Deck 8: Internal Control and Cash

Question 1

If a company does not protect its assets,it is throwing away resources.

Answer 1

True

Question 2

Under the Sarbanes-Oxley Act,accounting firms are allowed to audit a public company and provide certain consulting services for the same client.

Answer 2

False

Question 3

Which of the following is TRUE of internal control?

A) A company's outside auditor is responsible for the company's internal control system.
B) One of the major purposes of internal control is to ensure that the assets are safeguarded.
C) Internal control procedures tend to diminish the importance of operational efficiency.
D) Internal controls are only necessary for public companies.

Answer 3

B

Question 4

Which of the following is a requirement of the Sarbanes-Oxley Act?

A) An outside auditor must evaluate the client's internal controls and report on the internal controls as part of the audit report.
B) The Public Company Accounting Oversight Board must conduct audits of public companies.
C) The accounting firm that audits a public client must also provide consulting services for the same client.
D) The Public Company Accounting Oversight Board must create new accounting standards.

Question 5

Controlling operations is a key responsibility of a business manager.

Question 6

Violators of the Sarbanes-Oxley Act may be sentenced to prison for making false sworn statements.

Question 7

Define internal control.

Question 8

Promoting operational efficiency reduces expenses and business profits.

Question 9

Reducing expenses to increase operating profit is representative of ________.

A) safeguarding assets
B) following company policies
C) promoting operational efficiency
D) ensuring accurate, reliable accounting records

Question 10

The Sarbanes-Oxley Act requires all private companies in the United States to maintain an internal control system.

Question 11

Internal control is an organizational plan that ensures that the financial statements are prepared and submitted on time.

Question 12

Which of the following is representative of safeguarding assets?

A) attaching electronic sensors to merchandise inventory
B) reducing expenses to increase operating profit
C) increasing operating profit to increase net income
D) allowing company accountants to handle cash

Question 13

Which of the following is a benefit provided by internal control?

A) ensuring timely collection of accounts receivables
B) ensuring that collusion will never happen
C) ensuring that a business is profitable
D) promoting operational efficiency

Question 14

To be IFRS compliant,foreign companies are not required to have their internal controls audited by outside auditors.

Question 15

It is important for a business to identify policies which ensure that all customers are treated similarly and that results can be measured effectively.

Question 16

Public companies ________.

A) must issue an internal control report which states that the outside auditor is responsible for the adequacy of internal controls
B) are audited by accounting firms that do not also provide certain consulting services to the public company
C) are required by the Financial Accounting Standards Board to maintain a system of internal controls
D) are overseen by the Public Company Accounting Oversight Board

Question 17

Which of the following statements is TRUE of the Sarbanes-Oxley Act?

A) Accounting firms are allowed to provide both auditing services and a full range of consulting services to their public company clients.
B) Those who commit securities fraud must be sentenced to 10 years in prison.
C) All private and foreign companies must issue an internal control report evaluated by an outside auditor.
D) The Public Company Accounting Oversight Board oversees the work of auditors of public companies.

Question 18

Which of the following is an objective of internal control?

A) to encourage employees to follow company policies
B) to ensure timely payment of accounts payable
C) to ensure timely collection of accounts receivable
D) to guarantee that a business makes a profit

Question 19

The Public Company Accounting Oversight Board oversees the work of auditors of public companies.

Question 20

The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board.

Question 21

Which of the following is TRUE of the internal control component-information system?

A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
B) Control procedures are designed to ensure that the business's goals are achieved.
C) Only authorized users have access to various parts of the information system.
D) The information system is the "tone at the top" or the culture of the business.

Question 22

Internal auditors are employees of the business who ensure that employees are following company policies and that operations are running efficiently.

Question 23

Which of the following describes the risk assessment component of internal control?

A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
B) Risk assessment is the "tone at the top" of the business.
C) A company must identify its risks and take necessary steps to minimize them.
D) Risk assessment is designed to ensure that the business's goals are achieved.

Question 24

The environment is the culture of a business,and it starts with the CEO or CFO and the top managers.

Question 25

If competent,reliable,and ethical employees are hired,there is no need to adequately supervise their work.

Question 26

A pharmaceutical company testing drugs to determine possible side effects is a part of ________.

A) monitoring controls
B) information systems
C) control procedures
D) risk assessment

Question 27

Discuss the roles of the internal auditors and the external auditors.

Question 28

Which of the following is an attribute of the internal control component-monitoring of controls?

A) Internal auditors monitor company controls to safeguard assets, and external auditors evaluate the controls to ensure that the accounting records are accurate.
B) Monitoring of controls is the "tone at the top" of the business.
C) Monitoring of controls is designed to ensure that the business's goals are achieved.
D) Monitoring of controls deals with identification and assessment of business risks.

Question 29

Separating the custody of assets from accounting implies that the accountants must not handle cash and the cashier must not have access to the accounting records.

Question 30

An information system is one of the five components by which a company can achieve its internal control objectives.

Question 31

The use of computer firewalls is an essential element of good internal controls for e-commerce.

Question 32

Burglar alarms,fire alarms,and security cameras improve internal control.

Question 33

Which of the following describes the environment in internal control?

A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
B) The environment is the "tone at the top" of the business.
C) The environment is designed to ensure that the business earns profit.
D) A company must identify its risks.

Question 34

Which of the following statements about internal control is TRUE?

A) Internal auditors ensure that the employees follow company policies.
B) The treasurer and controller have the same responsibilities.
C) External auditors are employees of the company they audit.
D) The internal control procedures are known as the "tone at the top."

Question 35

In a large company,the person in charge of signing checks is the controller.

Question 36

External auditors evaluate company controls to ensure the financial statements are presented fairly,in accordance with Generally Accepted Accounting Principles.

Question 37

List and briefly discuss the five components of internal control.

Question 38

List the five components of internal control.

Question 39

Which of the following components of internal control consist of work performed by internal and external auditors?

A) monitoring of controls
B) information systems
C) control procedures
D) control environment

Question 40

Which of the following describes a firewall?

A) a malicious program that enters program code or destroys data without authorization
B) when two or more people cooperate together to defraud a company
C) a technique for protecting data
D) when a company defrauds its suppliers by making false claims

Question 41

It is difficult and costly to plan controls that can prevent collusion.

Question 42

Which of the following illustrates the internal control procedure-separation of duties?

A) Cashiers must not have access to accounting records.
B) External auditors will monitor internal controls.
C) Electronic devices must be installed to reduce theft.
D) The invoices and other documents must be pre-numbered.

Question 43

Which of the following is included in the internal control procedure-documents?

A) Mandatory vacations will improve internal control.
B) Separate the custody of assets from accounting.
C) The invoices and orders must be pre-numbered.
D) A company should purchase a fireproof vault to protect legal documents.

Question 44

The controller at Business Services Consulting needs new computers for the accounting department.However,there are no guidelines specifying whether the controller can approve purchases of office equipment.Which internal control procedure needs strengthening?

A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Question 45

City Advertising Services hired a new accounting manager.He signed a contract for a new accounting information system,but his position did not specify whether he was authorized to do so or not.Which internal control procedure needs strengthening?

A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Question 46

Internal controls must always be judged in light of their costs versus their benefits.

Question 47

Strict internal controls must be implemented,regardless of the cost.

Question 48

For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer.
The bookkeeper opens the mail,makes the deposit,and makes the journal entries to record receipt of the cash and checks.

Question 49

A system cannot be overcome or broken into if its internal controls are properly designed and structured.

Question 50

Which of the following is an attribute of the internal control procedure-assignment of responsibilities?

A) To validate their accounting records, a company should have an audit by an external accountant.
B) The company should separate the custody of assets from accounting.
C) The external auditors will monitor internal controls.
D) Each position has clearly assigned responsibilities.

Question 51

Goldman Services hired a new clerk to keep custody of and maintain all the equipment in the equipment yard.The clerk has not yet been adequately trained on the maintenance needs of the equipment.Which internal control procedure needs strengthening?

A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Question 52

Which of the following is an attribute of the internal control procedure-competent,reliable,and ethical personnel?

A) providing cross training to allow sales personnel to record revenue transactions
B) the need to train and supervise employees
C) monitoring of internal controls by external auditors
D) purchase of burglar alarms

Question 53

Which of the following is an issue that must be addressed in the internal controls for e-commerce?

A) burglar alarms
B) tone at the top
C) phishing expeditions
D) need for outside auditors

Question 54

A(n)________ is a device that enables members of a local network to access the network while keeping nonmembers out of the network.

A) burglar alarm
B) firewall
C) fireproof vault
D) electronic sensor

Question 55

For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer.
Fifth National Bank requires mandatory vacations and job rotation.

Question 56

At Carlson Services,the cashier collects checks and cash from customers,and the junior accountant records the transactions in the journal.The controller approves the journal entries and bank reconciliations.The treasurer signs checks and approves contracts.Which internal control procedure is exemplified in the above situation?

A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Question 57

At Radiant Company,the sales department is also responsible for recording cash transactions as it does not have a separate accounting department.Which internal control procedure needs strengthening?

A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Question 58

Rearranging plain-text messages by a mathematical process is known as ________.

A) password
B) phishing
C) encryption
D) virus

Question 59

For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer.
The movie theater has the following policy.Tickets are sold by the cashier.The ticket stubs are collected by the ticket taker.The ticket stubs are stored in a locked box,and the accounting personnel match the number of ticket stubs to the number of tickets sold.

Question 60

Vaughan Services hires a new accountant to maintain its petty cash fund.Although the employee possesses an accounting degree,he/she had been previously convicted of embezzlement.Which internal control procedure needs to be addressed in this situation?

A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Question 61

Companies receive cash either over the counter,through the mail,or by electronic funds transfer.

Question 62

Before any internal control procedure is initiated,which of the following questions must be primarily addressed by a company?

A) Will this put an end to theft?
B) Is this the best security money can buy?
C) How much benefit will be derived from the cost of the procedure?
D) Will this prevent accounting errors?

Question 63

The security measures are the same for any type of cash receipts.

Question 64

As a part of the internal control over cash receipts by mail,the mailroom sends both the customer checks and the remittance advices to the accounting department.

Question 65

Which of the following is the basic internal control procedure with respect to cash receipts?

A) depositing all cash receipts in the bank shortly after the cash is received
B) requiring customers to pay with debit or credit cards
C) requiring the accountants to make the bank deposits
D) preventing collusion

Question 66

Regarding controls over cash receipts by mail,the accounting department should prepare the deposit ticket from the remittance advices.

Question 67

A company which sells merchandise or services can receive cash from customers ________.

A) over the counter
B) by electronic funds transfer
C) through the mail
D) in any of the above forms

Question 68

For strong controls over cash receipts,the checks to be deposited should be sent to the treasurer,and the remittance advices should be sent to the accounting department.

Question 69

At the end of each day,the accountant proves the cash by comparing the cash in the drawer against the point-of-sale terminal record of cash sales.

Question 70

Which of the following is a measure for discouraging theft for a retail store that accepts cash receipts over the counter?

A) A receipt is issued for each transaction to ensure that each sale is recorded.
B) At the end of the day, the sales clerk proves the cash by comparing the cash in the drawer against the machine's record of cash sales.
C) The sales clerk uses the machine tape to record the journal entry for cash receipts and sales revenue.
D) The store clerk deposits the cash in the bank.

Question 71

Which of the following is NOT an acceptable task for a retail store manager?

A) making the cash deposit at the bank
B) proving the cash by comparing the cash in the drawer against the point-of-sale terminal's record of cash sales
C) using the point-of-sale terminal's tape to record the journal entry for sales revenue
D) overseeing the work of the sales clerks

Question 72

Collusion involves two or more people working together to circumvent internal controls and defraud a company.

Question 73

To ensure that there is no collusion between the manager and sales clerks,the accounting department employees deposit the cash in the bank and use the deposit slip to prepare the journal entry for cash receipts and sales revenue.

Question 74

Which of the following is NOT an appropriate internal control for cash receipts over the counter?

A) A receipt is issued for each transaction to ensure that each sale is recorded.
B) The store clerk deposits the cash in the bank.
C) At the end of the day, the manager proves the cash by comparing the cash in the drawer against the machine's record of cash sales.
D) The cash draw opens after the store clerk enters a transaction.

Question 75

Two or more people working together to circumvent internal controls and defraud a company is known as ________.

A) encryption
B) firewall
C) collusion
D) separation of duties

Question 76

A basic procedure of internal control over cash receipts is that the deposit of the cash and the recording of the receipts into the journal should be separated.

Question 77

A point-of-sale terminal provides control for over the counter cash receipts.

Question 78

To help prevent theft by the sales clerk,at the end of each day,the manager proves the cash by comparing the cash in the drawer against the cash register's record of cash sales.

Question 79

All cash receipts should be deposited in the bank at the end of each week.

Question 80

As long as the same person deposits customer checks and makes the journal entry to customer accounts,there will be good internal control over cash receipts.