Question 1

Internal auditors

Accepted Answer

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 2

Which of the following would NOT be reported on the balance sheet as a cash equivalent?

Accepted Answer

A)  money market fund 
B)  sixty-day guaranteed investment certificate 
C)  restricted funds for plant expansion in two years 
D)  three-month treasury bill

Question 3

Brown's Convenience is open 7 days a week. The cash receipts from Saturday and Sunday are kept in an envelope in a back storage room and are deposited each Monday morning. This process violates which internal control activity?

Accepted Answer

A)  establishment of responsibility 
B)  safeguarding of assets and records 
C)  segregation of duties 
D)  independent checks of performance

Question 4

The retailer considers VISA and MasterCard sales as

Accepted Answer

A)  cash sales. 
B)  promissory sales. 
C)  credit sales. 
D)  contingent sales.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Match between columns
                        Premises: Some cash payments are not recorded because cheques are not prenumbered.
The controller of the company has not taken a vacation for over 20 years.
A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.
The person who is authorized to sign cheques approves purchase orders for payment.
Three people handle cash sales from the same cash register drawer.
The same person opens incoming mail and posts to the accounts receivable subsidiary ledger.
Cash shortages are not discovered because there are no daily cash counts by supervisors.

Accepted Answer

The Answer of Physical and IT controls and Documentation procedures is...

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

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

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

A bank overdraft would be reported as

Accepted Answer

A)  a current liability. 
B)  part of the current asset cash account. 
C)  restricted funds. 
D)  accounts receivable.

Question 13

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

Accepted Answer

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Clearing is the process whereby

Accepted Answer

A)  the bank account balance agrees with the company's accounting records. 
B)  the signature on the cheque is compared to the signature card. 
C)  a cheque or deposit is accepted by the makers bank. 
D)  a deposit agrees with the daily cash receipts.

Question 18

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?

Accepted Answer

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 19

The daily cash count of cash register receipts made by department supervisors is an example of

Accepted Answer

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

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 7: Internal Control and Cash

Internal auditors

Which of the following would NOT be reported on the balance sheet as a cash equivalent?

Brown's Convenience is open 7 days a week. The cash receipts from Saturday and Sunday are kept in an envelope in a back storage room and are deposited each Monday morning. This process violates which internal control activity?

The retailer considers VISA and MasterCard sales as

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

Below are descriptions of internal control problems. Enter the code letter of the one best internal control activity that is related to the problem described. Each code letter can be used more than once.

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.

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

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

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

A bank overdraft would be reported as

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

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

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

Clearing is the process whereby

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?

The daily cash count of cash register receipts made by department supervisors is an example of

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.