Question 1

According to good internal control policies,a person who controls an asset also maintains that asset's accounting records.

Accepted Answer

Good internal control policies dictate that the duties of controlling an asset and maintaining that asset's accounting records should be separated to prevent fraud and errors.

Question 2

Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount,and have maturities of one year.

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less.

Question 3

Separation of duties involves dividing responsibility for a transaction or a series of related transactions between two or more individuals or departments.

Accepted Answer

Separation of duties is a common practice in internal control systems to prevent fraud and errors by ensuring that no single individual has too much control over a transaction or process. By dividing responsibility among multiple parties, it reduces the risk of a single person being able to manipulate or misappropriate assets.

Question 4

The use of internal controls provides a guarantee against losses due to operating activities.

Accepted Answer

Internal controls are designed to mitigate risks and enhance the accuracy of financial reporting, but they cannot provide an absolute guarantee against losses or errors in operating activities.

Question 5

Harsh penalties exist for violators of the Sarbanes-Oxley Act (SOX)- sentences up to 25 years in prison with severe fines.

Accepted Answer

This is true. The penalties for violations of the SOX can include imprisonment and fines, and the maximum sentence for certain offenses is 25 years in prison.

Question 6

Internal control systems are subject to limitations that usually arise from either (1)human error or human fraud,or (2)the cost-benefit principle.

Accepted Answer

Internal control systems can be limited by human error or fraud, as well as the cost-benefit principle, which means that the cost of implementing a control may outweigh the benefits it provides.

Question 7

Cash registers,time clocks and personal identification scanners are examples of technologies that can improve internal control.

Accepted Answer

Cash registers, time clocks, and personal identification scanners can improve internal control by providing systems that are designed to accurately record and monitor employee transactions, track inventory or supplies, and help prevent fraud or errors. These technologies can also help streamline processes, reduce manual errors, and provide real-time reporting and analytics for better decision-making.

Question 8

Human fraud is driven by the triple-threat of fraud: Opportunity,collusion,and rationalization.

Accepted Answer

Human fraud is driven by the Fraud Triangle, which consists of Opportunity, Pressure (or Incentive), and Rationalization, not collusion.

Question 9

Maintaining adequate records is an important internal control principle.

Accepted Answer

Maintaining adequate records helps to ensure that transactions are accurately recorded, and can be traced and verified. This is a key aspect of internal controls and helps to prevent errors, fraud, and other types of financial mismanagement.

Question 10

Because employees know that bonding is an insurance policy against loss from theft,bonding does not generally discourage loss from theft.

Accepted Answer

The statement is contradictory. If employees believe that bonding is an insurance policy, then it would logically discourage theft since they know that any theft will still result in a loss, but also in potential legal consequences.

Question 11

Liquidity refers to a company's ability to pay its long-term obligations.

Accepted Answer

Liquidity refers to a company's ability to meet its short-term obligations, not long-term obligations.

Question 12

Insuring assets and requiring all accounting personnel to have CPA licenses are two important principles of internal control.

Accepted Answer

Insuring assets is a principle of internal control, but requiring all accounting personnel to have CPA licenses is not a principle of internal control; rather, it's about ensuring competence, which can be achieved through various qualifications and experiences, not just CPA licenses.

Question 13

Collusion is a form of fraud where individuals collaborate to thwart separation of duties.

Accepted Answer

Collusion involves two or more individuals working together to commit fraud, which often involves circumventing separation of duties to carry out an illicit act.

Question 14

The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and verify the system of internal controls.

Accepted Answer

The Sarbanes-Oxley Act (SOX) does require managers and auditors of publicly traded companies to document and verify their system of internal controls to promote financial transparency and accuracy.

Question 15

Clearly establishing responsibilities and assigning all accounting activities to one person is an important principle of internal control.

Accepted Answer

Establishing responsibilities is important, but assigning all accounting activities to one person contradicts the principle of segregation of duties, which aims to reduce the risk of errors or fraud by dividing responsibilities among different individuals.

Question 16

An internal control system consists of the policies and procedures companies use to protect assets,ensure reliable accounting,promote efficient operations,and uphold company policies.

Accepted Answer

This is a correct statement about internal control systems.

Question 17

Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount,and are close enough to their due date so that their market value will not greatly change.

Accepted Answer

Cash equivalents are defined as assets that are highly liquid and have a short-term maturity date, typically less than three months. They are readily convertible to cash and their market value is unlikely to fluctuate significantly within their short-term maturity date. Examples of cash equivalents include treasury bills, money market funds, and commercial paper.

Question 18

Internal control in technologically advanced accounting systems depends less on the design and operation of the information system and more on the analysis of its resulting documents.

Accepted Answer

Internal control in technologically advanced accounting systems depend not only on the design and operation of the information system but also on the control environment, risk assessment, control activities, information and communication, and monitoring activities. The analysis of resulting documents is just one component of the control activities.

Question 19

A properly designed internal control system is a key part of systems design,analysis,and performance.

Accepted Answer

A properly designed internal control system is essential to manage risks and prevent fraud, errors, and abuse. It helps in ensuring the reliability of financial information, compliance with laws and regulations, and effective and efficient operations. Therefore, it is a critical component of systems design, analysis, and performance.

Question 20

Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

Accepted Answer

While technology has made accounting more efficient and accurate, it is still important to monitor for errors and ensure that systems are functioning properly. There is always a potential for errors, such as issues with software or hardware, incorrect data entry, or system glitches. Therefore, regular monitoring and maintenance of accounting systems is necessary to ensure accuracy and prevent mistakes.

Quiz 6: Reporting and Analyzing Cash,fraud,and Internal Control