Deck 8: Systems Work Basic Ideas 1

Question 1

Segregation of duties is a fundamental principle of internal control. It is established as a principle of internal control in order to ensure: ?

A) Employees cannot collude together to commit fraud.
B) No one person has complete control of any aspect of the accounting function.
C) No one individual can control the processing of a transaction from start to finish.
D) It is difficult to conceal errors or frauds.

Answer 1

No one individual can control the processing of a transaction from start to finish.

Question 2

Which of the following supplier balances would indicate a high risk in relation to the COMPLETENESS of the liability recorded at the year end?

A) A supplier with a high balance at the year end and with a low volume of transactions during the year
B) A supplier with a low balance at the year end and with a high volume of transactions during the year
C) A supplier with a low balance at the year end and with a low volume of transactions during the year
D) A supplier with a high balance at the year end and with a high volume of transactions during the year

Answer 2

A supplier with a low balance at the year end and with a high volume of transactions during the year

Question 3

It is the responsibility of the directors to ensure that the organisation has an effective control environment

Answer 3

True

Question 4

Physical controls include passwords, hierarchical menus and locked doors.

Question 5

Management controls include such things as comparison of actual to budgeted results.

Question 6

Risk assessments are a business tool and are not part of the control environment

Question 7

One of the audit tests for Payables balances is to reconcile the balance on the Payables Ledger with the balance shown by a statement sent by the supplier. When performing such a test during the audit of Winterbottom Ltd a difference was found on the balance due to the supplier Megachem. According to Winterbottom the balance on the Payables ledger at 30 June was $48,936 but according to Megachem it was $61,289. When questioned the accountant stated that the ledger had been closed early on 28 June and some invoices had not been entered. These were subsequently entered using the journal. Which of the following would not provide sufficient, appropriate audit evidence over the completeness of the Payables Ledger balance in respect of Megachem?

A) Review the journal and confirm that all invoices recorded as received from Megachem between 28 and 30 June have been manually adjusted for.
B) Review the accruals listing to ensure goods received from Megachem post year end for which an invoice has not been received have been listed and recorded in the financial statements in the correct period.
C) For post year-end cash book payments to Megachem, confirm date of matching invoice and if pre-year end agree to liability.
D) Review a sample of invoices received from Megachem recorded post year end and match to GRN to determine if they should have been included in payables at the year end.

Question 8

Authorization procedures are a key element of any internal control system.

Question 9

Any internal control system can be overridden by instructions from senior management.

Question 10

One of the major problems in small company internal control systems is low numbers of administrative staff.

Question 11

Computer master files should be kept separate from staff who have passwords to enable data entry.