Deck 6: The Challenges of Accounting: Standards, Internal Control, Audits, Fraud, and Ethics

Question 1

U.S. GAAP's overriding principles of accounting are written by the:

A)FASB.
B)SEC.
C)IRS.
D)IASB.

Answer 1

FASB.

Question 2

Contingent liabilities are ________ under GAAP, and ________ under IFRS I. Recorded if probable
II. Recorded if possible
III. Recorded if reasonably estimated

A)GAAP I and II; IFRS I or II
B)GAAP I or III; IFRS I and II
C)GAAP I; IFRS I and III
D)GAAP I and III; IFRS I

Answer 2

GAAP I and III; IFRS I

Question 3

Under US GAAP and IFRS, research and development costs are:
I. Research costs are expensed as incurred
II. Development costs are expensed as incurred
III. Research costs are capitalized and amortized over time
IV. Development costs are capitalized and amortized over time.

A)GAAP I and II; IFRS II and III
B)GAAP I and IV; IFRS III and IV
C)GAAP I and II; IFRS I and IV
D)GAAP II and III; IFRS II and III

Answer 3

GAAP I and II; IFRS I and IV

Question 4

For inventory costing purposes, GAAP and IFRS differ in that GAAP allows the use of FIFO, whereas IFRS prohibits the use of FIFO.

Question 5

The government agency that approves U.S. GAAP is the:

A)Senate.
B)Department of Commerce.
C)Department of the Treasury.
D)Securities and Exchange Commission.

Question 6

Management and staff attitudes toward internal control are an important part of control activities.

Question 7

For accounting information to be useful it must be all of the following EXCEPT:

A)reliable.
B)understandable.
C)economical.
D)relevant.

Question 8

The International Accounting Standards Board was formed in:

A)2001.
B)1991.
C)1981.
D)1971.

Question 9

An organization's employees are responsible for the design and implementation of the internal control system.

Question 10

Currently, most European countries are using International Financial Reporting Standards.

Question 11

IFRS are developed by the:

A)European Union.
B)Financial Accounting Standards Board.
C)International Accounting Standards Board.
D)International Monetary Fund.

Question 12

In terms of valuation, U.S. GAAP generally uses ________, while IFRS generally uses ________.

A)market values, historical values
B)historical values, historical values
C)historical values, market values
D)market values, market values

Question 13

One objective of an internal control system is to safeguard the assets of a company.

Question 14

The U.S. is now using International Financial Reporting Standards instead of the old GAAP system.

Question 15

The process CPAs use to confirm that financial reports conform to GAAP is called a review.

Question 16

U.S. GAAP has been organized into what is called the Accounting Standards Codification.

Question 17

According to the text, there are three key elements that affect an organization's internal control system.

Question 18

Ensuring compliance with laws and regulations is an example of what following GAAP can do for a company.

Question 19

The process CPAs use to confirm that financial reports conform to GAAP is known as a(n):

A)examination.
B)audit.
C)review.
D)confirmation.

Question 20

IFRS is considered a principles-based system, while U.S. GAAP is considered a rules-based system.

Question 21

Properly supervising employees would be an example of what element of internal control?

A)Control environment
B)Control activities
C)Information and communication
D)Risk assessment

Question 22

Which of the following would NOT be considered part of the control environment?

A)Having integrity and ethical values
B)Assessing chances of fraud
C)Having competent workers
D)Having a leadership philosophy

Question 23

Details that support business transactions make up what is called:

A)internal control.
B)monitoring.
C)risk assessment.
D)an audit trail.

Question 24

Internal control is a comprehensive system that helps an organization do all of the following EXCEPT:

A)safeguard assets.
B)safeguard liabilities.
C)operate efficiently and effectively.
D)ensure compliance with applicable laws and regulations.

Question 25

Which element of internal control deals with the oversight of the internal control system?

A)Monitoring
B)Control environment
C)Information and communication
D)Risk assessment

Question 26

The ongoing process that identifies and analyzes potential problems in an organization and takes steps to reduce those problems is risk assessment.

Question 27

Which element of internal control deals with a company having large amounts of cash on hand?

A)Control environment
B)Control activities
C)Information and communication
D)Risk assessment

Question 28

Separation of duties is part of the control environment of an internal control system.

Question 29

In large companies, it may not be cost effective to properly segregate duties.

Question 30

Which element of internal control deals with the establishment of a company's policies?

A)Control environment
B)Control activities
C)Information and communication
D)Risk assessment

Question 31

Having security measures, proper authorization channels, and restricted access to assets is an example of what element of internal control?

A)Control environment
B)Control activities
C)Information and communication
D)Risk assessment

Question 32

Which of the following would NOT be considered a control activity?

A)Keeping accounting records
B)Having written job descriptions
C)Not having employees take vacations
D)Changing passwords regularly

Question 33

Two or more people must work together to commit fraud.

Question 34

Establishing a hierarchy to let all management and employees know what is going on in a company would be an example of what element of internal control?

A)Risk assessment
B)Monitoring
C)Information and communication
D)Control environment

Question 35

Which of the following would NOT be considered part of monitoring in an internal control system?

A)Having an audit trail
B)Assessing performance of the system
C)Locating weakness of the system
D)Management involvement

Question 36

A properly designed internal control system can guarantee that fraud will not occur.

Question 37

Which of the following would be considered a part of control activities in an internal control system?

A)Having large quantities of cash on hand
B)Separation of duties
C)Having a leadership philosophy
D)Locating weaknesses in an internal control system

Question 38

The delegation of authority and responsibility is part of the control environment of an internal control system.

Question 39

Internal control systems:

A)are the same from company to company.
B)are regulated by the Securities and Exchange Commission.
C)vary from company to company.
D)guarantee the safeguard of assets.

Question 40

Which element of internal control deals with establishing procedures for things such as handling of incoming checks?

A)Monitoring
B)Control environment
C)Control activities
D)Risk assessment

Question 41

When a company has one person post cash receipts, and another person deliver the deposit, this is an example of:

A)restricted access.
B)proper authorization.
C)separation of duties.
D)internal control limitations.

Question 42

The Fraud Triangle is used to show the connection of the factors necessary to commit fraud by or against an organization.

Question 43

In a broad sense, fraud is the use of deception or trickery for personal gain.

Question 44

Risk assessment:

A)is an ongoing process.
B)identifies and analyzes risk.
C)varies from company to company.
D)includes all of the above.

Question 45

Fraud is always committed against an organization.

Question 46

A requirement that customers receive a receipt is an example of:

A)monitoring.
B)information and communication.
C)control activities.
D)risk assessment.

Question 47

Utilization of an electronic theft detection system is an example of:

A)security measures.
B)the control environment.
C)monitoring.
D)risk assessment.

Question 48

Requiring a manager to sign off on purchases of $100 or more is an example of:

A)restricted access.
B)proper authorization.
C)an audit trail.
D)internal control limitations.

Question 49

Which of the following items is NOT a limit to the effectiveness of internal control systems in an organization?

A)Properly designed controls
B)Collusion
C)Costs exceed benefits
D)Overriding controls

Question 50

Which of the following items is NOT a limit to the effectiveness of internal controls?

A)Poorly defined controls
B)Managers overriding controls
C)Not separating duties in departments
D)Making sure employees are less distracted on the job

Question 51

An organization's employees are usually responsible for fraud that is committed by a business organization.

Question 52

Living beyond one's means is an example of perceived opportunity.

Question 53

A good internal control system does which of the following?

A)Guarantees the efficiency and effectiveness of operations
B)Reduces the risk of undetected errors
C)Provides absolute assurance that no errors will occur
D)Guarantees that fraud will be prevented

Question 54

Bob was passed over for a raise; when he took $20 from the register, saying "they owe me" - this is an example of perceived pressure.

Question 55

A company may be limited in their internal control procedures because the cost of hiring enough people to implement the procedures:

A)outweighs the benefits of the system.
B)has nothing to do with the effectiveness of the internal control system.
C)can prevent collusion.
D)can limit employee distractions.

Question 56

Fraud is most likely to occur when 2 of the 3 elements of the fraud triangle are present.

Question 57

A disgruntled employee who convinces another to steal from the company is an example of:

A)collusion.
B)monitoring.
C)the control environment.
D)control activities.

Question 58

A requirement that employees go on vacation is an example of:

A)monitoring.
B)information and communication.
C)control activities.
D)A and C are both correct.

Question 59

A distracted employee who fails to properly follow procedures is an example of:

A)the control environment.
B)control activities.
C)monitoring.
D)internal control limitations.

Question 60

An audit trail:

A)requires employees to take an annual vacation.
B)limits the number of employees who have access to company assets.
C)consists of business documents and records that provide evidence of transactions.
D)requires the use of security cameras and alarm systems.

Question 61

An employee who pockets cash received from a customer without recording the transaction is an example of a(n):

A)disbursement scheme.
B)expense scheme.
C)cash register scheme.
D)check tampering scheme.

Question 62

Granting customers a lower sales price for something that benefits you in return would be an example of a:

A)disbursement scheme.
B)bribe or kickback.
C)cash register scheme.
D)check tampering scheme.

Question 63

Receiving favors from a supplier by turning a blind eye to the delivery of inferior goods is a form of:

A)cash register scheme.
B)bribe.
C)fraudulent financial reporting.
D)management fraud.

Question 64

By definition, an employee who tricks a company into giving up cash for an invalid reason has engaged in a(n):

A)disbursement scheme.
B)expense scheme.
C)cash register scheme.
D)check tampering scheme.

Question 65

Receiving something from a supplier in exchange for authorizing payments for goods not delivered to the employer would be an example of a:

A)cash receipts scheme.
B)cash register scheme.
C)bribe or kickback.
D)check tampering scheme.

Question 66

The primary form of fraud committed against an organization is usually done by:

A)management.
B)employees.
C)stockholders.
D)boards of directors.

Question 67

Embezzlement usually involves the misappropriation of business:

A)equity by an employee.
B)liabilities by an employee.
C)assets by an employee.
D)information by an employee.

Question 68

An overstatement of earnings can inflate a company's stock price and may also be used to:

A)deflate the amount of taxes the corporation pays.
B)avoid paying raises to employees.
C)ensure larger bonuses to upper management at year-end.
D)avoid paying dividends to stockholders.

Question 69

________ embezzlement is a form of fraud committed against an organization.

A)Management
B)Employee
C)Stockholder
D)Board of directors

Question 70

If an employee overbills a company for travel, this would be considered a(n):

A)disbursement scheme.
B)expense scheme.
C)cash register scheme.
D)check tampering scheme.

Question 71

If an employee receives a check from a customer, endorses it and then cashes it, this would be considered a(n):

A)disbursement scheme.
B)expense scheme.
C)cash register scheme.
D)check tampering scheme.

Question 72

The goal of overstating earnings by using fraud is to:

A)deflate the amount of taxes the corporation pays.
B)overstate the cost of goods sold.
C)help increase the stock price of the company.
D)overstate receivables.

Question 73

When an employee overbills the company for business related expenses, this is an example of a disbursement scheme.

Question 74

Fraudulent financial reporting typically involves:

A)management.
B)employees.
C)the board of directors.
D)the stockholders.

Question 75

If an employee gives a false refund and pockets the cash, this would be considered a(n):

A)disbursement scheme.
B)expense scheme.
C)cash register scheme.
D)check tampering scheme.

Question 76

Marla has a gambling addiction. She may have a perceived pressure to commit fraud.

Question 77

Overbilling the company for parking fees or cab fare would be examples of:

A)disbursement schemes.
B)expense schemes.
C)cash register schemes.
D)check tampering schemes.

Question 78

An employee may embezzle by taking bribes or kickbacks from:

A)suppliers.
B)customers.
C)both suppliers and customers.
D)stockholders of the company.

Question 79

In order to overstate earnings, a company can:

A)overstate expenses and overstate revenue.
B)overstate receivables and understate payables.
C)understate unearned revenue and understate property, plant and equipment.
D)understate expenses and understate revenue.

Question 80

Cash register schemes are a form of:

A)employee embezzlement.
B)bribe.
C)fraudulent financial reporting.
D)management fraud.