Question 1

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Accepted Answer

Requiring employees to take vacations is actually a strength in the system of internal controls because it promotes an environment of accountability and helps prevent fraud and errors. It also ensures that employees have time to rest and recuperate, leading to increased productivity and job satisfaction.

Question 2

Firms use physical controls primarily to safeguard their assets.

Accepted Answer

Physical controls are used to protect and secure a company's assets from theft, damage, or misuse. Examples of physical controls include security cameras, locks, fences, and security personnel.

Question 3

Control over cash disbursements is improved if major expenditures are paid by check.

Accepted Answer

Paying major expenditures by check provides a paper trail and record of the transaction, making it easier to track and control the flow of funds. It also reduces the risk of theft or misuse of cash payments.

Question 4

The safeguarding of assets is an objective of a company's system of internal control.

Accepted Answer

Safeguarding assets is a crucial objective of a company's system of internal control, ensuring that assets are protected against theft, damage, or misuse. This is achieved through measures such as physical security, access controls, segregation of duties, and monitoring of transactions.

Question 5

A segregation of duties among employees eliminates the possibility of collusion.

Accepted Answer

Segregation of duties reduces the risk of fraud and errors, but it does not eliminate the possibility of collusion among employees who might work together to circumvent these controls.

Question 6

Management is responsible for establishing a system of internal control.

Accepted Answer

It is the responsibility of management to establish and maintain a system of internal control that helps to prevent or detect errors and fraud in financial reporting.

Question 7

Only large companies need to be concerned with a system of internal control.

Accepted Answer

Internal control is a system of policies and procedures established by an organization to provide reasonable assurance that its objectives are achieved effectively and efficiently, financial reporting is reliable, and applicable laws and regulations are complied with. Internal control is important for all organizations, regardless of their size or industry. It helps to safeguard assets, prevent fraud, and ensure the accuracy and completeness of financial records. Therefore, it is incorrect to say that only large companies need to be concerned with a system of internal control.

Question 8

Internal control is most effective when several people are responsible for a given task.

Accepted Answer

Internal control is most effective when duties are segregated among different individuals to prevent fraud and errors, ensuring that no single person has control over all aspects of a financial transaction.

Question 9

Cash registers are an important internal control device used in controlling over-the-counter receipts.

Accepted Answer

Cash registers provide an accurate record of all transactions and make it difficult for employees to steal or misappropriate funds. This makes them an important internal control device in controlling over-the-counter receipts.

Question 10

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

Accepted Answer

This is known as segregation of duties, and helps to prevent errors and fraud by reducing the opportunities for one person to have complete control over an asset or its records.

Question 11

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

Accepted Answer

This is known as the segregation of duties principle, which helps reduce the risk of errors or fraud. By assigning different individuals to oversee different parts of the procurement process, the organization can create a system of checks and balances.

Question 12

The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.

Accepted Answer

The evaluation of internal control features adopted by a company must consider not only their effectiveness in mitigating risks but also the cost incurred in implementing and maintaining them. The cost-benefit analysis helps companies find the optimal balance between the benefits of controlling and the costs associated with them.

Question 13

In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

Accepted Answer

Maintaining only one book of original entry does not necessarily prevent a transaction from being recorded more than once. Effective internal controls, such as segregation of duties and regular reconciliations, are necessary to prevent duplicate entries.

Question 14

In a voucher system, vouchers are prepared in the accounts receivable department.

Accepted Answer

Vouchers are typically prepared in the accounts payable department, not accounts receivable. The accounts payable department creates vouchers as a means to approve and track expenses for payment to vendors, suppliers, and other third-party entities.

Question 15

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

Accepted Answer

Maintaining multiple bank accounts can provide several benefits such as improved cash management, easy tracking of different streams of revenue and expenses, and increased security through diversification of funds. However, having too many bank accounts may also lead to administrative complexities and higher banking fees. The number of bank accounts a company should maintain depends on various factors such as the size of the business, nature of the transactions, and complexity of the accounting system.

Question 16

Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

Accepted Answer

Electronic Funds Transfer (EFT) is a disbursement system that uses electronic communication methods, such as telephone or computer, to transfer cash from one location to another.

Question 17

Internal control is mainly concerned with the amount of authority a supervisor exercises over a subordinate.

Accepted Answer

Internal control is a process implemented by an organization to ensure that its operations are effective and efficient, financial reporting is reliable, and compliance with laws and regulations is maintained. It encompasses a wide range of measures, including the segregation of duties, physical security of assets, and management oversight, among others. The amount of authority a supervisor exercises over a subordinate is more related to the concept of management or leadership style than internal control.

Question 18

A highly automated computerized system of accounting eliminates the need for internal control.

Accepted Answer

Even with a highly automated computerized system of accounting, internal control is still necessary to ensure accuracy, prevent fraud, and maintain data security. Automation may reduce the risk of human error but does not completely eliminate the need for internal control measures.

Question 19

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Accepted Answer

Stamping a check "NSF" means it has insufficient funds, which is not correct for a newly received check. Additionally, only the account holder or authorized parties should stamp a check. Instead, checks received in the mail should be promptly deposited or securely stored until the recipient is ready to deposit them.

Question 20

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other.

Accepted Answer

An effective system of internal control often requires that only one individual be assigned to a cash drawer to ensure clear accountability and simplify the tracing of any discrepancies or errors.

Quiz 7: Fraud, Internal Control, and Cash