the costs. In electronic processing, once a transaction is accepted, the opportunity to apply detective controls is often limited. Thus, preventing fraud or error is important.

26
Q

Encryption performed by physically secure hardware devices is more secure than encryption performed by software. Why?

A

Physically secure hardware for performing encryption is under the direct control of the client. Software is not easily controlled because it is portable. More control is achieved with the hardware approach. However, in the business environment, most encryption applications rely on software.

27
Q

Under a cash payroll system is a signed receipt needed?

A

yes, the receipt signed by the employee is the only document in support of payment. The signed receipt is essential to verify proper payment.

28
Q

Which department most likely would approve changes in pay rates and deductions from employee salaries?

A

The human resources department provides the authorization for payroll-related transactions, e.g., hiring, termination, and changes in pay rates and deductions.

29
Q

What part of ARCC is Personnel, Payroll, Treasurer, Controller?

A

Personnel-Authorize
Payroll-Recording
Treasurer-Custody
Controller-Comparison

30
Q

Use of time tickets to record actual labor worked on production orders prevents the company from?

A

Prevent direct labor hours from being charged to manufacturing overhead.

31
Q

What information would the auditor expect to find in the data dictionary that would assist in a payroll application audit?

A

Programs that access the data.
The data dictionary is a file (possibly manual but usually computerized) in which the records relate to specified data items. It contains definitions of data records and files and the list of programs used to process them. Only certain persons or entities are permitted to retrieve data or to modify data items. Accordingly, these access limitations are also found in the data dictionary.

32
Q

What is a possible consequence of an employee’s being able to visit the safe-deposit box unaccompanied?
A. There would be no record of when company personnel visited the safe-deposit box.
B. It would be impossible to obtain a fidelity bond on the employee.
C. The employee could pledge corporate investments as security for a short-term personal bank loan.
D. The employee could steal securities, and the theft would never be discovered.

A

Answer (C) is correct.
The bank should maintain a record, which can be inspected by company personnel, of all safe-deposit box visits. Access should be limited to authorized officers. Firms typically require the presence of two authorized persons for access to the box. This precaution provides supervisory control over, for example, the temporary removal of the securities to serve as a pledge for a loan (hypothecation of securities).

33
Q

The custody of cash and securities should be placed with the treasury function. Thus, who should have custody of securities and investments.

A

CFO should have custody of securities and investments.

34
Q

what provides the greatest security in safeguarding against the loss of trading securities?

A

Assigning custody of trading securities to a bank or trust company provides the greatest security because such an institution normally has strict controls over assets entrusted to it and access to its vaults

35
Q

When an entity uses a trust company as custodian of its trading securities, the possibility of concealing fraud most likely will be reduced if the

A

Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.
To conceal fraud related to trading securities, collusion between those responsible for record keeping and custody is required. The possibility of collusion is reduced if no direct contact between responsible parties exists.

36
Q

Apex Manufacturing Corporation mass produces eight different products. The controller who is interested in strengthening internal control over the accounting for materials used in production is most likely to implement a(n)

A

Perpetual inventory system.
A perpetual inventory system provides for continuous updating of inventory records and thus accounts for materials used. Close and continuous attention must be paid to materials usage to keep a perpetual system up to date.

37
Q

What is usually required for access to securities, especially those held in safe-deposit boxes?

A

The presence of two authorized individuals is usually required for access to securities, especially those held in safe-deposit boxes. This precaution provides supervisory control.