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The authority to accept incoming goods in
receiving should be based on a(n)
Bill of lading

Question 4
Of the following statements about internal controls,
which one is not valid?
Transactions must be properly authorized

Vendor's invoice
Approved purchase order
Materials requisition

4.1 Auditing - 3. Internal Control (Easy)
2. Which of the following is not a valid concept
of internal control?
When one person is responsible for all phases
of a transaction, there should be a clear designation
of that person's responsibility.
The recorded accountability for assets should
be compared with the existing assets at reasonable
intervals and appropriate action should be taken if
there are differences.
Accounting control procedures may
appropriately be applied on a test basis in some
Procedures designed to detect errors and
irregularities should be performed by persons other
than those in a position to perpetrate irregularities.
4.1 Auditing - 3. Internal Control (Average)
Question 3
In order to determine whether the internal controls
operated effectively to minimize instances of failure
to invoice a shipment, the auditor would select a
sample from transactions from the population
represented by the
Bill of lading file
Customer's accounts receivable master file
Customer order file
Sales invoice file

before such transactions are processed
Because of the cost-benefit relationship, a
client may apply controls on a test basis
No one person should be responsible for the
custodial responsibility and the recording
responsibility for an asset
Control procedures reasonably ensure that
collusion among employees cannot occur
4.1 Auditing - 3. Internal Control (Average)
Question 5
A means of ensuring that payroll checks are drawn
for properly authorized amounts is to
Witness the distribution of payroll checks
Conduct periodic floor verification of employees
on the payroll
Require supervisory approval of employee time
Require that undelivered checks be returned to
the cashier
4.1 Auditing - 3. Internal Control (Average)
Question 6
The primary purpose for obtaining an understanding
of an audit client's internal control structure is to:
Obtain sufficient, appropriate evidential matter
to afford a reasonable basis for an opinion on the
financial statements under examination.
Provide a basis for making constructive
suggestions in a management letter.
Determine the nature, timing and extent of tests
to be performed in the audit.
Provide information for a communication of

4.1 Auditing - 3. Internal Control (Average)

Internal Control (Average) Question 10 Control 4. 4. Internal Control (Average) Question 8 Smaller public companies face challenges implementing effective internal control due to ______.1 Auditing . Control procedures can frequently be circumvented through collusion.internal control structure-related matters to management. Limited resources A lack of expertise Reduced importance Which of the following questions would not be appropriate for an internal control questionnaire concerning inventory? Is access to the storeroom limited to authorized personnel? Are disbursement vouchers approved before payment? Are there independent.3. Internal Control (Average) Question 13 .1 Auditing . Internal Control (Average) Question 7 Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the: accounts payable department purchasing agent receiving department department that initiated the requisition 4. Internal Control (Average) Question 9 The auditor considers internal control in order to determine: inherent risk in an account balance Question 12 A(n) _______ deficiency exists if a necessary control is missing or not properly formulated.3. 4.3.1 Auditing .3. periodic comparisons of inventory records with good on hand? Are goods stored in locked storage areas? 4. Internal Control (Average) 4.3. 4.3. Internal Control (Average) Question 11 Which of the following is not an inherent limitation of internal controls? Internal controls are generally only instituted for recurring transactions.1 Auditing . Significant .3. both B and C.1 Auditing .1 Auditing . Design the nature. Management generally has the authority to override internal controls.1 Auditing . timing and extent of substantive Operating testing to perform . Segregation of duties is not possible when Limited available guidance there are only a few employees. an acceptable level of control risk for an account balance.

record. receiving report. have expired Checks internal audit department Count goods upon receipt in storeroom Compare goods received with goods requisitioned in receiving department 4. organizing.1 Auditing . and vendor's invoice for each voucher in accounts payable department Verify vouchers for accuracy and approval in Management fraud 4. Statistical sales data are compiled and management Flagrant violations of the entity’s documented reconciled with recorded sales. Internal Control (Average) Question 15 Which of the following is an internal control weakness related to factory equipment? Factory equipment replacements are generally made when estimated useful lives.1 Auditing . circumvented by worker collusion.3.3.1 Auditing . The internal auditing department's guidance and oversight of management's performance is . as indicated in depreciation schedules. Material errors or fraud will be prevented or factory equipment to be made by the department in need of the equipment 4. and of fully depreciated equipment are credited to other income A policy exists requiring all purchases of directing processes are properly evaluated. Internal Control (Average) detected and corrected within a timely period by employees in the course of performing their assigned duties.1 Auditing . Internal Control (Average) issued in payment of purchases of equipment are not signed by the controller Proceeds from sales Question 18 Internal controls are designed to provide reasonable assurance that Management's planning.3. Internal Control (Average) Question 17 Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received? Match purchase order. process. or report external financial statements reliably 4. Management's plans have not been Question 16 Copies of sales invoices show different unit prices for apparently identical items.1 Auditing . Internal Control (Average) Question 14 Fraudulent financial reporting is often called Employee fraud Defalcation Theft of assets All sales invoices are compared with the 4.3. All sales invoices are checked as to all details the scope of the auditor’s field work Material frauds perpetrated by high-level after their preparation. Differences reported by customers are conflict-of-interest policies Internal control deficiencies that could satisfactorily investigated.Significant deficiencies are matters that come to an auditor’s attention and should be communicated to an entity’s audit committee because they represent: Intentional attempts by client personnel to limit customers' purchase orders.3. adversely affect a company’s ability to initiate.

3.3. Quality control system Monitoring of controls Risk assessment procedures.presidents.3. Internal Control (Average) Question 21 Which of the following would contribute most to the safeguarding of assets? Blank stock of all purchase orders and sales invoices are pre-numbered. Although the term "inventories" is broadly defined for this purpose.1 Auditing . which of the following does not fit the definition of periodic inventories and comparisons? Perpetual inventory records are maintained for major classes of materials and finished goods and monthly counts and comparisons are made on a test basis Cash receipts are deposited intact daily and the receipted deposit ticket is obtained directly from the bank and compared with the recorded cash receipts . 4.3. scheduled basis.1 Auditing .1 Auditing . Internal Control (Average) Question 20 An objective of a walk-through is to: Replace tests of controls Verify that the structure has been placed in operation Evaluate the major strengths and weaknesses in the client's structure Identify weaknesses to be communicated to The control environment Control risk Control activities 4. Access to computer facilities and records is limited to authorized personnel on an "as needed" basis.1 Auditing . and the corporate controller The company routinely transacts business with management in the management letter related parties 4. Internal Control (Average) Question 23 Of the following control environment characteristics. Internal Control (Average) 4. 4.accomplished economically and efficiently. Internal Control (Average) Question 22 Which of the following is not an element of an entity's internal control? The information system Question 19 A process implemented by management to assess the effectiveness of internal control performance over time. two vice." provides effective monitoring of accountability. identify the one that contributes most to effective internal control The company does not have a centralized human resources function The company has an effective internal audit staff that monitors controls on a continuous basis The audit committee consists of the president.1 Auditing . Training programs are conducted to develop competence of newly hired personnel. Control and subsidiary accounts are reconciled on a regularly.3. Tests of controls 4.1 Auditing . Internal Control (Average) Question 24 A set of control procedures referred to as "periodic inventories and comparisons.3.

which are used to verify that the computer's results are correct. Internal Control (Average) Question 26 It is important for the CPA to consider the competence of the clients’ personnel because their competence bears directly and importantly upon the: Timing of the tests to be performed Comparison of recorded accountability with assets Cost/benefit relationship of the system of internal control Achievement of the objectives of internal SOLUTION: Incompatible functions The performance of incompatible functions is not an inherent limitation of internal control but a failure to segregate functional responsibilities properly.3.1 Auditing . 4. 4.1 Auditing . A distribution control. Review of the data for reasonableness by someone who knows what the output should look like. The checks are then mailed directly to the vendors and the documents are effectively canceled Bank accounts are reconciled monthly by Question 27 The most important output control is: Logic tests. 4.1 Auditing .1 Auditing . which assures that only authorized personnel receive the reports generated by the system.3.1 Auditing . Segregate duties so that no employee has access to both checks from customers and currency from daily cash a person independent of cash custody and cash recording The treasurer reviews all documentation before control signing disbursement checks.3. Internal Control (Average) Question 25 Which of the following would be the best protection for a company that wishes to prevent the "lapping" of trade accounts receivable? Request that customer's payment checks be made payable to the company and addressed to the treasurer. Internal Control (Average) made in processing. Internal Control (Easy) Question 29 The appropriate test of controls for separation of duties is Documentation Confirmation . Have customers send payments directly to the company's depositary bank.3. which verify that no mistakes were persons independent of cash custody and cash recording 4. Control totals. Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. Internal Control (Average) Question 28 Which of the following most likely would not be considered an inherent limitation of internal control? Management override Collusion among employees Mistakes in judgment Incompatible functions 4.

3.Examination Discussing matters that may affect the audit Observation with firm personnel responsible for nonaudit 4. Reading the current year's interim financial understanding of a client in a financial statement audit? Coordinating the assistance of entity personnel in date preparation. .1 Auditing . Selecting a sample vendor's invoices for Which of the following procedures would an auditor least likely perform while obtaining an comparison to receiving reports. Internal Control (Average) Question 30 services to the entity. statements.