Question 1

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 principle of internal controls that helps to prevent fraud and errors by ensuring that no one person has control over all aspects of a transaction or process. By dividing responsibilities, it reduces the risk of a single person being able to commit fraud, make errors or manipulate financial records without being detected.

Question 2

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

Accepted Answer

Internal controls are designed to minimize risks and errors, but they cannot completely eliminate the possibility of losses due to operating activities.

Question 3

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

Accepted Answer

Assigning all accounting activities to one person contradicts the principle of segregation of duties, which is crucial for preventing fraud and errors in internal control.

Question 4

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 depends both on the design and operation of the information system as well as the analysis of its resulting documents. Both are important for ensuring the accuracy and reliability of financial information.

Question 5

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 require separation of duties, meaning the person who controls an asset should not also maintain its accounting records to prevent fraud and errors.

Question 6

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

Accepted Answer

The statement is true. Section 404 of the Sarbanes-Oxley Act requires management to document and assess the effectiveness of their internal control over financial reporting (ICFR) and for the auditor to issue an attestation report on management's assessment.

Question 7

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 investment assets that are readily converted to a known cash amount and have maturities of three months or less, not one year.

Question 8

Maintaining adequate records is an important internal control principle.

Accepted Answer

Maintaining adequate records is crucial for effective internal control as it helps in tracking transactions, detecting errors, preventing fraud, and ensuring compliance with regulations and policies. Proper record-keeping also facilitates the preparation of financial statements and reports, which enhances transparency and accountability in the organization. Therefore, maintaining adequate records is a key internal control principle.

Question 9

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 cannot completely eliminate the risk of human error or fraud, and implementing certain controls may not be cost-effective. Therefore, limitations exist in internal control systems.

Question 10

Money orders, cashier's checks, and certified checks are all examples of cash.

Accepted Answer

The answer of Money orders, cashier's checks, and certified checks...

Question 11

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 necessarily a principle. While having qualified and trained employees is important, there are other ways to ensure competency and knowledge, such as requiring specific education and experience, providing ongoing training and development, and implementing strict policies and procedures.

Question 12

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 statement accurately describes what an internal control system is and what it is designed to accomplish within a company or organization.

Question 13

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

Accepted Answer

The statement is true. Violators of the Sarbanes-Oxley Act can face sentences up to 25 years in prison and severe fines.

Question 14

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

Accepted Answer

Cash registers can help ensure that all transactions are properly recorded and prevent theft, time clocks can record employee attendance to prevent time fraud, and personal identification scanners can restrict access to sensitive areas or information, all of which can improve internal control.

Question 15

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

Accepted Answer

While technology has certainly improved the accuracy of accounting systems, errors can still occur. Therefore, monitoring is important to catch any errors and ensure the system is functioning properly.

Question 16

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 know that bonding is an insurance policy against loss from theft, it would discourage them from committing theft as they know they will be held accountable and the bond will be used to recover the losses. Therefore, bonding does discourage loss from theft.

Question 17

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

Accepted Answer

Collusion involves a group of people conspiring together to bypass internal controls and commit fraud, which undermines the segregation of duties concept.

Question 18

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

Accepted Answer

The triple-threat of fraud is typically described as opportunity, pressure, and rationalization, not collusion.

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 for ensuring that an organization's objectives are achieved efficiently and effectively, financial reporting is accurate, and compliance with laws and regulations is maintained. Therefore, it is a crucial component of systems design, analysis, and performance.

Question 20

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

Accepted Answer

Liquidity actually refers to a company's ability to meet its short-term obligations, such as paying off current debts or covering day-to-day expenses. Solvency refers to a company's ability to pay off its long-term debts.

Quiz 8: Cash and Internal Controls