No. 125 Brgy.

San Sebastian Lipa

City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

REVENUE AND RECEIPT CYCLE

1. After the auditor has prepared a flowchart of internal control for sales, and cash receipts
transactions and evaluated the design of the system, the auditor would perform tests of controls on
all control procedures

a. That would aid in preventing irregularities.

b. Documented in the flowchart.

c. Considered to be deficiencies that might allow errors to enter the accounting system.

d. Considered to be strengths that the auditor plans to rely on in assessing control risk.

2. In considering internal control within the revenue/receipt cycle, what is the purpose of a
transaction walk through?

a. To assure that employees are performing assigned functions accurately.

b. To confirm the auditor's understanding of the internal control structure.

c. To select documents for detailed tests of controls.

d. To verify the results of the auditor's sampling plan.

3. Which of the following is an effective internal control over accounts receivable?

a. Only persons who handle cash receipts should be responsible for the preparation of documents
that reduce accounts receivable balances.

b. Responsibility for approval of the write-off of uncollectible accounts receivable should be assigned
to the cashier.

c. Balances in the subsidiary accounts receivable ledger should be reconciled to the general ledger
control account once a year; preferably at year-end.

d. The billing function should be assigned to persons other than those responsible for maintaining
accounts receivable subsidiary records.

4. To achieve good internal accounting control which department should perform the activities of
matching shipping documents with sales orders and preparing daily sales summaries?

a. Billing

b. Credit

c. Shipping

d. Sales order

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

5. An auditor selects a sample from the file of shipping documents to determine whether invoices
were prepared. This test is performed to satisfy the audit objective of

a. Accuracy

b. Control

c. Completeness

d. Existence

6. Which of the following assures that all inventory shipments are billed to customers?

a. Customer billing complaints are investigated by the controller's office.

b. Shipping documents are prenumbered and are independently accounted for and matched to sales
invoices.

c. Sales invoices are prenumbered and are independently accounted for and traced to the sales
journal.

d. Duties for recording sales transactions and maintaining customer account balances are separated.

7. An auditor noted that several shipments were not billed. To prevent recurrence of such nonbilling,
the organization should

a. Numerically sequence and independently account for all controlling documents (such as packing
slips and shipping orders when sales journal entries are recorded.

b. Undertake a validity check with customers as to orders placed.

c. Release product for shipment only on the basis of credit approval by the credit manager or other
authorized person.

d. Undertake periodic tests of gross margin rates by product line and obtain explanations of
significant departures from planned rates.

8. To determine whether internal control operates effectively to minimize errors of failure to bill a
customer for a shipment, the auditor would select a sample of transactions from the population
represented by the

a. Shipping records file

b. Sales invoice

c. Customer order file

d. Subsidiary customer accounts ledger

9. The purpose of tests of controls over shipping is to determine Whether

a. Billed goods have been shipped

b. Shipments are billed.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

c. Shipping department personnel are competent.

d. Credit is approved before goods are shipped.

10: The purpose of tests of controls over billing is to determine whether

a. Billed goods have been shipped.

b. Shipments are billed.

c. Billing department personnel are competent.

d. Credit is approved before goods are billed.

11. Sound internal control • procedures dictate that defective merchandise returned by customers
should be presented initially to the

a. Accounts receivable supervisor.

b. Shipping department supervisor

c. Receiving clerk

d. Sales clerk

12. The most likely result of ineffective internal control policies and procedures in the revenue cycle
is that

a. Fictitious transactions could be recorded, causing an

understatement of revenues and overstatement of receivables.

b. Final authorization of credit memos by personnel in the sales department could permit an
employee defalcation scheme.

c. Irregularities in recording transactions in the subsidiaryaccounts could result in a delay in goods

shipped.

d. Omission of shipping documents could go undetected, causing an understatement of inventory.

13. Which of the following controls most likely would be effective in offsetting the tendency of sales
personnel to maximize sales volume at the expense of high bad debt write-offs?

a. Employees responsible for authorizing sales and bad debt write-offs denied access to cash.

b. Employees involved in the credit-granting function are separated from the sales function.

c. Shipping documents and sales invoices are matched by an employee who does not have authority
to write off bad debts.

d. Subsidiary accounts receivable records are reconciled to the control account by an employee
independent of theauthorization of credit.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

14. To gather audit evidence about the proper credit approval of sales, the auditor would select a
sample of documents from the population, represented by the

a. Subsidiary customers' accounts ledger.

b. Sales invoice file.

c. Customer order file.

d. Bill of lading file.

15. Proper authorization procedures in the revenue/receipt cycle usually provide for approval of
write-offs by an employee in which of the following departments?

a. Accounts receivable

b. Billing

c. Treasurer

d. Sales

16. Which of the following control procedures could prevent or detect errors or frauds arising from
shipments made to unauthorized parties?

a. Prepare and periodically update lists of authorized customers,

b. Document policies and procedures for scheduling shipments

c. Establish procedures for reviewing and approving prices and sales terms before sale.

d. Prenumber bills of lading and assure that related billings are made on a periodic basis.

17. Which of the following would best protect a company that wishes to prevent lapping?

a. Segregating duties so that accounting has no access to an incoming mail

b. Segregating duties so that no employee has access both to checks from, customers and to
currency from daily cash receipts

c. Having customers send payments directly to the company's bank

d. Requesting that customers checks be made payable, to the

company and be addressed to the treasurer

18. Which of the following internal control procedures most likely would deter lapping of collections
from customers?

a. Independent internal verifications of dates of entry in the cash receipts journal with dates of daily
cash summaries.

b. Authorization of write-offs of uncollectible accounts by a supervisor independent of credit

approval.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

c. Segregation of duties between receiving cash and posting the accounts receivable ledger.

d. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal
entries.

19. Which of the following is not a universal rule for achieving control over cash?

a. Decentralize the receiving of cash as much as possible.

b. Separate the cash-handling and record-keeping functions.

c. Deposit each day's cash receipts by the end of the day.

d. Have bank reconciliations performed by employees who do not handle cash.

20. An internal control device for cash which requires that all cash receipts should be deposited
intact, and all cash payments should be made by means of a check.

a. Imprest system

b. Fluctuating fund system

c. Auditing system

d. Internal check

21. An auditor would consider a cashier's job description to contain compatible duties if the cashier
receives remittance from the mailroom and also prepares the

a. Daily deposit slip.

b. Remittance advices.

c. Prelist of individual checks.

d. Monthly bank reconciliation.

22. Which of the following internal control procedures will most likely prevent the concealment of a
cash shortage resulting from improper write-off of a trade account receivable?

a. Write-offs must be supported by an aging schedule showing that only receivables overdue for
several months have been written off.

b. Write-offs must be approved by the cashier who is in a position to know if the receivables have, in
fact, been collected.

c. Write-offs must be approved by a responsible officer after review of credit department

recommendations and supporting evidence.

d. Write-offs must be authorized by company field sales employees who are in a position to
determine the financial standing of the customers:

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

23. An entity's internal control' structure requires every check request that there be an approved
voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To
determine whether checks are being issued for unauthorized expenditures, an auditor most likely
would select items for testing from the population of all

a. Cancelled checks.

b. Purchase orders.

c. Approved vouchers.

d. Receiving reports.

24. The cash receipts function should be separated from the related record keeping in an
organization to

a. Physically safeguard the cash receipts.

b. Establish accountability when the cash is first received.

c. Minimize undetected misappropriations of cash receipts.

d. Prevent paying cash disbursements from cash receipts.

25. The use of fidelity bonds may indemnify a company from embezzlement losses. The use also

a. Reduces the company's need to obtain expensive business interruption insurance

b. Reduces the possibility of employing persons with dubious records in positions of trust.

C. Protects employees who made unintentional errors from possible monetary damages resulting
from such errors.

d. Allows the company to substitute the fidelity bonds for various parts of internal accounting
control.

EXPENDITURE AND DISBURSEMENT CYCLE

26. To control purchasing and accounts payable, an information system must. include certain source
documents. For a manufacturing organization, these documents should include

a. Purchase orders, receiving reports, and vendor invoices.

b. Receiving reports and vendor invoices.

c. Purchase requisitions, purchase orders, inventory reports of goods needed, and vendor invoices.

d. Purchase requisitions, purchase orders, receiving reports, and vendor invoices.

27. A client's purchasing system ends with the assumption of a liability and the eventual payment of
the liability. Which of the following best describes the auditor's primary concern with respect to
liabilities resulting from the purchasing system?

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

a. Commitments for all purchases are made only after established competitive bidding procedures
are followed.

b. Accounts payable are not materially understated.

c. Authority to incur liabilities is restricted to one designated person.

d. Acquisition of materials is not made from one vendor or one group of vendors.

28. One risk associated with the purchasing cycle is the possibility that quantities in excess of
organizational needs may be ordered. Which of the following controls would address this exposure?

a. The purchasing department places all orders when the computer indicates a low inventory level.

b. A user department supervisor reviews each purchase requisition prior to its being forwarded to
the purchasing department.

c. The receiving department delays the unloading of each shipment presented for receipt until an
originating purchase order is available.

d. The warehouse delays the storage of all goods until the inspection department provides a
receiving report that is consistent with the packing slip provided by the vendor.

29. The authority to accept incoming goods in receiving should be based on a (an)

a. Vendor's invoice.

b. Bill of lading.

c. Materials requisition.

d. Approved purchase order.

30. For effective internal control, the accounts payable department generally should

a. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized
employee.

b. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.

c. Establish the agreement of the vendor's invoice with the receiving report and purchase order.

d. Obliterate the quantity ordered on the receiving department copy of the purchase order.

31. Which of the following functions is not appropriate for the accounts payable department?

a. Prepare purchase orders.

b. Prepare voucher and daily summary.

c. File voucher package by due date.

d. Compare purchase requisitions, purchase orders, receiving reports, and vendors' invoices.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

32. In a properly designed accounts payable system, a voucher is prepared after the invoice,
purchase order, requisition, and receiving report are verified. The next step in the system is to

a. Post the voucher amount to the expense ledger.

b. Cancel the supporting documents.

C. Enter the check amount in the check register.

d. Approve the voucher for payment.

33. Which of the following would be the best procedure to determine whether purchases were
properly authorized?

a. Discuss authorization procedures with personnel in the controller's and purchasing functions.

b. Review and evaluate a flowchart of purchasing procedures.

c. Determine whether a sample of entries in the purchase journal is supported by properly executed
purchase orders.

d. Vouch payments for selected purchases to supporting receiving reports.

34. In a properly designed internal control structure, the same employee most likely would match
vendor's invoices with receiving reports and also

a. Recompute the calculations on vendor's, invoices

b. Reconcile the accounts payable ledger

c. Cancel vendor's invoices after payment.

d. Post the detailed accounts payable records

35. Which of the following controls would help prevent overpaying a vendor?

a. Requiring the check signer to mail the check directly to the vendor.

b. Reviewing the accounting distribution for the expenditure.

c. Approving the purchase before ordering from the vendor.

d. Reviewing and canceling supporting documents when a check is issued

36. One of Pinoy's suppliers has a brother working as accounts payable clerk of Pinoy. Often this
supplier will bill Pinoy twice for the same delivery. His brother removes the receiving report
supporting the first invoice and uses it as attachment of the second invoice.

To forestall this activity, the most effective procedure is to

a. Have checks signed with dual signatures.

b. Make sure receiving reports are pre-numbered.

c. Cancel vouchers and supporting papers when check payments are made.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

d. Prevent the accounts payable clerk from receiving returned signed checks previously mailed.

37. In a properly designed internal accounting control system, the same employees should not be
permitted to

a. Sign checks and cancel supporting documents.

b. Prepare disbursement vouchers and sign checks.

C. Receive merchandise and prepare a receiving report.

d. Initiate a request to order merchandise and approve merchandise received

38. The president of ICARE Company did not disclose to its board of directors that he is a principal
stockholder of Mordekaiser Company. The president compelled ICARE Company's purchasing agent
to purchase supplies from Mordekaiser Company at prices in excess of typical prices for such
supplies. Which question, if answered "NO" would have been most likely to disclose the internal
control weakness that permitted this incident to occur or to remain undetected?

a. Are purchase requisitions used to originate purchasing activity?

b. Are vendors selected on the basis of competitive bids?

c. Are formal written purchase orders requested for all significant purchases?

d. Does the accounting department match vendors' invoices with purchase orders?

39. To determine whether accounts payable are complete, an auditor performs a test to verify that
all merchandise received is recorded. The population of documents for this test consists of all

a. Payment vouchers.

b. Purchase requisitions.

c. Receiving reports.

d. Vendor's invoices.

40. Mailing disbursement checks and remittance advices should be controlled by the employee who

a. Matches the receiving reports, purchase orders, and vendors' invoices.

b. Prepares the daily voucher summary.

C. Agrees the check register to the daily check summary:

d. Signs the checks last.

41. The accounts payable department receives a purchase order form to accomplish all of the
following except

a. Comparing invoice price to purchase order price.

b. Ensuring- that the goods had been received by the party requesting the goods

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

c. Ensuring that the purchase had been properly authorized.

d. Comparing quantity ordered to quantity purchased.

42. Which of the following is a primary function of the purchasing department?

a. Authorizing the acquisition of goods.

b. Verifying the propriety of goods of a specified quality.

C. Ensuring the acquisition of goods of a specified quality.

d. Reducing expenditures for goods acquired.

43. Internal control is improved when the quantity of merchandise ordered is omitted from the copy
of the purchase order sent to the

a. Department that initiated the requisition

b. Purchasing agent

c. Receiving department

d. Accounts payable department

44. What is the reason for ensuring that every copy of a vendor's invoice has a receiving report?

a. To ascertain that merchandise received by the company was billed by the vendor.

b. To ascertain that the invoice was correctly prepared.

c. To ascertain that a check was prepared for every invoice.

d. To ascertain that merchandise billed by the vendor was received by the company.

45. How can an auditor test to determine whether Receiving

Department procedures are applied properly?

a. Test a sample of receiving documents.

b. Observe receiving procedures on a surprise basis.

c. Review procedures manuals.

d. Interview receiving personnel.

PAYROLL AND HIRE TO RETIRE CYCLE

46. Which of the following best describes proper internal control over payroll?

a. The duties of hiring, payroll computation, and payment to employees should be segregated.

b. The preparation of the payroll must be under the control of the personnel department.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

c. The confidentiality of employee payroll data should be carefully protected to avoid fraud.

d. The payment of cash to employees should be replaced with payment by check.

47. Which of the following department most likely would approve changes in pay rates and
deductions from employee salaries?

a. Personnel

b. Controller

c. Treasurer

d. Payroll

48. Which of the following controls would be the most appropriate means to ensure that terminated
employees had been removed from the payroll?

a. Reconciling payroll and time-keeping records.

b. Mailing checks to employees' residences.

c. Establishing direct-deposit procedures with employees' banks

d. Establishing computerized limit checks on payroll rates.

49. A means of ensuring that payroll checks are drawn for properly authorized amounts is to

a. Require that undelivered checks be returned to the cashier.

b. Require supervisory approval of employee time cards.

c. Witness the distribution of payroll checks.

d. Conduct periodic floor verification of employees on the payroll.

50. From the point of view of good procedural control, distributing payroll checks to employees is
best handled by the

a. Treasurer's department.

b. Employee's department supervisor.

c. Personnel department.

d. Accounting department.

51. Which of the following control procedures could best prevent direct labor from being charged to
manufacturing overhead?

a. Recomputation of direct labor based on inspection of time cards.

b. Comparison of daily journal entries with factory labor summary.

c. Examination of routing tickets from finished goods on delivery.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

d. Reconciliation of work in process inventory with cost records.

52. For appropriate segregation of duties, journalizing and posting summary payroll transactions
should be assigned to

a. The treasurer's department

b. Payroll accounting

c. General accounting

d. The timekeeping department

53. Low Tek, Inc. has changed from a conventional to a computerized payroll clock card system.
Factory employees now record time in and out with magnetic cards, and the computer system
automatically updates all payroll records. Because of this change,

a. The potential for payroll related fraud has been diminished

b. The auditor must audit through the computer

c. Internal control has improved

d. Part of the audit trail has been lost

54. A common audit procedure in the audit of payroll transactions involves vouching selected items
from the payroll journal to employee time cards that have been approved by supervisory personnel.
This procedure is designed to provide evidence in support of the audit proposition that

a. Only bona fide employees worked, and their pay was properly computed

b. Jobs on which employees worked were charged with the appropriate labor cost

c. Internal controls relating to payroll disbursements are operating effectively

d. All employees worked the number of hours for which their pay was computed

55. For internal control purposes. which of the following individuals should preferably be responsible
for the distribution of payroll checks?

a. Bookkeeper

b. Cashier

c. Payroll clerk

d. Receptionist

INVENTORY AND PRODUCTION CYCLE

56. In obtaining an understanding of a manufacturing entity's internal control over inventory

balances, an auditor most likely would

a. Analyze the liquidity and turnover ratios of the inventory.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

b. Perform analytical procedures designed to identify cost variances.

c. Perform test counts of inventory during the entity's physical

d. Review the entity's descriptions of inventory policies and procedures.

57. The objectives of internal control for a production cycle are to provide assurance that
transactions are properly executed and recorded, and that

a. Transfers to finished goods are documented by a completed production report and a quality
control report.

b. Productions orders are prenumbered and signed by a supervisor.

c. Custody of work in process and of finished goods is properly maintained.

d. Independent internal verification of activity reports established.

58. During an audit of the production cycle, you noted a control procedure requiring the accounting
clerk to look up the material invoice and match the material unit costs to the unit cost of material
shown on the job cost sheet for all government contract. work. This procedure is designed to meet
the control objective of

a. Validity.

b. Authorization.

c. Valuation,

d. Classification

59. Which of the following controls most likely addresses the completeness assertion for inventory?

a. Receiving reports are prenumbered and periodically reconciled.

b. Work in process account is periodically reconciled with subsidiary records.

c. Employees responsible for custody of finished goods do not perform the receiving function.

d. There is a separation of duties between payroll department and inventory accounting personnel.

60. Independent internal verification of inventory occurs when employees who

a. Are independent of issuing production orders update records from completed job cost sheets and
production cost reports on a timely basis.

b. Issue raw materials based on material requisitions for each issue and prepare daily totals of
materials issued.

c. Compare records of goods on hand with physical quantities do not maintain the records or have
custody of the inventory.

d. Obtain receipts for the transfer of completed work to finished goods prepare a completed
production report.

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ABELLAR/MAGLINAO/SARMIENTO/BERCASIO/PERLAS/LUMBOY/
CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

61. Which of the following controls would most likely minimize defects in finished goods because of
poor quality raw materials?

a. Determination of spoilage at the end of the manufacturing process.

b. Proper handling of work-in-process inventory to prevent damage.

c. Implementation of specification for purchases

d. Timely follow-up on unfavorable usage variances.

62. Appropriate control over obsolete materials requires that they be.

a. Sorted, treated, and packaged before disposition takes place, in order to obtain the best selling
price.

b. Determined by an approved authority to be lacking in regular usability.

c. Retained within the regular storage area.

d. Carried at cost in the accounting records until the actual disposition takes place.

63. Management can best strengthen internal control over the custody of inventory stored in an off-
site warehouse by implementing

a. Increases in insurance coverage.

b. Reconciliations of transfer slips to/from the warehouse with inventory records.

c. Regular reconciliation of physical inventories to accounting records.

d. Regular confirmation of the amount on hand with the custodian

64. Which of the following is the most important element of internal control relating to the raw
materials inventory of a manufacturing company?

a. Issues from inventory should be supported by sales invoices.

b. The physical inventory count should be made by personnel independent of the inventory
custodians.

c. Materials from vendors should be received directly by the production department that will be
using the materials.

d. Shortages in shipments from vendors should be immediately reported to the production

department that will be using the materials.

65. When an auditor tests a client's cost accounting system, the auditor's tests are primarily designed
to determine that

a. Quantities on hand have been computed based on acceptable cost accounting techniques that
reasonably approximate actual quantities on hand.

b. Costs have been properly assigned to finished goods, works-in-process and cost of goods sold.

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CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

c. Physical inventories are in substantial agreement with book inventories.

d. The system is in accordance with GAAP and is functioning as planned.

66. When perpetual inventory records are maintained in quantities and in pesos, and internal control
procedures over inventory are deficient, the auditor would probably

a. Have to disclaim an opinion on the income statement that year.

b. Want the client to schedule the physical inventory count at the end of the year.

c. Insist that the client perform physical counts of inventory items, several times during the year.

d. Increase the extent of tests for unrecorded liabilities at the end of the year.

67. Which of the following activities is not common to the conversion cycle?

a. Implementing a just-in-time order entry system.

b. Maintaining perpetual inventory records.

c. Accounting for fixed asset disposals and retirements.

d. Recording depreciation allocations.

68. Which of the following policies is an internal control weakness related to the acquisition of
factory equipment?

a. Advance executive approvals are required for equipment acquisitions.

b. Acquisitions are to be made through and approved by the. department in need of the equipment.

c. Variances between authorized equipment expenditures and actual costs are to be immediately
reported to management.:

d. Depreciation policies are reviewed only once a year.

69. To strengthen control procedures over the custody of heavy mobile equipment, the client would
most likely institute a policy requiring a periodic

a. Inspection of equipment and reconciliation with accounting records.

b. Increase in insurance coverage.

c. Verification of liens, pledges, and collateralizations.

d. Accounting for work orders.

70. An effective internal control procedures covering fixed asset additions should require:

a. Authorization and approval of major fixed asset additions.

b. Classification as investments of those fixed asset additions that are not used in the business.

c. Capitalization of the cost of fixed asset addition in excess of a specific peso amount.

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CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

d. Performance of recurring fixed asset maintenance work solely by company maintenance staff.

INVESTING AND FINANCING CYCLE

71. One control objective of financing/treasury cycle is the proper authorization of company
transactions dealing with debt and equity instruments. Which of the following controls would best
meet this objective?

a. The company serves as its own registrar and transfer agent.

b. Separation of responsibility fer custody of funds from recording of the transaction.

c. Written company policies requiring review of funding/repayment proposals by the board of

directors.

d. Use of an underwriter in all cases of new issue of debt or equity instruments.

72. A company has additional temporary funds to invest. The board of directors decided to purchase
marketable securities and assigned the future purchase and sale decisions to a responsible financial
executive. The best person(s) to make periodic reviews of the investment activity should be

a. The treasurer.

b. The corporate controller.

c. The chief operating officer.

d. The investment committee of the board of directors.

73. Which of the following is not a control that is designed to protect investment securities?

a. Access to securities should be vested in more than one individual.

b. Securities should be properly controlled physically in order to prevent unauthorized usage.

c. Securities should be registered in the name of the owner.

d. Custody over securities should be limited to individuals who have recordkeeping responsibility
over the securities.

74. Which of the following controls would a company most likely use to safeguard investment
securities when an independent trust agent is not employed?

a. The chairman of the board verifies the investment securities, which are kept in a bank safe deposit
box, each year on the balance sheet date.

b. The investment committee of the board of directors periodically reviews the investment decisions
delegated to the treasurer.

c. Two company officials have joint control of investment securities, which are kept in a bank safe
deposit box.

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d. The internal auditor and the controller independently trace all purchases: and sales of investment
securities from the subsidiary ledgers to the general ledger.

75. Which of the following controls would an entity most likely use to assist in satisfying the
completeness assertion related to long-term investments?

a. The controller compares the current market prices of recorded investments with the brokers'
advices on file.

b. Senior management verifies that securities in the bank safe deposit box are registered in the
entity's name.

c. The internal auditor compares the securities in the bank safe deposit box with recorded
investments:

d. The treasurer vouches the acquisition ef securities by comparing brokers' advices with canceled
checks.

76. Which of the following controls would an entity most likely use in safeguarding against the loss of
investment securities?

a. A designated member of the board of directors controls the securities in a bank safe deposit box.

b. An independent trust company that has no direct contact with the employees who have record-
keeping responsibilities has possession of securities.

c. The internal auditor verifies the investment securities in the entity's safe each year on the balance
sheet date.

d. The independent auditor traces all purchases and sales of investment securities through the
subsidiary ledgers to the general ledger.

77. Which of the following controls would be most effective in assuring that the proper custody of
assets in the investing cycle is maintained?

a. Direct access to securities in the safe deposit box is limited to only one corporate officer.

b. The recorded balances in the investment subsidiary ledger are periodically compared with the
contents of the safe deposit box by independent personnel.

c. Personnel who post investment transactions to the general ledger are not permitted to update the
investment subsidiary ledger.

d. The purchase and sale of investments are executed on the specific authorization of the board of
directors.

78. An employee should not be able to visit the corporate safety deposit box containing investment
securities without being accompanied by another corporate employee. What would be a possible
consequence of an employee's being able to visit the safety deposit box unaccompanied?

a. The employee could steal securities and the theft would never be discovered

b. It would be impossible to get a fidelity bond on the employee

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CABARLES
 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

c. There would be no record of when company personnel visited the safety box.

d. The employee could pledge corporate investments as security for a short-term personal bank loan.

79. Which of the 'following questions would an auditor most likely include on an internal control
questionnaire for notes payable?

a. Are assets that collateralize notes payable critically needed for - the entity's continued existence?

b. Are direct borrowings on notes payable authorized by the board of directors.

c. Are two or more authorized signatures required on checks that repay notes payable?

d. Are the proceeds from notes payable used for the purchase of noncurrent assets?

80. Where no independent stock transfer agent is employed and the corporation issues its own
stocks and maintains stock records, canceled stock certificates should

a. Be defaced to prevent reissuance and attached to their corresponding stubs:

b. Not be defaced but segregated from other stock certificates and retained in a canceled certificates
file.

c. Be destroyed to prevent reissuance.

d. Be defaced and sent to the secretary of state.

81. Which of the following controls would be most useful in providing reasonable assurance about
the valuation of tangible assets?

a. A policy requiring the reconciliation of the physical asset count with the property ledger.

b. A policy requiring that depreciation categories and lives be periodically assessed.

c. A formal budgeting processes.

d. Written policies requiring authorization for the acquisition of long- lived assets.

81. Which of the following controls is most likely to prevent the improper disposition of equipment?

a. Separating duties between those authorized to dispose of equipment and those authorized to
approve removal work orders

b. Using serial numbers to identify equipment that could be sold

c. Periodically removal work orders with authorizing documentation

d. Periodically analyzing scrap sales and the repairs and maintenance accounts

82. The following controls are appropriate for property, plant, and equipment (PPE), except

a. Written policies for capitalization and expenditure and review of application of depreciation
methods.

b. Disposal of fully depreciated PPE items.

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 No. 125 Brgy. San Sebastian Lipa
City, Batangas, Philippine
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail :
www.icarecpareview@gmail.com

c. Proper authority for acquisition and retirement of PPE items.

d. Detailed PPE records and physical controls over PPE items.

83. Which of the following control activities most likely would justify a reduced level of control risk
concerning property, plant, and equipment (PPE) acquisitions?

a. Periodic physical inspection of PPE by the internal audit staff.

b. Approval of periodic depreciation entries by a supervisor independent of the accounting

department.

c. The review of prenumbered purchase orders to detect unrecorded trade-ins.

d. Comparison of current-year PPE account balances with prior-year figures.

84. An internal control objective concerning property, plant, and equipment (PPE) acquisitions is that
they be recorded at the correct amounts and in the proper period, and properly classified. In which
of the following conditions would an auditor most likely assess a high level of risk of material
misstatement?

a. All material acquisitions of PPE are required to be approved by the board of directors.

b. Most additions are self-constructed by the entity.

c. Recently acquired loans include covenants that preclude further plant acquisitions for 5 years.

d. Gross PPE increased 30% during the current period.

85. Which of the following misstatements or questionable practices may be uncovered if an auditor
tours an entity's production facility?

a. Insurance coverage on the facility has lapsed.

b. Overhead has been over applied.

c. Depreciation expense on fully depreciated machinery has been recognized.

d. Necessary facility maintenance has not been performed.

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