ACCT 444 Week 4 Quiz and Homework
ACCT 444 Week 4 Quiz and
Homework
ACCT 444 Week 4 Quiz
1. (TCO 5) Which of the following is responsible
for establishing internal controls for a public company? (Points : 3)
Management
Financial statement
auditors
Management and
auditors
Committee of
Sponsoring Organizations
1. (TCO 5) Which of the following parties
provides an assessment of the effectiveness of internal control over financial
reporting for public companies? (Points : 3)
Management
Financial statement
auditors
Management and the
financial statement auditors
Committee of
Sponsoring Organizations
1. (TCO 5) Which of the following is responsible
for establishing a private company’s internal control? (Points : 3)
Management
Auditors
Management and
auditors
Committee of
Sponsoring Organizations
2.
(TCO 5) Which section
of the Sarbanes-Oxley Act requires management to issue an internal control
report? (Points : 3)
202
203
404
408
2.
(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
2. (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.
3. (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
3. (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
3. (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
4. (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.
4. (TCO 5) Even with the most effectively
designed internal control, the auditor must obtain audit evidence, beyond testing
the controls, for every (Points : 3)
transaction.
financial statement
account.
material financial
statement account.
financial statement
account that will be relied upon by third parties.
4. (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.
5. (TCO 5) Which of the following is not one of
the levels of an absence of internal controls? (Points : 3)
Major deficiency
Material weakness
Significant deficiency
Control deficiency
5. (TCO 5) To determine if a significant internal
control deficiency or deficiencies are a material weakness, they must be
evaluated on their (Points : 3)
likelihood.
materiality or
significance.
both A and B are
correct.
neither A nor B is
correct.
6. (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
6. (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
6. (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
7. (TCO 10) Which of the following IT duties
should be separated from the others? (Points:3)
Systems development
Operations
Data control
All of the above
7. (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.
7. (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
8. (TCO 10) Which of the following is a category
of general controls? (Points : 3)
Processing controls
Output controls
Physical and online
security
Input controls
8. (TCO 10) General controls include all of the
following except (Points : 3)
systems development.
online security.
processing controls.
hardware controls.
8. (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
9. (TCO 10) Controls that apply to a specific
element of the system are called (Points : 3)
user controls.
general controls.
systems controls.
application controls.
9. (TCO 10) A control that relates to all parts
of the IT system is called a(n) (Points : 3)
general control.
systems control.
universal control.
applications control.
9. (TCO 10) Auditors should evaluate the _____
before evaluating application controls because of the potential for pervasive
effects. (Points : 3)
input controls
control environment
processing controls
general controls
10. (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.
10. (TCO 10) Which of the following is not a
category of an application control? (Points : 3)
Processing controls
Output controls
Hardware controls
Input controls
10. (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
Chapter 10
10-33 (Objective 10-3) Following are descriptions of ten
internal controls.
1. The company’s computer systems track
individual transactions and automatically accumulate transactions to create a
trial balance.
2. The company must receive university
transcripts documenting all college degrees earned before an individual can
begin their first day of employment with the company.
3. Senior management obtains data about external
events that might affect the entity and evaluates the impact of that
information on its existing accounting processes.
4. 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.
5. Before a cash disbursement can be processed,
all payee information must be verified by matching the payee to the company’s
approved vendor listing.
6. The system automatically reconciles the
detailed accounts receivable subsidiary ledger to the accounts receivable
general ledger account on daily basis.
7. 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.
8. The company has an organizational chart that
establishes the formal lines of reporting and authorization protocols.
9. The compensation committee reviews
compensation plans for senior executives to determine if those plans create
unintended pressures that might lead to distorted financial statements.
10. On a monthly basis, department heads review a
budget to actual performance report and investigate unusual differences.
Required
Indicate which of the five COSO
internal control components is best represented by each internal control.
1. Control environment
2. Risk assessment
3. Control activities
4. Information and communication
5. Monitoring
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:
1. The auditor identified a material misstatement
in the financial statements that was not detected by management of the company.
2. The auditor was unable to obtain any evidence
about the operating effectiveness of internal control over financial reporting.
3. The auditor determined that a deficiency in
internal control exists that will not prevent or detect a material misstatement
in the financial statements.
4. 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.
5. 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.
Required
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
Chapter 12
12-19 (Objectives 12-2, 12-3) The following are misstatements that can
occur in the sales and collection cycle:
1. 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.
2. 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.
3. A nonexistent part number was included in the
description of goods on a shipping document. Therefore, no charge was made for
those goods.
4. A customer order was filled and shipped to a
former customer that had already filed for bankruptcy.
5. The sales manager approved the price of goods
ordered by a customer, but he wrote down the wrong price.
6. 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.
7. 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.
8. 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.
Required
1. Identify the transaction-related audit
objective(s) to which the misstatement pertains.
2. 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.
Key Controls
1. 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.
2. The payroll application is programmed so that
only human resource personnel are able to add employee names to the employee
master files.
3. Input menus distinguish executive payroll,
administrative payroll, and factory payroll.
4. The system automatically computes pay at time
and a half once hours worked exceed 80 in a 2-week pay period.
5. The system accumulates totals each pay period
of employee checks processed and debits the payroll expense general ledger
account for the total amount.
6. 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.
7. 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.
8. 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.
9. 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.
10. The system automatically rejects processing an
employee’s pay if inputted hours exceed 160 hours for a 2-week pay period.
Required
For each control:
1. Identify whether the control is an automated
application control (AC) or a manual control done by Gilman employees (MC).
2. Identify the transaction-related audit
objective that is affected by the control.
3. 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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