Question 1

Which of the following is NOT an objective of the accounting system?

Accepted Answer

A)  Make sure a company only records profitable transactions 
B)  Make sure a company only records valid transactions 
C)  Make sure a company values transactions properly 
D)  Make sure a company records transactions in the proper time period 
A)  Make sure a company only records profitable transactions 
B)  Make sure a company only records valid transactions 
C)  Make sure a company values transactions properly 
D)  Make sure a company records transactions in the proper time period

Question 2

List the five different processes used by auditors in order to gain confidence in the quality of the reporting process. For each process, state who primarily uses this process (internal auditors, external auditors, or both) and give a specific example of how this process would be used.

Accepted Answer

@#IMG-DLM& *Answers

Question 3

If a company does NOT record accrued wages expense at the end of the year, how does this affect the year-end financial statements?

Accepted Answer

A)  Overstates revenue 
B)  Overstates expenses 
C)  Overstates assets 
D)  Overstates owner's equity 
A)  Overstates revenue 
B)  Overstates expenses 
C)  Overstates assets 
D)  Overstates owner's equity

Question 4

If the total amount for Insurance Expense is inadvertently posted to Prepaid Insurance at the end of the year, what will be the effect on the year-end financial statements?

Accepted Answer

A)  Revenues will be overstated 
B)  Revenues will be understated 
C)  Owner's equity will be overstated 
D)  Owner's equity will be understated 
A)  Revenues will be overstated 
B)  Revenues will be understated 
C)  Owner's equity will be overstated 
D)  Owner's equity will be understated

Question 5

Earnings management through aggressive accounting is best exemplified by

Accepted Answer

A)  Changing the useful life of a depreciable asset and fully disclosing it in the notes. 
B)  Timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  Changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  Capitalizing as assets expenditures that have no future economic benefit. 
A)  Changing the useful life of a depreciable asset and fully disclosing it in the notes. 
B)  Timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  Changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  Capitalizing as assets expenditures that have no future economic benefit.

Question 6

Failure to record the used portion of supplies on hand during the month has the following effect on the financial statements prepared at the end of the month

Accepted Answer

A)  Overstates liabilities 
B)  Understates net income 
C)  Overstates assets 
D)  Understates owner's equity 
A)  Overstates liabilities 
B)  Understates net income 
C)  Overstates assets 
D)  Understates owner's equity

Question 7

Which of the following is an example of a physical control over assets and records?

Accepted Answer

A)  Every year, Doug is required to take one full week of vacation time. 
B)  Greg is in charge of recording receipt of payments made to accounts receivable, while Susan is in charge of making deposits to the bank. 
C)  Every evening, Shellie makes a back-up file of all transactions recorded in the computer that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault for the night. 
D)  John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain authorization from Andrea to perform larger transactions. 
A)  Every year, Doug is required to take one full week of vacation time. 
B)  Greg is in charge of recording receipt of payments made to accounts receivable, while Susan is in charge of making deposits to the bank. 
C)  Every evening, Shellie makes a back-up file of all transactions recorded in the computer that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault for the night. 
D)  John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain authorization from Andrea to perform larger transactions.

Question 8

Which of the following are the three functions that should be performed by separate departments or individuals?

Accepted Answer

A)  Authorization, purchasing, and custody of assets 
B)  Record keeping, validation, and classifying 
C)  Record keeping, validation, and authorization 
D)  Authorization, record keeping, and custody of assets 
A)  Authorization, purchasing, and custody of assets 
B)  Record keeping, validation, and classifying 
C)  Record keeping, validation, and authorization 
D)  Authorization, record keeping, and custody of assets

Question 9

Restoring public confidence in the financial reporting process requires that auditors remain independent. How does the Sarbanes-Oxley Act constrain auditors to ensure independence?

Accepted Answer

The Sarbanes-Oxley Act imposes several c

Question 10

The internal control structure of a company is a system of policies and procedures established to

Accepted Answer

A)  Safeguard assets 
B)  Promote operational efficiency 
C)  Ensure accurate accounting records 
D)  All of these are correct 
A)  Safeguard assets 
B)  Promote operational efficiency 
C)  Ensure accurate accounting records 
D)  All of these are correct

Question 11

Which of the following is an incentive that influences auditors to remain independent and to provide fair and reliable financial information?

Accepted Answer

A)  Management would be taking a large legal risk if they interfere with the auditors. 
B)  External auditors are taking a large legal risk if they allow their independence and integrity to be compromised. 
C)  Auditors have a reputation to protect. 
D)  All of these are correct. 
A)  Management would be taking a large legal risk if they interfere with the auditors. 
B)  External auditors are taking a large legal risk if they allow their independence and integrity to be compromised. 
C)  Auditors have a reputation to protect. 
D)  All of these are correct.

Question 12

Which of the following are valid control procedures?

Accepted Answer

A)  Segregation of duties 
B)  Adequate documents and records 
C)  Independent checks on performance 
D)  All of these are correct 
A)  Segregation of duties 
B)  Adequate documents and records 
C)  Independent checks on performance 
D)  All of these are correct

Question 13

Which of the following activities would internal auditors NOT typically perform in a large company?

Accepted Answer

A)  Evaluate internal controls 
B)  Assist with increasing the efficiency of operations 
C)  Prepare the primary financial statements 
D)  Detect fraud 
A)  Evaluate internal controls 
B)  Assist with increasing the efficiency of operations 
C)  Prepare the primary financial statements 
D)  Detect fraud

Question 14

Keeping marketable securities and cash in a fireproof vault is an example of which type of accounting procedure?

Accepted Answer

A)  Physical control over records 
B)  Adequate documents and records 
C)  Proper procedures for authorization 
D)  Segregation of duties 
A)  Physical control over records 
B)  Adequate documents and records 
C)  Proper procedures for authorization 
D)  Segregation of duties

Question 15

The purpose of the audit committee within an organization is to

Accepted Answer

A)  Regulate the internal control system 
B)  Be responsible for the external and internal auditors 
C)  Examine the financial statements to determine if they are free from material misstatement 
D)  Monitor operating results and financial records 
A)  Regulate the internal control system 
B)  Be responsible for the external and internal auditors 
C)  Examine the financial statements to determine if they are free from material misstatement 
D)  Monitor operating results and financial records

Question 16

Which of the following items of the earnings management continuum is in the correct order?

Accepted Answer

A)  strategic matching, change in methods or estimates with full disclosure, change in methods or estimates with little or no disclosures, non-GAAP accounting, fictitious transactions 
B)  strategic matching, change in methods or estimates with little of no disclosure, fictitious transactions, change in methods or estimates with full disclosure, non-GAAP accounting 
C)  non-GAAP accounting, change in methods or estimates with little or no disclosure, strategic matching, fictitious transactions, change in methods or estimates with full disclosure 
D)  change in methods or estimates with full disclosure, non-GAAP accounting, fictitious transactions, strategic matching, change in methods or estimates with little or no disclosure 
A)  strategic matching, change in methods or estimates with full disclosure, change in methods or estimates with little or no disclosures, non-GAAP accounting, fictitious transactions 
B)  strategic matching, change in methods or estimates with little of no disclosure, fictitious transactions, change in methods or estimates with full disclosure, non-GAAP accounting 
C)  non-GAAP accounting, change in methods or estimates with little or no disclosure, strategic matching, fictitious transactions, change in methods or estimates with full disclosure 
D)  change in methods or estimates with full disclosure, non-GAAP accounting, fictitious transactions, strategic matching, change in methods or estimates with little or no disclosure

Question 17

Which of the following requires that every company's annual report contain an internal control report?

Accepted Answer

A)  Foreign Corrupt Practices Act 
B)  Securities Act of 1934 
C)  Internal Revenue Code 
D)  Sarbanes-Oxley Act 
A)  Foreign Corrupt Practices Act 
B)  Securities Act of 1934 
C)  Internal Revenue Code 
D)  Sarbanes-Oxley Act

Question 18

Which of the following requires that audit committee members be financially literate?

Accepted Answer

A)  Securities Exchange Commission 
B)  Sarbanes-Oxley Act 
C)  Foreign Corrupt Practices Act 
D)  American Institute of Certified Public Accountants 
A)  Securities Exchange Commission 
B)  Sarbanes-Oxley Act 
C)  Foreign Corrupt Practices Act 
D)  American Institute of Certified Public Accountants

Question 19

Recording the payment of an account payable twice will result in the

Accepted Answer

A)  Overstatement of total assets and total liabilities 
B)  Understatement of total assets and total liabilities 
C)  Overstatement of total assets and understatement of total liabilities 
D)  Understatement of total assets and overstatement of total liabilities 
A)  Overstatement of total assets and total liabilities 
B)  Understatement of total assets and total liabilities 
C)  Overstatement of total assets and understatement of total liabilities 
D)  Understatement of total assets and overstatement of total liabilities

Question 20

What is the detailed report that companies file annually with the Securities and Exchange Commission?

Accepted Answer

A)  Form 8-K 
B)  Form 10-K 
C)  Form 10-Q 
D)  Form S-16 
A)  Form 8-K 
B)  Form 10-K 
C)  Form 10-Q 
D)  Form S-16

Exam 5: Internal Controls: Ensuring the Integrity of Financial Information

Which of the following is NOT an objective of the accounting system?

List the five different processes used by auditors in order to gain confidence in the quality of the reporting process. For each process, state who primarily uses this process (internal auditors, external auditors, or both) and give a specific example of how this process would be used.

If a company does NOT record accrued wages expense at the end of the year, how does this affect the year-end financial statements?

If the total amount for Insurance Expense is inadvertently posted to Prepaid Insurance at the end of the year, what will be the effect on the year-end financial statements?

Earnings management through aggressive accounting is best exemplified by

Failure to record the used portion of supplies on hand during the month has the following effect on the financial statements prepared at the end of the month

Which of the following is an example of a physical control over assets and records?

Which of the following are the three functions that should be performed by separate departments or individuals?

Restoring public confidence in the financial reporting process requires that auditors remain independent. How does the Sarbanes-Oxley Act constrain auditors to ensure independence?

The internal control structure of a company is a system of policies and procedures established to

Which of the following is an incentive that influences auditors to remain independent and to provide fair and reliable financial information?

Which of the following are valid control procedures?

Which of the following activities would internal auditors NOT typically perform in a large company?

Keeping marketable securities and cash in a fireproof vault is an example of which type of accounting procedure?

The purpose of the audit committee within an organization is to

Which of the following items of the earnings management continuum is in the correct order?

Which of the following requires that every company's annual report contain an internal control report?

Which of the following requires that audit committee members be financially literate?

Recording the payment of an account payable twice will result in the

What is the detailed report that companies file annually with the Securities and Exchange Commission?

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

Capital Investment Decisions

New Measures of Performance

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