Question 1

Which of the following is an attribute of the internal control procedure-assignment of responsibilities?
A) To validate their accounting records, a company should have an audit by an external accountant.
B) The company should separate the custody of assets from accounting.
C) The external auditors will monitor internal controls.
D) Each position has clearly assigned responsibilities.

Accepted Answer

The attribute of assignment of responsibilities is that each position has clearly assigned responsibilities. Option A talks about external audit, while Option B talks about separating custody of assets from accounting, and Option C talks about external auditors monitoring internal controls, which are not attributes of the internal control procedure-assignment of responsibilities.

Question 2

Vaughn Services hires a new accountant to maintain its petty cash fund. Although the employee possesses an accounting degree, he/she had been previously convicted of embezzlement. Which internal control procedure needs to be addressed in the above situation?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Accepted Answer

The internal control procedure that needs to be addressed in this situation is the employment of competent, reliable, and ethical personnel. Hiring an employee with a past conviction of embezzlement questions the reliability and ethics of the employee. Thus, this scenario emphasizes the importance of ensuring that the employees hired possess a high degree of integrity and reliability to help maintain the effectiveness of internal control.

Question 3

Which of the following is included in the internal control procedure-documents?
A) Mandatory vacations will improve internal control.
B) Separate the custody of assets from accounting.
C) The invoices and orders must be pre-numbered.
D) A company should purchase a fireproof vault to protect legal documents.

Accepted Answer

The pre-numbering of invoices and orders is an important documentation control that helps in preventing fraud and errors. The other options (mandatory vacations, separation of custody, and purchasing a fireproof vault) are all internal control procedures, but they do not relate specifically to documentation.

Question 4

Which of the following is an attribute of the internal control procedure-competent, reliable, and ethical personnel?
A) providing cross training to allow sales personnel to record revenue transactions
B) the need to train and supervise employees
C) monitoring of internal controls by external auditors
D) purchase of burglar alarms

Accepted Answer

Competent, reliable, and ethical personnel refer to the quality and character of employees responsible for implementing internal controls, which includes training and supervision to ensure they are able to perform their designated role effectively. Providing cross-training to sales personnel (A) does not directly relate to the quality of personnel, but rather to the implementation of internal controls. Monitoring of internal controls by external auditors (C) is an external factor and not an attribute of internal control procedure, while the purchase of burglar alarms (D) pertains to physical security measures rather than personnel attributes.

Question 5

Burglar alarms, fire alarms, and security cameras improve internal control.

Accepted Answer

Burglar alarms, fire alarms, and security cameras are all tools that help monitor the internal environment of an organization, improving internal control by detecting and deterring potential threats and enhancing safety measures.

Question 6

Separating the custody of assets from accounting implies that the accountants must not handle cash and the cashier must not have access to the accounting records.

Accepted Answer

Separating custody of assets from accounting is a basic principle of internal control. It involves assigning different responsibilities to different individuals to prevent fraud, errors, and other irregularities. This means that the accountant should not be responsible for handling cash, and the cashier should not have access to accounting records. This ensures that no one person has too much control or power over the accounting process.

Question 7

A(n) ________ is a device that enables members of a local network to access the network while keeping nonmembers out of the network.
A) burglar alarm
B) firewall
C) fireproof vault
D) electronic sensor

Accepted Answer

A firewall is specifically designed to prevent unauthorized access to a network while still allowing authorized access. It works by analyzing incoming and outgoing network traffic and blocking any traffic that does not meet specified security criteria. A burglar alarm, fireproof vault, and electronic sensor are not designed for network security purposes.

Question 8

Campaign Services hired a new accounting manager. He signed a contract for a new accounting information system, but his position did not specify whether he was authorized to do so or not. In the above situation, which internal control procedure needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Accepted Answer

The internal control procedure that needs strengthening is the assignment of responsibilities. Without clear authorization and guidance on who is authorized to sign contracts for the company, employees may act beyond their authority and create risks for the company. Therefore, it is essential to establish clear lines of responsibility and authority to avoid any unauthorized actions that may harm the company.

Question 9

Which of the following is true of the internal control component-information system?
A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
B) Control procedures are designed to ensure that the business's goals are achieved.
C) Only authorized users have access to various parts of the information system.
D) The information system is the "tone at the top" or the culture of the business.

Accepted Answer

The information system component of internal control ensures that the information produced by the system is accurate, timely, and secure. Access to various parts of the information system is restricted to authorized users to prevent unauthorized access, modification or disclosure of sensitive information. Choices A, B, and D are incorrect because they describe other components or concepts related to internal control, but not the information system component.

Question 10

Which of the following describes a firewall?
A) a malicious program that enters program code or destroys data without authorization
B) when two or more people cooperate together to defraud a company
C) a technique for protecting data
D) when a company defrauds its suppliers by making false claims

Accepted Answer

A firewall is a technique or software designed to protect data by blocking unauthorized access from outside sources while allowing authorized communication. Options A, B, and D are unrelated to the definition of a firewall.

Question 11

The use of computer firewalls is an essential element of good internal controls for e-commerce.

Accepted Answer

Computer firewalls help to protect against unauthorized access and can prevent malicious attacks, making them an essential element of good internal controls for e-commerce.

Question 12

Which of the following is an issue that must be addressed in the internal controls for e-commerce?
A) burglar alarms
B) tone at the top
C) phishing expeditions
D) need for outside auditors

Accepted Answer

Phishing expeditions are a significant issue in e-commerce, as they involve attempts to fraudulently acquire sensitive information, such as usernames, passwords, and credit card details, by masquerading as a trustworthy entity in an electronic communication. This is directly related to the security of online transactions and data protection, which are critical aspects of internal controls in e-commerce.

Question 13

At Cadmia Services, the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts. Which internal control procedure is exemplified in the above situation?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Accepted Answer

The situation exemplifies the separation of duties internal control procedure, where different individuals are assigned to specific tasks to prevent errors, fraud, or misappropriation of assets. In this case, the cashier collects money, the junior accountant records the transactions, the controller approves the entries and bank reconciliations, and the treasurer signs checks and approves contracts. This way, no single person has complete control over the cash and accounting functions, reducing the risk of errors and fraudulent activities.

Question 14

Cadmia Services hired a new clerk to keep custody of and maintain all the equipment in the equipment yard. The clerk has not yet been adequately trained on the maintenance needs of the equipment. In the above situation, which internal control procedure needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Accepted Answer

The internal control procedure that needs strengthening in this situation is the hiring of competent, reliable, and ethical personnel. The new clerk should have been adequately trained and knowledgeable about the maintenance needs of the equipment before being tasked with custody and maintenance. This would ensure that the equipment is properly maintained and prevent any damage or loss due to lack of experience or knowledge on the part of the clerk.

Question 15

Which of the following is an attribute of the internal control component-monitoring of controls?
A) Internal auditors monitor company controls to safeguard assets, and external auditors evaluate the controls to ensure that the accounting records are accurate.
B) Monitoring of controls is the "tone at the top" of the business.
C) Monitoring of controls is designed to ensure that the business's goals are achieved.
D) Monitoring of controls deals with identification and assessment of business risks.

Accepted Answer

Monitoring of controls involves both internal and external audits to ensure that the controls are effective in safeguarding assets and ensuring the accuracy of accounting records. This is distinct from the "tone at the top," which relates to the ethical climate set by management (B), the broader goal of achieving business objectives (C), and the identification and assessment of risks, which is part of the risk assessment component of internal control (D).

Question 16

A pharmaceutical company testing drugs to determine possible side effects is a part of ________.
A) monitoring controls
B) information systems
C) control procedures
D) risk assessment

Accepted Answer

The process of testing drugs for possible side effects is a part of risk assessment, as it involves identifying and analyzing the risks associated with using the drug. Monitoring controls and control procedures may also be involved in the process, but they are not the primary focus. Information systems may be used to manage the data collected during the drug testing process, but they are not directly involved in determining side effects.

Question 17

At Radiant, Inc., the sales department is also responsible for recording cash transactions as it does not have a separate accounting department. In the above situation, which internal control procedure needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Accepted Answer

The sales department being responsible for recording cash transactions violates the separation of duties internal control procedure. Separate departments or personnel should handle different aspects of the accounting process to minimize the risk of errors or fraud. Strengthening this procedure would involve assigning a separate department or personnel to handle accounting tasks like recording cash transactions.

Question 18

Which of the following illustrates the internal control procedure-separation of duties?
A) Cashiers must not have access to accounting records.
B) External auditors will monitor internal controls.
C) Electronic devices must be installed to reduce theft.
D) The invoices and other documents must be pre-numbered.

Accepted Answer

Separation of duties means that different individuals should be responsible for different tasks to prevent fraud or errors. In this case, cashiers should not have access to accounting records, which helps to prevent theft or misappropriation of funds. The other choices do not directly relate to separation of duties.

Question 19

The controller at Horizon, Inc. needs new computers for the accounting department. However, there are no guidelines specifying whether the controller can approve purchases of office equipment. In the above situation, which internal control procedure needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents

Accepted Answer

The answer of The controller at Horizon, Inc. needs new...

Question 20

Which of the following describes the risk assessment component of internal control?
A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
B) Risk assessment is the "tone at the top" of the business.
C) A company must identify its risks and take necessary steps to minimize them.
D) Risk assessment is designed to ensure that the business's goals are achieved.

Accepted Answer

The risk assessment component of internal control involves identifying the risks faced by the business and taking necessary steps to minimize them. This includes evaluating the likelihood and potential impact of risks on the achievement of the company's objectives. A well-designed risk assessment process helps management to prioritize risks and implement appropriate internal control measures. Options A, B, and D do not accurately describe the risk assessment component of internal control.

Quiz 8: Internal Control and Cash

Which of the following is an attribute of the internal control procedure-assignment of responsibilities?

Vaughn Services hires a new accountant to maintain its petty cash fund. Although the employee possesses an accounting degree, he/she had been previously convicted of embezzlement. Which internal control procedure needs to be addressed in the above situation?

Which of the following is included in the internal control procedure-documents?

Which of the following is an attribute of the internal control procedure-competent, reliable, and ethical personnel?

Burglar alarms, fire alarms, and security cameras improve internal control.

Separating the custody of assets from accounting implies that the accountants must not handle cash and the cashier must not have access to the accounting records.

A(n) ________ is a device that enables members of a local network to access the network while keeping nonmembers out of the network.

Campaign Services hired a new accounting manager. He signed a contract for a new accounting information system, but his position did not specify whether he was authorized to do so or not. In the above situation, which internal control procedure needs strengthening?

Which of the following is true of the internal control component-information system?

Which of the following describes a firewall?

The use of computer firewalls is an essential element of good internal controls for e-commerce.

Which of the following is an issue that must be addressed in the internal controls for e-commerce?

Cadmia Services hired a new clerk to keep custody of and maintain all the equipment in the equipment yard. The clerk has not yet been adequately trained on the maintenance needs of the equipment. In the above situation, which internal control procedure needs strengthening?

Which of the following is an attribute of the internal control component-monitoring of controls?

A pharmaceutical company testing drugs to determine possible side effects is a part of ________.

At Radiant, Inc., the sales department is also responsible for recording cash transactions as it does not have a separate accounting department. In the above situation, which internal control procedure needs strengthening?

Which of the following illustrates the internal control procedure-separation of duties?

The controller at Horizon, Inc. needs new computers for the accounting department. However, there are no guidelines specifying whether the controller can approve purchases of office equipment. In the above situation, which internal control procedure needs strengthening?

Which of the following describes the risk assessment component of internal control?