1. Which of the following is not an element of the internal control environment?

a. management philosophy and operating style

b. organizational structure of the firm

c. well-designed documents and records

d. the functioning of the board of directors and the audit committee

2. Business bankruptcy cases always involve fraudulent behavior.

True

False

3. A key modifying assumption in internal control is that the internal control system is the responsibility of
management.

True

False

4. Independent Verification is a procedure to ensure that employees process only valid transactions within the
scope of their authority.

True

False

5. Employee fraud is the performance fraud by management employee generally designed to directly convert cash
or other assets to the employee’s personal benefit.

True

False

6. Which of the following situations is not a segregation of duties violation?

a. The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run
the check-signing machine.

b. The warehouse clerk, who has the custodial responsibility over inventory in the warehouse, selects the
vendor and authorizes purchases when inventories are low.

c. The sales manager has the responsibility to approve credit and the authority to write off accounts.

d. The department time clerk is given the undistributed payroll checks to mail to absent employees.

e. The accounting clerk who shares the record keeping responsibility for the accounts receivable subsidiary
ledger performs the monthly reconciliation of the subsidiary ledger and the control account.
7. Which ethical principle states that the benefit from a decision must outweigh the risks, and that there is no
alternative decision that provides the same or greater benefit with less risk?

a. minimize risk

b. justice

c. informed consent

d. proportionality

8. The four principal types of fraud include all of the following except

a. bribery

b. gratuities

c. conflict of interest

d. economic extortion

9. The importance to the accounting profession of the Sarbanes-Oxley Act is that

a. bribery will be eliminated

b. management will not override the company's internal controls

c. management are required to certify their internal control system

d. firms will not be exposed to lawsuits

10. Skimming involves

a. stealing cash from an organization before it is recorded

b. Stealing cash from an organization after it has been recorded

c. manufacturing false purchase orders, receiving reports, and invoices

d. A clerk pays a vendor twice for the same products and cashes the reimbursement check issued by the
vendor.

11. Which of the following is the best reason to separate duties in a manual system?

a. to avoid collusion between the programmer and the computer operator

b. to ensure that supervision is not required

c. to prevent the record keeper from authorizing transactions

d. to enable the firm to function more efficiently

12. All of the following are factors in the fraud triangle except

a. Ethical behavior of an individual

b. Pressure exerted on an individual at home and job related

 c. Materiality of the assets

d. Opportunity to gain access to assets

13. The most cost-effective type of internal control is

a. preventive control

b. accounting control

c. detective control

d. corrective control

14. In balancing the risks and benefits that are part of every ethical decision, managers receive guidance from each
of the following except

a. justice

b. self interest

c. risk minimization

d. proportionality

15. Which of the following is not an element of the internal control environment?

a. management philosophy and operating style

b. organizational structure of the firm

c. well-designed documents and records.

d. the functioning of the board of directors and the audit committee

16. One characteristic of employee fraud is that the fraud

a. is perpetrated at a level to which internal controls do not apply

b. involves misstating financial statements

c. involves the direct conversion of cash or other assets to the employee's personal benefit

d. involves misappropriating assets in a series of complex transactions involving third parties

17. Employee fraud involves three steps. Of the following, which is not involved?

a. concealing the crime to avoid detection

b. stealing something of value

c. misstating financial statements

d. converting the asset to a usable form

18. Management can expect various benefits to follow from implementing a system of strong internal control.
Which of the following benefits is least likely to occur?

a. reduced cost of an external audit.

b. prevents employee collusion to commit fraud.
c. availability of reliable data for decision-making purposes.
d. some assurance of compliance with the Foreign Corrupt Practices Act of 1977.
e. some assurance that important documents and records are protected.

19. The concept of reasonable assurance suggests that

a. the cost of an internal control should be less than the benefit it provides

b. a well-designed system of internal controls will detect all fraudulent activity

c. the objectives achieved by an internal control system vary depending on the data processing method

d. the effectiveness of internal controls is a function of the industry environment

20. Vendor fraud is the distribution of fraudulent paychecks to existent and/or nonexistent employees.

True

False

21. Collusion among employees in the commission of a fraud is difficult to prevent but easy to detect.

True

False

22. Which department prepares the bill of lading?

a. sales

b. warehouse

c. shipping

d. credit

QUIZ 4&5

23. Copies of the sales order can be used for all of the following except

a. purchase order

b. credit authorization

c. shipping notice

d. packing slip
24. Copies of the sales order can be used for all of the following except

a. purchase order

b. credit authorization

c. shipping notice

d. packing slip

25. The stock release copy of the sales order is not used to

a. locate and pick the items from the warehouse shelves

b. record any out-of-stock items

c. authorize the warehouse clerk to release custody of the inventory to shipping

d. record the reduction of inventory

26. Good internal controls in the revenue cycle should ensure all of the following except

a. all sales are profitable

b. all sales are recorded

c. credit is authorized

d. inventory to be shipped is not stolen

27. An advantage of real-time processing of sales is

a. the cash cycle is lengthened

b. current inventory information is available

c. hard copy documents provide a permanent record of the transaction

d. data entry errors are corrected at the end of each batch

28. Which document triggers the billing function?

a. customer order

b. sales order

c. shipping notice

d. bill of lading

29. Which document defines terms for shipped goods ownership?

a. packing slip

b. bill of lading

c. customer invoice
 d. shipping notice

30. The shipping notice

a. is mailed to the customer

b. is a formal contract between the seller and the shipping company

c. is always prepared by the shipping clerk

d. informs the billing department of the quantities shipped

31. Which document triggers the revenue cycle?

a. the sales order

b. the customer purchase order

c. the sales invoice

d. the journal voucher

32. Which situation indicates a weak internal control structure?

a. the mailroom clerk authorizes credit memos

b. the record keeping clerk maintains both accounts receivable and accounts payable subsidiary ledgers

c. the warehouse clerk obtains a signature before releasing goods for shipment

d. the accounts receivable clerk prepares customer statements every month

33. This is a document which is stating the quantity and condition of the inventories received.

a. purchase order

b. blind copy purchase order

c. purchase requisition

d. receiving report

34. The cash disbursement function is part of accounts payable.

a. True

b. False

35. The AP packet is composed of only the purchase order and receiving report.

a. True

b. False
36. In a merchandising firm, authorization for the purchase of inventory is the responsibility of

A. inventory control

b. purchasing

c. accounts payable

d. cash disbursements

37. All of the following departments have a copy of the purchase order except

A. the purchasing department

b. the receiving department

c. accounts payable

d. general ledger

38. The purpose of the purchase requisition is to

A. order goods from vendors

b. record receipt of goods from vendors

c. authorize the purchasing department to order goods

d. bill for goods delivered

39. The open purchase order file in the purchasing department is used to determine

a. the quality of items a vendor ships

b. the best vendor for a specific item

c. the orders that have not been received

d. the quantity of items received

40. Usually the open voucher payable file is organized by

a. Vendor
b. payment due date
c. purchase order number
d. transaction date

41. Which document is least important in determining the financial value of a purchase?

a. purchase requisition
b. purchase order
c. receiving report
d. supplier's invoice

42. Of the following duties, it is most important to separate

 a. warehouse from stores

b. warehouse from inventory control

c. Accounts payable and accounts receivable

d. purchasing and accounts receivable

1. A weekly reconciliation of cash receipts would include comparing

a. the cash prelist with bank deposit slips

b. the cash prelist with remittance advices

c. bank deposit slips with remittance advices

d. journal vouchers from accounts receivable and general ledger

2. Which of following functions should be segregated?

a. opening the mail and making the journal entry to record cash receipts

b. authorizing credit and determining reorder quantities

c. maintaining the subsidiary ledgers and handling customer queries

d. providing information on inventory levels and reconciling the bank statement

3. Which of the following is not a risk exposure in a PC accounting system?

a. reliance on paper documentation is increased

b. functions that are segregated in a manual environment may be combined in a microcomputer accounting
system

c. backup procedures require human intervention

d. data are easily accessible

4. Internal controls for handling sales returns and allowances do not include

a. computing bad debt expense using the percentage of credit sales

b. verifying that the goods have been returned

c. authorizing the credit memo by management

d. using the original sales invoice to prepare the sales returns slip

5. Which journal is not used in the revenue cycle?

a. cash receipts journal

b. sales journal
 c. purchases journal

d. general journal

6. The most effective internal control procedure to prevent or detect the creation of fictitious credit memoranda for
sales returns is to

a. supervise the accounts receivable department

b. limit access to credit memoranda

c. prenumber and sequence check all credit memoranda

d. require management approval for all credit memoranda

7. Customers should be billed for back-orders when

a. the customer purchase order is received

b. the back ordered goods are shipped

c. the original goods are shipped

d. customers are not billed for backorders because a backorder is a lost sale

8. Which control does not help to ensure that accurate records are kept of customer accounts and inventory?

a. reconcile accounts receivable control to accounts receivable subsidiary

b. authorize credit

c. segregate custody of inventory from record keeping

d. segregate record keeping duties of general ledger from accounts receivable

9. Which document defines terms for shipped goods ownership?

a. packing slip

b. bill of lading

c. customer invoice

d. shipping notice

10. The credit department

a. prepares credit memos when goods are returned

b. approves credits to accounts receivable when payments are received

c. authorizes the granting of credit to customers

d. none of the above

11. When searching for unrecorded liabilities at the end of an accounting period, the accountant would search all of
the files except

a. the purchase requisition file

b. the cash receipts file

c. the purchase order file

d. the receiving report file

12. Firms can expect that proper use of a valid vendor file will result in all of the following benefits except

a. purchasing agents will be discouraged from improperly ordering inventory from related parties

b. purchases from fictitious vendors will be detected

c. the most competitive price will be obtained

d. the risk of purchasing agents receiving kickbacks and bribes will be reduced

13. The financial value of a purchase is determined by reviewing the

a. packing slip

b. purchase requisition

c. receiving report

d. supplier's invoice

18. The major risk exposures associated with the receiving department include all of the following except

a. goods are accepted without a physical count

b. there is no inspection for goods damaged in shipment

c. inventories are not secured on the receiving dock

d. the audit trail is destroyed

19. This is a record of all accounts payable that have been discharged by making payment to the creditors.

a. voucher payable file

b. closed AP file

c. disbursement voucher file

d. journal voucher file

20. If a company uses a standard cost system, inventory records can be updated from

a. vendor invoice

b. purchase order

c. receiving report

d. purchase requisition