Deck 5: Fraud,Internal Control,and Cash

Question 1

Employee fraud is often grouped into three categories,including corruption,asset misappropriation,and embezzlement.

Answer 1

False
Explanation:Employee fraud is often grouped into three categories,including corruption,asset misappropriation,and financial statement fraud.Embezzlement (or theft)is considered to be asset misappropriation.

Question 2

Cash that is legally or contractually required to be set aside for a specific purpose cannot be reported with Cash and Cash Equivalents on the balance sheet.

Answer 2

True
Explanation:Companies are sometimes legally or contractually required to set aside cash for a specific purpose and are not allowed to use it for day-to-day operations.This restricted cash must be reported separately on the balance sheet.

Question 3

The fraud triangle identifies incentive,opportunity,and benchmarks as the requirements for a fraud to occur.

Answer 3

False
Explanation:The elements of the fraud triangle necessary for fraud to occur are: incentive,opportunity,and rationalization.

Question 4

The use of internal controls cannot guarantee protection against losses due to fraud,errors,and inefficiencies.

Question 5

Cash equivalents are short-term,highly liquid investments purchased within one year of maturity.

Question 6

A petty cash fund is a separate checking account used to reimburse employees for expenditures they have made on behalf of the organization.

Question 7

The Sarbanes-Oxley Act (SOX)requires external auditors to test the company's internal control system.

Question 8

From the creditor's perspective,which of the following help to ensure a company will be able to repay a loan?

A)Control environment
B)Loan covenants
C)Control activities
D)Monitoring activities

Question 9

A highly effective internal control should be implemented even if the cost is greater than the benefit.

Question 10

The Grass is Greener Company borrows money from a bank.Part of the loan agreement requires Grass is Greener to maintain stockholders' equity of at least 40% of assets or otherwise to pay a higher interest rate.This requirement is referred to as a:

A)loan covenant.
B)credit rating.
C)bond rating.
D)call feature.

Question 11

When duties are properly segregated,the accounting department should compare the cash in the register with the cash count sheet.

Question 12

Employee fraud includes which of the following categories?

A)Covenants
B)Incentive
C)Corruption
D)Rationalization

Question 13

The components of an internal control system include control environment,risk assessment,control activities,information and communication,and monitoring activities.

Question 14

Internal controls include the policies and procedures a company implements to promote efficient and effective operations,protect assets,enhance accounting information,and adhere to laws and regulations.

Question 15

On a bank statement,deposits are listed as credits and cleared checks are listed as debits.

Question 16

A good voucher system includes procedures and approvals designed to control cash payments.

Question 17

Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations,reporting,and compliance.

Question 18

The entry recorded when the petty cash fund is replenished includes a debit to Petty Cash and a credit to Cash.

Question 19

The Sarbanes-Oxley Act (SOX)grants legal protection to 'whistle-blowers.'

Question 20

The incentive element of the fraud triangle relates to an employee's means of committing fraud such as weaknesses in internal control.

Question 21

Which of the following is a set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore investor confidence?

A)Enron Act
B)Federal Accounting Standards Board Act
C)Sarbanes-Oxley Act
D)Securities and Exchange Act

Question 22

Which of the following is a significant objective of the Sarbanes-Oxley (SOX)Act?

A)Counteract incentives
B)Increase opportunities
C)Discourage honesty
D)Reduce internal controls

Question 23

Which of the following is not a category of employee fraud?

A)Corruption
B)Asset misappropriation
C)Financial statement fraud
D)Internal controls

Question 24

Which element is part of the fraud triangle?

A)Incentive
B)Misappropriation
C)Corruption
D)Sustainability

Question 25

Protecting against theft of assets and enhancing accounting information is the objective of:

A)loan covenants.
B)government regulations.
C)internal controls.
D)the external auditors.

Question 26

Research has found that three factors exist when fraud occurs.Which of the following is one of the three factors of the fraud triangle?

A)Assessments
B)Covenants
C)Monitoring
D)Rationalization

Question 27

The Sarbanes-Oxley Act (SOX)requires the establishment of an audit committee that includes the:

A)president of the company.
B)chief financial officer of the company.
C)independent directors.
D)company's external auditors.

Question 28

Which of the following is not a change introduced by the Sarbanes-Oxley Act?

A)Management evaluates and reports on the effectiveness of internal control over financial reporting.
B)Publically traded companies must have their financial statements audited.
C)The company's board of directors is required to establish an audit committee comprised of independent directors.
D)Public companies must have tip lines that allow employees to secretly submit concerns about questionable accounting or auditing practices.

Question 29

All of the following are requirements of the Sarbanes-Oxley Act (SOX)except:

A)tip lines that allow employees to secretly submit concerns about questionable accounting or auditing practices.
B)fines of up to $5 million plus repayment of any fraud proceeds.
C)evaluation and reporting on the effectiveness of internal control over financial reporting for large public companies by external auditors.
D)evaluation and reporting on the effectiveness of internal control over financial reporting for all public companies by management with disclosure that management is not responsible for the internal control system.

Question 30

The objectives of a company's system of internal control include which of the following?

A)Providing innovative products.
B)Retaining position as market leader.
C)Adhering to laws and regulations.
D)Ensuring the company's stock price provides a reasonable return to investors.

Question 31

A strong system of internal ________ reduces the ________ to commit fraud.

A)controls;opportunity
B)audits;rationalization
C)financial statements;opportunity
D)loan covenants;incentive

Question 32

Which of the following key requirements of the Sarbanes-Oxley Act (SOX)is correctly paired with the correct action?

A)Counteract incentives - independent audit committee.
B)Encourage honesty - ethics code.
C)Reduce opportunities - stiff prison terms.
D)Counteract incentives - internal control evaluation.

Question 33

The fraud triangle contains three elements that must exist for accounting fraud to occur.The elements are:

A)fear,greed,and satisfaction.
B)greed,larceny,and access.
C)motive,opportunity,and means.
D)incentive,opportunity,and rationalization.

Question 34

Why was the Sarbanes-Oxley Act (SOX)enacted?

A)To bring GAAP closer to global financial reporting standards.
B)The lack of significant corporate frauds during the late 1990s and early 2000s warranted less monitoring for external stakeholders.
C)To improve the financial reporting and restore investor confidence.
D)Accounting rules had become so complex that investors could no longer understand them.

Question 35

An attempt to deceive others for personal gain is known as:

A)fraud.
B)larceny.
C)opportunity.
D)incentive.

Question 36

Which of the following was passed by Congress in response to financial statement frauds that occurred in the early 2000s?

A)Federal Accounting Standards Board Act
B)Securities and Exchange Act
C)Sarbanes-Oxley Act
D)Clayton Act

Question 37

Considering current laws that deal with misstatements of financial results,which of the following statements is correct?

A)Managers found guilty can escape paying fines if they declare bankruptcy.
B)Managers can be sentenced to maximum jail terms of up to 20 years for each violation.
C)Managers found guilty may keep any bonuses or profits from the misrepresentation if their fines are less than such bonuses or profits.
D)Whistleblowers who secretly submit concerns about questionable accounting practices will be fired.

Question 38

Which of the following was not a change introduced by the Sarbanes-Oxley Act?

A)Limits on executive compensation for most companies.
B)Stiffer fines and maximum jail sentences for willful misrepresentation of financial results.
C)An external audit of the effectiveness of internal controls.
D)Anonymous tip lines and legal protection to whistle-blowers.

Question 39

All of the following are requirements of the Sarbanes-Oxley Act (SOX)except:

A)evaluation and reporting on the effectiveness of internal control over financial reporting by management for all public companies.
B)evaluation and reporting on the effectiveness of internal control over financial reporting by external auditors only for large public companies.
C)establishment of an audit committee of independent directors to ensure the company's accounting,internal control,and audit functions are effective.
D)adoption of a code of ethics covering all employees.

Question 40

Which of the following would overstate a company's net income?

A)Counting shipments of customers' orders as revenue before payment has been received.
B)Shipping goods to customers without receiving orders from those customers,and recording the transactions as revenue.
C)Accruing liabilities for marketing expenses before they are incurred.
D)Making an accrual adjusting entry for interest earned on a bond investment.

Question 41

The purpose of internal controls includes all of the following except:

A)improving efficiency.
B)producing timely accounting information.
C)minimizing errors.
D)completely eliminating fraud.

Question 42

If a company hires an auditor to check that the work done by others within the company is supported by documentation,it is doing so under the principle of control activities referred to as:

A)independent verification.
B)segregation of duties.
C)restrict access.
D)document procedures.

Question 43

Which of the following statements about internal control is correct?

A)It promotes efficient and effective operations.
B)It eliminates the theft of assets.
C)It results in completely reliable accounting information.
D)It guarantees that management will behave ethically.

Question 44

Collusion occurs when:

A)employees work together to get around internal controls.
B)an outside party completes an independent verification.
C)a company assigns sequential numbers to their documents.
D)passcodes are required to open cash registers.

Question 45

Assigning responsibilities so that related activities are assigned to two or more people is the goal of:

A)restricting access.
B)segregating duties.
C)independently verifying.
D)documenting procedures.

Question 46

Which of the following is not a reason that a business needs an effective internal control system?

A)Ensure that work is completed efficiently and effectively.
B)Produce reliable and timely accounting information for use by people external to the organization.
C)Protect assets by reducing the risk of fraud.
D)Identify ways to circumvent applicable laws and regulations.

Question 47

Which of the following is not a commonly used internal control?

A)Mandatory vacations
B)Anonymous hotlines
C)Bonding employees
D)Consolidating duties

Question 48

Which of the following is not one of the control components that are part of the framework used when analyzing an internal control system?

A)control environment
B)monitoring activities
C)information and communication
D)independent verifications

Question 49

A small company would have the most difficulty in implementing which of the following internal control principles?

A)Segregating duties.
B)Restricting access to cash or information.
C)Establishing responsibilities.
D)Documenting procedures.

Question 50

Common control principles include all of the following,except:

A)outsource work to third parties.
B)segregate of duties.
C)independently verify.
D)restrict access to assets and information.

Question 51

All of the following are goals of internal control except:

A)reducing the risk of fraud.
B)producing reliable and timely accounting information for use by people internal and external to the organization.
C)minimizing the amount of income taxes that must be paid.
D)adhering to laws and regulations.

Question 52

The principles of internal control include which of the following?

A)Monitor activities
B)Segregate duties
C)Assess risk
D)Control the environment

Question 53

Which principle of internal control states that you should assign each task to only one employee?

A)Segregation of duties
B)Establishing responsibility
C)Restricting access
D)Independently verifying

Question 54

Which of the following is an example of restricting access?

A)Using prenumbered checks.
B)Using passcodes.
C)Giving a separate cash register to each cashier.
D)Comparing the company's cash balance to the balance per the bank.

Question 55

The control components used by companies as a framework when analyzing their internal control systems include:

A)compliance.
B)control environment.
C)covenants.
D)corruption.

Question 56

The main purposes of internal controls include all of the following except:

A)prevention of error,theft,and fraud.
B)promotion of operational efficiency.
C)ensuring compliance with laws and regulations.
D)providing more favorable financial information.

Question 57

The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as:

A)duplication of responsibility.
B)mandatory vacations.
C)segregation of duties.
D)rotation of duties.

Question 58

The continuous assessment by management to assess the potential for fraud and other risks is referred to as:

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

Question 59

Which of the following is not an example of internal control?

A)Use of passwords to restrict access to computer systems.
B)Bonding employees.
C)Periodic bank reconciliations.
D)Customer satisfaction surveys.

Question 60

The control environment:

A)is the attitude that people in the organization hold regarding internal control.
B)requires managers to continuously assess the potential for fraud and other risks.
C)generates and communicates information about activities affecting the organization.
D)includes the various work responsibilities and duties completed by employees to reduce risks.

Question 61

Which of the following is a correct statement regarding the Cash Shortage account?

A)The account normally has a credit balance.
B)If the recorded cash exceeds the cash counted,a shortage exists.
C)It is reported as a miscellaneous revenue.
D)It is reported on the balance sheet.

Question 62

The cashier for Bell Buoy rang up sales totaling $7,644,but had $7,650 to deposit,which journal entry would be recorded?

A)A debit to Cash for $7,650,a credit to Cash Overage for $6,and a credit to Sales Revenue for $7,644.
B)A debit to Sales for $7,650,a debit to Cash Overage for $6,and a credit to Cash for $7,644.
C)A debit to Cash for $7,644,a debit to Cash Shortage for $6,and a credit to Sales Revenue for $7,650.
D)A debit to Cash for $7,644,a debit to Cash Shortage for $6,and a credit to Unearned Revenue for $7,650.

Question 63

A company's cash receipts procedures include the following.Cashiers collect cash and issue a receipt at the point of sale.Supervisors take custody of the cash at the end of each cashier's shift and deposit it in the bank.Accounting staff then ensure the receipts from cash sales are properly recorded in the accounting system.Which internal control principle is most evident with these procedures?

A)Restrict access
B)Segregate duties
C)Document procedures
D)Independently verify

Question 64

The account Cash Overage is which type of account?

A)An asset account
B)A liability account
C)A miscellaneous revenue account
D)A miscellaneous expense account

Question 65

Which of the following is one of the internal control functions performed by a cash register?

A)Comparison of cash in register with cash count sheet.
B)Document the amount charged for each item sold.
C)Ensure sales are properly recorded in the accounting system.
D)Perform the bank reconciliation.

Question 66

A remittance advice:

A)explains the purpose of a customer's payment.
B)ensures cash sales are properly recorded in the accounting records.
C)enhances the safe deposit of cash in the bank.
D)reduces the risk of cash-handling errors.

Question 67

On June 4,Marie Co.had cash sales rung up by cashiers totaling $163,800.Cash in the drawer was counted and found to be $165,000.The journal entry to record the day's sales would include a:

A)debit to Cash for $163,800.
B)credit to Cash Overage for $1,200.
C)credit to Sales Revenue for $165,000.
D)debit to Sales Revenue for $163,800.

Question 68

When the cash count sheets for the day equal $14,140 and the cash register reports $14,280,the journal entry to record the sales will include a:

A)debit to Cash Shortage
B)credit to Cash Shortage
C)credit to Cash Overage
D)debit to Cash Overage

Question 69

Which of the following statements concerning electronic funds transfers is not correct?

A)Businesses sometimes receive payments from customers via EFT.
B)An EFT occurs when a customer electronically transfers funds from his or her bank account to the company's bank account.
C)Because electronic funds transfers are deposited directly into the company's bank account,they require additional internal control procedures.
D)To process an EFT,the accounting department merely records journal entries to debit Cash and credit Accounts Receivable from each customer.

Question 70

The cash count sheet determines all of the following except the:

A)cash shortage or overage,if any.
B)amount of cash available for deposit in the bank.
C)amount of cash to be reported on the balance sheet.
D)amount of cash received.

Question 71

The cashier uses the cash register and its accompanying point-of-sale accounting system to perform three important functions.Which of the following is one of those functions?

A)Complete bank deposit
B)Prepare journal entry
C)Restrict access
D)Segregate duties

Question 72

A cash register does not:

A)restrict access to cash.
B)document the amount of cash received for items sold.
C)summarize the cash register's total cash sales.
D)reconcile accrual accounting with cash accounting.

Question 73

The volume of transactions is enormous and the risk of handling errors is significant for:

A)cash.
B)inventory.
C)accounts receivable.
D)computer software.

Question 74

Assigning sequential numbers to cash sales,so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of:

A)documenting procedures.
B)segregating duties.
C)establishing responsibilities.
D)restricting access.

Question 75

An example of the internal control principle of establishing responsibility is:

A)assigning each cash drawer to only one employee establishing responsibility.
B)accepting only EFT payment because they are directly deposited into a company's bank account.
C)comparing the total on the cash receipts list with the stamped deposit slip received from the bank.
D)bonding employees.

Question 76

A cashier for Seaside Electronics rang up sales totaling $8,000,but had only $7,994 to deposit,which journal entry would be recorded? A debit to:

A)Cash of $7,994 and Cash Shortage of $6 and a credit to Sales Revenue of $8,000.
B)Sales Revenue of $7,994 and Cash Shortage of $6 and a credit to Cash of $8,000.
C)Cash of $7,994 and a credit to Cash Shortage of $6 and Sales Revenue of $8,000.
D)Cash of $7,994 and Cash Shortage of $6 and a credit to Unearned Revenue of $8,000.

Question 77

Comparing the cash in the register with the cash count sheet is required by the internal control principle of:

A)independently verifying.
B)establishing responsibilities.
C)segregation of duties.
D)documenting procedures.

Question 78

Cashiers at a supermarket have to talk to a manager before approving price changes at the register.Which internal control principle is being followed?

A)Segregate duties
B)Establish responsibilities
C)Independently verify
D)Restrict access

Question 79

When cash is received from a remote source,the accounting department then compares the total on the cash receipts list with the stamped deposit slip received from the bank.Which internal control principle is being met with this procedure?

A)Document procedures
B)Independently verify
C)Restrict access
D)Segregate duties

Question 80

Which of the following is not related to the segregation of duties for cash received in person?

A)Cashiers are responsible for the collection of cash and issuing a receipt at the point of sale.
B)A supervisor is responsible for collecting the cash at the end of each cashier's shift and depositing it in the bank.
C)Members of the accounting department are responsible for ensuring that the receipts from cash sales are properly recorded in the accounting system.
D)Members of the accounting department count the cash collected and deposit it in the bank.