Deck 7: Internal Control and Cash

Question 1

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

Answer 1

True

Question 2

Monitoring involves identifying the control activities and assessing the risks on these activities.

Answer 2

False

Question 3

Independent checks of performance should be carried out only by external auditors.

Answer 3

False

Question 4

Control activities are the actions that must be taken to respond to risks that threaten reliable financial reporting.

Question 5

An independent check of performance would be more effective if it is done by surprise.

Question 6

Internal control is the responsibility of the external auditor of the organization.

Question 7

A strong system of internal control will prove that an organization complies with all relevant laws and regulations.

Question 8

A risk assessment of a company's internal control would be done by the company's insurance agent.

Question 9

Proper segregation of accounting duties eliminates the need for internal control.

Question 10

Effective and efficient operations can be a result of a strong system of internal control.

Question 11

When one person is responsible for all related activities, the potential for errors and irregularities increases.

Question 12

In order to assess risk, management will evaluate internal vulnerabilities and how they are connected with the changes in the external environment.

Question 13

An independent check of performance must be done by the supervisor of the employee as they would be the person who would best understand the duties of the employee.

Question 14

Internal control is a process that helps an organization achieve reliable financial reporting.

Question 15

One of the controls for documents is to have all of the documents pre-numbered.

Question 16

Television monitors are an example of a physical safeguard control.

Question 17

The Sarbanes Oxley will have little impact on Canadian companies as it is legislation enacted in the United States.

Question 18

In applying the control activity of segregation of duties, the responsibility for related activities should be assigned to the same individual.

Question 19

Responsibility for authorizing and approving transactions must be given to the correct person.

Question 20

A VP of Sales would be the correct person to establish policies for making credit sales.

Question 21

Opportunity to commit fraud occurs when the workplace lacks sufficient controls to deter and detect fraud.

Question 22

The most important element of the fraud triangle is rationalization.

Question 23

The increased use of debit and credit cards improve a company's internal control.

Question 24

Sales using debit cards are considered "cash" transactions.

Question 25

Cash lacks owner identification.

Question 26

A debit card gives customers access to money made available by a bank or other financial institution and is essentially the same as a short-term loan.

Question 27

Internal auditors are company employees.

Question 28

External auditors may be employees of the company.

Question 29

One advantage of a cheque is that the retailer knows immediately whether the customer has enough money in their account to pay for the transaction.

Question 30

Fraud is most likely committed by people inside an organization.

Question 31

All private companies are required to have an external audit.

Question 32

The concept of reasonable assurance is based on the belief that the cost of control activities should NOT be more than their expected benefits.

Question 33

Employees sometimes commit fraud because of too much debt. This is considered an opportunity to commit fraud.

Question 34

One advantage of a debit card is that the retailer knows immediately whether the customer has enough money in their account to pay for the transaction.

Question 35

Internal auditors evaluate the effectiveness of the organization's external control.

Question 36

In Canada, the responsibility for internal controls is the responsibility of the management.

Question 37

The size of a business may limit internal control.

Question 38

The person who handles the cash and makes the bank deposit should NOT be able to make changes to the sales record in the point-of-sale system.

Question 39

Sales using a non bank credit card are considered cash sales by the retailer.

Question 40

Sales using a bank credit card are considered cash sales by the retailer.

Question 41

Staledated cheques would NOT be reported as cash on the Balance Sheet.

Question 42

Purchase orders are required for all cheques to be issued.

Question 43

A debit memo by a bank would mean that a journal entry by the bank would be necessary.

Question 44

Using a bank increases the internal control over cash.

Question 45

Most Canadian companies list cash first on the balance sheet because it is the most liquid of assets.

Question 46

Having different people approve and make payments is an example of an independent check of performance control activity over cash payments.

Question 47

A company's cash deposit, while appearing as a debit on the company's books, would be shown as a credit on company's bank statement.

Question 48

An electronic funds transfer will result in less internal control because no cash or cheques are handled by company employees.

Question 49

An effective control framework will NOT contain which of the following components?

A) risk assessment
B) monitoring
C) fraud committee
D) information and communication

Question 50

Which of the following is NOT a control activity?

A) financial reporting
B) independent checks of performance
C) documentation procedures
D) physical and IT controls

Question 51

EFT Payments increase the risk of lost, stolen or forged cheques.

Question 52

If a company deposits all its receipts in the bank and pays all its bills by cheque, then the monthly bank statement balance will always agree with the company's record of its chequing account balance.

Question 53

The internal audit function is only effective when

A) control tasks are properly performed.
B) the results of an internal audit are reported to senior management and/or the company's owners.
C) independent checks of performance are carried out on a regular basis.
D) reports are filed with the CICA.

Question 54

The fees for credit cards are higher than the fees for debit cards.

Question 55

Bank service charges are normally debited to Bank Charges Expense.

Question 56

Cash is listed in the current asset section of the Balance Sheet.

Question 57

International companies frequently list current assets in increasing order of liquidity.

Question 58

A NSF cheque would always result in a journal entry by the company.
Deleted because the section on outstanding cheques" was deleted from the chapter and from the Glossary.

Question 59

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

Question 60

Internal control has received increased attention in recent years. Which is NOT one of the drivers for the changes in the focus on internal control?

A) new regulations by Canada Revenue Agency
B) Sarbanes Oxley legislation in the United States
C) transition to the International Financial Reporting Standards
D) Canadian legislation for controls

Question 61

Stamping paid invoices "PAID" is an example of which of the following controls?

A) independent checks of performance
B) segregation of duties
C) documentation procedures
D) human resource controls

Question 62

Which of the following is NOT an example of financial pressure to commit fraud?

A) gambling
B) too much debt
C) drug addiction
D) inexpensive lifestyle

Question 63

Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

A) documentation procedures are violated.
B) internal independent check of performance is violated.
C) segregation of duties is violated.
D) establishment of responsibility is violated.

Question 64

A system of internal control

A) can never fail.
B) can be ineffective if employees collude.
C) will have costs exceeding benefits.
D) is based on the concept of absolute assurance.

Question 65

Documentation procedures do NOT include which of the following?

A) prenumbered documents
B) source documents sent promptly to the accounting department
C) all controls written down and kept updated
D) alarms set at the close of the business day

Question 66

An example of physical and IT controls would NOT include which of the following?

A) source documents sent promptly to the accounting department
B) alarms set at the close of the business day
C) computer facilities requiring a password or fingerprint
D) time clocks used to record time worked

Question 67

Which of the following factors does NOT contribute to fraudulent activities?

A) opportunity
B) promotion
C) financial pressure
D) rationalization

Question 68

Internal auditors

A) are hired by CA firms to audit business firms.
B) are employees of the Canada Revenue Agency who evaluate the internal controls of companies filing tax returns.
C) evaluate the system of internal controls for the companies that employ them.
D) cannot evaluate the system of internal controls of the company that employs them because they are not independent.

Question 69

Sam Samson has worked for Tantramar Development for 20 years without taking a vacation. An internal control that would address this situation would be

A) human resource control.
B) physical and IT controls.
C) establishment of responsibility.
D) documentation procedures.

Question 70

The control activity related to NOT having the same person authorize and pay for goods is known as

A) establishment of responsibility.
B) independent check of performance.
C) segregation of duties.
D) rotation of duties.

Question 71

An accounts payable clerk also has access to the approved supplier master file for purchases. The control activity

A) establishment of responsibility is violated.
B) independent check of performance is violated.
C) documentation procedures is violated.
D) segregation of duties is violated.

Question 72

Internal control helps an organization achieve all of the following EXCEPT

A) reliable financial reporting.
B) compliance with relevant laws and regulations.
C) absolute assurance that fraud will not occur.
D) effective and efficient operations.

Question 73

Independent internal and/or external checks of performance would NOT include the following.

A) The checking should be done periodically or by surprise.
B) The checking should be done by someone who is independent of the employee who is responsible for the information.
C) Locked warehouses are used for storage of inventory.
D) Discrepancies should be reported to a management level that can do whatever is necessary to correct the situation.

Question 74

Two individuals at a retail store work the same cash register. You evaluate this situation as

A) a violation of establishment of responsibility.
B) a violation of segregation of duties.
C) supporting the establishment of responsibility.
D) supporting independent checks of performance.

Question 75

Documentation procedures over cash payments include all of the following EXCEPT

A) using prenumbered cheques.
B) ensuring each cheque has an approved invoice.
C) accounting for the numerical sequence of all cheques.
D) reconciling bank statements monthly.

Question 76

In terms of segregation of duties, related buying activities include

A) ordering, receiving, paying.
B) ordering, selling, paying.
C) ordering, shipping, billing.
D) selling, shipping, paying.

Question 77

In terms of segregation of duties, which one of the following is NOT related to the other three?

A) ordering the merchandise
B) making a sale
C) shipping the goods
D) billing the customer

Question 78

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

A) increases the potential for errors and fraud.
B) decreases the potential for errors and fraud.
C) is an example of good internal control.
D) is a good example of safeguarding the company's assets.

Question 79

Having one person receive all cash and a different person post to the Accounts Receivable account in the general ledger is an example of

A) inadequate internal control.
B) duplication of effort.
C) independent check of performance.
D) segregation of duties.

Question 80

When two or more people get together for the purpose of circumventing prescribed controls, it is called

A) a fraud committee.
B) collusion.
C) a division of duties.
D) bonding of employees.