ACCT 444 Week 4 Quiz and Homework
ACCT 444 Week 4 Quiz
- (TCO 5) Which of the following is responsible for establishing internal controls for a public company? (Points : 3)
Financial statement auditors
Management and auditors
Committee of Sponsoring Organizations
- (TCO 5) Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for public companies? (Points : 3)
Financial statement auditors
Management and the financial statement auditors
Committee of Sponsoring Organizations
- (TCO 5) Which of the following is responsible for establishing a private company’s internal control? (Points : 3)
Management and auditors
Committee of Sponsoring Organizations
- (TCO 5) Which section of the Sarbanes-Oxley Act requires management to issue an internal control report? (Points : 3)
- (TCO 5) Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two requirements? (Points : 3)
A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting
A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting
A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting
None of the above
- (TCO 5) Internal control reports issued by public companies must identify the framework used to evaluate the effectiveness of internal control. Which of the following is the most common framework in the U.S.? (Points : 3)
Effective Internal Control Framework-AICPA
Internal Control-Integrated Framework-COSO
Enterprise Internal Control-COSO
There is no common framework used in the U.S.
- (TCO 5) Which of the following activities would be least likely to strengthen a company’s internal control? (Points : 3)
Separating accounting from other financial operations
Maintaining insurance for fire and theft
Fixing responsibility for the performance of employee duties
Carefully selecting and training employees
- (TCO 5) Management’s tests of operating effectiveness might include which of the following types of procedures? (Points : 3)
Inspection of relevant documentation
Inquiries of personnel
Reperformance of the application of controls
All of the above
- (TCO 5) Which of management’s concerns with respect to implementing internal controls is the auditor primarily concerned? (Points : 3)
Efficiency of operations
Reliability of financial reporting
Effectiveness of operations
Compliance with applicable laws and regulations
- (TCO 5) Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the (Points : 3)
adequacy of the computer system.
proper implementation by management.
ability of the internal audit staff to maintain it.
competency and dependability of the people using it.
- (TCO 5) Even with the most effectively designed internal control, the auditor must obtain audit evidence, beyond testing the controls, for every (Points : 3)
financial statement account.
material financial statement account.
financial statement account that will be relied upon by third parties.
- (TCO 5) The essence of an effectively controlled organization lies in the (Points : 3)
effectiveness of its independent auditor.
effectiveness of its internal auditor.
attitude of its employers.
attitudes of its management.
- (TCO 5) Which of the following is not one of the levels of an absence of internal controls? (Points : 3)
- (TCO 5) To determine if a significant internal control deficiency or deficiencies are a material weakness, they must be evaluated on their (Points : 3)
materiality or significance.
both A and B are correct.
neither A nor B is correct.
- (TCO 10) Which of the following is not a benefit of using IT-based controls? (Points : 3)
Ability to process large volumes of transactions
Ability to replace manual controls with computer-based controls
Reduction in misstatements due to consistent processing of transactions
Over-reliance on computer-generated reports
- (TCO 10) Which of the following is not a risk to IT systems? (Points : 3)
Need for IT experience
Separation of IT duties
Improved audit trail
Hardware and data vulnerability
- (TCO 10) Which of the following is not a risk specific to IT environments? (Points : 3)
Reliance on the functioning capabilities of hardware and software
Increased human involvement
Loss of data due to insufficient backup
Reduced segregation of duties
- (TCO 10) Which of the following IT duties should be separated from the others? (Points:3)
All of the above
- (TCO 10) The extent to which IT duties are separated in an organization depends on (Points : 3)
the organization’s size.
the organization’s complexity.
both A and B.
neither A nor B.
- (TCO 10) Programmers should do all but which of the following? (Points : 3)
Test programs for proper performance
Evaluate legitimacy of transaction data input
Develop flowcharts for new applications
Programmers should perform each of the above
- (TCO 10) Which of the following is a category of general controls? (Points : 3)
Physical and online security
- (TCO 10) General controls include all of the following except (Points : 3)
- (TCO 10) Which of the following is least likely to be used in obtaining an understanding of client general controls? (Points : 3)
Examination of system documentation
Inquiry of client personnel (e.g. key users)
Observation of transaction processing
Reviews of questionnaires completed by client IT personnel
- (TCO 10) Controls that apply to a specific element of the system are called (Points : 3)
- (TCO 10) A control that relates to all parts of the IT system is called a(n) (Points : 3)
- (TCO 10) Auditors should evaluate the _____ before evaluating application controls because of the potential for pervasive effects. (Points : 3)
- (TCO 10) Which of the following is not an example of an application control? (Points: 3)
An equipment failure causes system downtime.
There is a preprocessing authorization of the sales transactions.
There are reasonableness tests for the unit selling price of a sale.
After processing, all sales transactions are reviewed by the sales department.
- (TCO 10) Which of the following is not a category of an application control? (Points : 3)
- (TCO 10) Which of the following statements related to application controls is correct? (Points : 3)
Application controls relate to various aspects of the IT function, including software acquisition and the processing of transactions.
Application controls relate to various aspects of the IT function, including physical security and the processing of transactions in various cycles.
Application controls relate to all aspects of the IT function.
Application controls relate to the processing of individual transactions.
ACCT 444 Week 4 Homework
10-33 (Objective 10-3) Following are descriptions of ten internal controls.
- The company’s computer systems track individual transactions and automatically accumulate transactions to create a trial balance.
- The company must receive university transcripts documenting all college degrees earned before an individual can begin their first day of employment with the company.
- Senior management obtains data about external events that might affect the entity and evaluates the impact of that information on its existing accounting processes.
- Each quarter, department managers are required to perform a self-assessment of the department’s compliance with company policies. Reports summarizing the results are to be submitted to the senior executive overseeing that department.
- Before a cash disbursement can be processed, all payee information must be verified by matching the payee to the company’s approved vendor listing.
- The system automatically reconciles the detailed accounts receivable subsidiary ledger to the accounts receivable general ledger account on daily basis.
- The company has developed a detailed series of accounting policy and procedures manuals to help provide detailed instructions to employees about how controls are to be performed.
- The company has an organizational chart that establishes the formal lines of reporting and authorization protocols.
- The compensation committee reviews compensation plans for senior executives to determine if those plans create unintended pressures that might lead to distorted financial statements.
- On a monthly basis, department heads review a budget to actual performance report and investigate unusual differences.
Indicate which of the five COSO internal control components is best represented by each internal control.
- Control environment
- Risk assessment
- Control activities
- Information and communication
10-41 (Objective 10-7) The following are independent situations for which you will recommend an appropriate audit report on internal control over financial reporting as required by PCAOB auditing standards:
- The auditor identified a material misstatement in the financial statements that was not detected by management of the company.
- The auditor was unable to obtain any evidence about the operating effectiveness of internal control over financial reporting.
- The auditor determined that a deficiency in internal control exists that will not prevent or detect a material misstatement in the financial statements.
- During interim testing, the auditor identified and communicated to management a significant control deficiency. Management immediately corrected the deficiency and the auditor was able to sufficiently test the newly-instituted internal control before the end of the fiscal period.
- As a result of performing tests of controls, the auditor identified a significant deficiency in internal control over financial reporting; however, the auditor does not believe that it represents a material weakness in internal control.
For each situation, state the appropriate audit report from the following alternatives:
- Unqualified opinion on internal control over financial reporting
- Qualified or disclaimer of opinion on internal control over financial reporting
- Adverse opinion on internal control over financial reporting
12-19 (Objectives 12-2, 12-3) The following are misstatements that can occur in the sales and collection cycle:
- A customer number on a sales invoice was transposed and, as a result, charged to the wrong customer. By the time the error was found, the original customer was no longer in business.
- A former computer operator, who is now a programmer, entered information for a fictitious sales return and ran it through the computer system at night. When the money came in, he took it and deposited it in his own account.
- A nonexistent part number was included in the description of goods on a shipping document. Therefore, no charge was made for those goods.
- A customer order was filled and shipped to a former customer that had already filed for bankruptcy.
- The sales manager approved the price of goods ordered by a customer, but he wrote down the wrong price.
- A computer operator picked up a computer-based data file for sales of the wrong week and processed them through the system a second time.
- For a sale, a data entry operator erroneously failed to enter the information for the salesman’s department. As a result, the salesman received no commission for that sale.
- Several remittance advices were batched together for inputting. The cash receipts clerk stopped for coffee, set them on a box, and failed to deliver them to the data input personnel.
- Identify the transaction-related audit objective(s) to which the misstatement pertains.
- Identify one automated control that would have likely prevented each misstatement.
12-26 (Objective 12-4) Following are 10 key internal controls in the payroll cycle for Gilman Stores, Inc.
- To input hours worked, payroll accounting personnel input the employee’s Social Security number. The system does not allow input of hours worked for invalid employee numbers.
- The payroll application is programmed so that only human resource personnel are able to add employee names to the employee master files.
- Input menus distinguish executive payroll, administrative payroll, and factory payroll.
- The system automatically computes pay at time and a half once hours worked exceed 80 in a 2-week pay period.
- The system accumulates totals each pay period of employee checks processed and debits the payroll expense general ledger account for the total amount.
- Each pay period, payroll accounting clerks count the number of time cards submitted by department heads for processing and compare that total with the number of checks printed by the system to ensure that each time card has a check.
- For factory personnel, the payroll system matches employee ID numbers with ID numbers listed on job costing tickets as direct labor per the cost accounting system. The purpose of the reconciliation is to verify that the amount paid to each employee matches the amount charged to production during the time period.
- The system generates a listing by employee name of checks processed. Department heads review these listings to ensure that each employee actually worked during the pay period.
- On a test basis, payroll accounting personnel obtain a listing of pay rates and withholding information for a sample of employees from human resources to recalculate gross and net pay.
- The system automatically rejects processing an employee’s pay if inputted hours exceed 160 hours for a 2-week pay period.
For each control:
- Identify whether the control is an automated application control (AC) or a manual control done by Gilman employees (MC).
- Identify the transaction-related audit objective that is affected by the control.
- Identify which controls, if tested within the last two prior year audits, would not have to be retested in the current year, assuming there are effective IT general controls and no changes to the noted control have been made since auditor testing was completed.
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