Deck 7: Internal Control and Cash

Question 1

External auditors may be employees of the company.

Answer 1

False

Question 2

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Answer 2

True

Question 3

Internal auditors are company employees.

Answer 3

True

Question 4

Internal control is the responsibility of the external auditor of the organization.

Question 5

In applying the control activity of segregation of duties, the responsibility for related activities should be assigned to the same individual.

Question 6

An independent check of performance would be more effective if it is done by surprise.

Question 7

The Sarbanes Oxley will have little impact on Canadian companies as it is legislation enacted in the United States.

Question 8

Independent checks of performance should be carried out only by external auditors.

Question 9

A strong system of internal controls will prove that an organization complies with all relevant laws and regulations.

Question 10

Television monitors are an example of a physical safeguard control.

Question 11

Internal control is a process that helps an organization achieve reliable financial reporting.

Question 12

Internal auditors evaluate the effectiveness of the organization's external controls.

Question 13

When one person is responsible for all related activities, the potential for errors and irregularities increases.

Question 14

Proper segregation of accounting duties eliminates the need for internal controls.

Question 15

Control activities are the actions that must be taken to respond to risks that threaten reliable financial reporting.

Question 16

An independent check of performance must be done by the supervisor of the employee as they would be the person who would best understand the duties of the employee.

Question 17

One of the controls for documents is to have all of the documents pre-numbered.

Question 18

Responsibility for authorizing and approving transactions must be given to the correct person.

Question 19

A VP of Sales would be the correct person to establish policies for making credit sales.

Question 20

Effective and efficient operations can be a result of a strong system of internal controls.

Question 21

Sales using a nonbank credit card are considered cash sales by the retailer.

Question 22

One advantage of a cheque is that the retailer knows immediately whether the customer has enough money in their account to pay for the transaction.

Question 23

Sales using a bank credit card are considered cash sales by the retailer.

Question 24

Too much personal debt creates an opportunity to commit fraud.

Question 25

One advantage of a debit card is that the retailer knows immediately whether the customer has enough money in their account to pay for the transaction.

Question 26

All private companies are required to have an external audit.

Question 27

An electronic funds transfer will result in less internal control because no cash or cheques are handled by company employees.

Question 28

Sales using debit cards are considered "cash" transactions.

Question 29

The person who handles the cash and makes the bank deposit should NOT be able to make changes to the sales record in the point-of-sale system.

Question 30

The most important element of the fraud triangle is rationalization.

Question 31

Having different people approve and make payments is an example of an independent check of performance control activity over cash payments.

Question 32

The size of a business may limit internal controls.

Question 33

Cash lacks owner identification.

Question 34

Opportunity to commit fraud occurs when the workplace lacks sufficient controls to deter and detect fraud.

Question 35

In Canada, the responsibility for internal controls is the responsibility of the management.

Question 36

A debit card gives customers access to money made available by a bank or other financial institution and is essentially the same as a short-term loan.

Question 37

EFT Payments increase the risk of lost, stolen, or forged cheques.

Question 38

The concept of reasonable assurance is based on the belief that the cost of control activities should NOT be more than their expected benefits.

Question 39

The fees for credit cards are higher than the fees for debit cards.

Question 40

The increased use of debit and credit cards improves a company's internal control.

Question 41

A NSF cheque would always result in a journal entry by the company.

Question 42

To replenish a petty cash fund, the entry would debit the Expense account and credit Petty Cash.

Question 43

If a company deposits all its receipts in the bank and pays all its bills by cheque, then the monthly bank statement balance will always agree with the company's record of its chequing account balance.

Question 44

Cash is listed in the current asset section of the balance sheet.

Question 45

Bank service charges are normally debited to Bank Charges Expense.

Question 46

Stale-dated cheques would NOT be reported as cash on the balance sheet.

Question 47

All errors in a bank reconciliation will result in a journal entry being made by the company.

Question 48

A company's cash deposit, while appearing as a debit on the company's books, would be shown as a credit on company's bank statement.

Question 49

A deposit in transit is a deposit which has been recorded in the company's books but NOT yet recorded by the bank.

Question 50

If there are outstanding company cheques listed on the bank reconciliation, it means that the balance in the bank account is less than the amount showing on the company's books.

Question 51

If a petty cash account is short and the fund is replenished, then the account which would be debited is the expense account Cash Over and Short.

Question 52

The first journal entry to establish a petty cash fund would be to debit Cash and credit Petty Cash.

Question 53

The purpose of a petty cash fund is to eliminate the nuisance of making payments by EFT and cheques for common small business purchases, while still maintaining reasonable controls.

Question 54

Using a bank increases the internal control over cash.

Question 55

The outstanding cheques should always decrease in subsequent months if no new cheques have been issued by the company.

Question 56

If a deposit is listed as "in transit" on the bank reconciliation, the balance in the bank account is more than the amount showing in the company's books.

Question 57

For efficiency of operations and better control over all cash activities, a company should maintain only one bank account.

Question 58

Most Canadian companies list cash first on the balance sheet because it is the most liquid of assets.

Question 59

International companies frequently list current assets in increasing order of liquidity.

Question 60

A debit memo by a bank would mean that a journal entry by the bank would be necessary.

Question 61

When two or more people get together for the purpose of circumventing prescribed controls, it is called

A) a fraud committee.
B) collusion.
C) a division of duties.
D) bonding of employees.

Question 62

The internal audit function is only effective when

A) control tasks are properly performed.
B) the results of an internal audit are reported to senior management and/or the company's owners.
C) independent checks of performance are carried out on a regular basis.
D) reports are filed with the CICA.

Question 63

An example of physical and IT controls would NOT include which of the following?

A) source documents sent promptly to the accounting department
B) alarms set at the close of the business day
C) computer facilities requiring a password or fingerprint
D) time clocks used to record time worked

Question 64

Because cash is a company's most liquid asset it is typically listed first in the current asset section of the balance sheet.

Question 65

Which of the following is NOT an example of financial pressure to commit fraud?

A) gambling
B) too much debt
C) drug addiction
D) inexpensive lifestyle

Question 66

Internal auditors

A) are hired by CPA firms to audit business firms.
B) are employees of the Canada Revenue Agency who evaluate the internal controls of companies filing tax returns.
C) evaluate the system of internal controls for the companies that employ them.
D) cannot evaluate the system of internal controls of the company that employs them because they are not independent.

Question 67

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

A) increases the potential for errors and fraud.
B) decreases the potential for errors and fraud.
C) is an example of good internal control.
D) is a good example of safeguarding the company's assets.

Question 68

Two individuals at a retail store work the same cash register. You evaluate this situation as

A) a violation of establishment of responsibility.
B) a violation of segregation of duties.
C) supporting the establishment of responsibility.
D) supporting independent checks of performance.

Question 69

Independent internal and/or external checks of performance would NOT include the following:

A) the checking should be done periodically or by surprise.
B) the checking should be done by someone who is independent of the employee who is responsible for the information.
C) locked warehouses are used for storage of inventory.
D) discrepancies should be reported to a management level that can do whatever is necessary to correct the situation.

Question 70

Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

A) documentation procedures are violated.
B) internal independent check of performance is violated.
C) segregation of duties is violated.
D) establishment of responsibility is violated.

Question 71

Which of the following is NOT a control activity?

A) financial reporting
B) independent checks of performance
C) documentation procedures
D) physical and IT controls

Question 72

Documentation procedures do NOT include which of the following?

A) pre-numbered documents
B) source documents sent promptly to the accounting department
C) all controls written down and kept updated
D) alarms set at the close of the business day

Question 73

In terms of segregation of duties, related buying activities include

A) ordering, receiving, paying.
B) ordering, selling, paying.
C) ordering, shipping, billing.
D) selling, shipping, paying.

Question 74

The control activity related to NOT having the same person authorize and pay for goods is known as

A) establishment of responsibility.
B) independent check of performance.
C) segregation of duties.
D) rotation of duties.

Question 75

Sam Samson has worked for Tantramar Development for 20 years without taking a vacation. An internal control that would address this situation would be

A) human resource control.
B) physical and IT controls.
C) establishment of responsibility.
D) documentation procedures.

Question 76

In terms of segregation of duties, which one of the following is NOT related to the other three?

A) ordering the merchandise
B) making a sale
C) shipping the goods
D) billing the customer

Question 77

A system of internal control

A) can never fail.
B) can be ineffective if employees collude.
C) will have costs exceeding benefits.
D) is based on the concept of absolute assurance.

Question 78

Which of the following factors does NOT contribute to fraudulent activities?

A) opportunity
B) promotion
C) financial pressure
D) rationalization

Question 79

An accounts payable clerk also can change the approved supplier master file for purchases. The control activity

A) establishment of responsibility is violated.
B) independent check of performance is violated.
C) documentation procedures is violated.
D) segregation of duties is violated.

Question 80

Internal control helps an organization achieve all of the following EXCEPT

A) reliable financial reporting.
B) compliance with relevant laws and regulations.
C) absolute assurance that fraud will not occur.
D) effective and efficient operations.