101) The identification and analysis of differences between the values contained in two
substantially identical files or between a detail file and a control file is
A) validity checking.
B) verification.
C) reconciliation.
D) clearing.
102) The identification of unprocessed or retained items in files according to their date, usually
the transaction date, is
A) clearing.
B) aging.
C) periodic auditing.
D) summary processing.
103) Research indicates that the most frequent type of fraud is
A) misappropriation of funds.
B) check forgery.
C) false invoices.
D) credit card fraud.
104) Research indicates that the most expensive type of fraud is
A) patent infringement.
B) false financial statements.
C) credit card fraud.
D) All of these types of fraud are equally expensive.
105) An audit committee
A) is composed only of an organization’s shareholders.
B) should be primarily composed of only external board members (a NYSE requirement).
C) ideally should be composed only of members who are also high-level executives in the
organization.
D) ideally should report directly to the controller.
106) The FCPA requires that a system of internal accounting controls
A) guarantee that profits are correctly stated in a firm’s audited financial statements.
B) provide absolute assurance that transactions are executed only in accordance with
management’s authorization.
C) provide reasonable assurance that access to assets is permitted only in accordance with
management’s authorization.
D) ensure the long-run profitability of an organization.
107) If the treasury and controller functions are independent, which of the following should be
assigned to the controller to maintain effective control?
A) Approval of disbursements
B) Responsibility for check signing
C) Custody of short-term investment securities
D) Authorization of write-offs of accounts receivable
108) A clerk accidentally posts a prenumbered sales invoice of $625 as $265 to a customer’s
account. What control would detect this error?
A) A hash total of the invoice numbers
B) A sequence check of the numbers of the invoices which are to be posted
C) A document count of the invoices
D) A control total of the amounts to be posted
109) Which of the following would impair the effectiveness of the separation of incompatible
functions in an organization?
A) The personnel director reports to the vice president for administration.
B) The controller reports to the vice president of sales.
C) The cashier reports to the treasurer.
D) The director of budgeting reports to the controller.
110) A well planned system of internal accounting control normally would include procedures
that are designed to provide reasonable assurance that
A) employees act with integrity when performing their assigned tasks.
B) decisions leading to management’s authorization of transactions are sound.
C) collusive activities would be detected by segregation of employee duties.
D) transactions are executed in accordance with management’s general or specific authorization.
111) Monitoring, the fifth component of internal control, involves
A) assessing the quality of internal controls over time and taking corrective actions if necessary.
B) studying the methods used and records established to identify, assemble, analyze, classify,
record, and report the organization’s transactions.
C) maintaining accountability for the financial structure (i.e., assets and liabilities) of the
organization.
D) assessing and managing the risks that affect the organization’s objectives.
112) ERM contains eight components. Which one of the following is not a component of ERM?
A) Internal environment
B) Risk assessment
C) Risk response
D) Risk elimination
113) Which one of the following is not an element of the internal control process?
A) Control environment
B) Risk assessment
C) Risk response
D) Monitoring
114) Guidance for Section 404 compliance can be found in
A) COSO reports.
B) ISO 27002.
C) the United States Federal Sentencing Guidelines.
D) Guidance can be found in all of the above.
115) COSO’s Guidance on Monitoring Internal Control Systems includes the following phases
except
A) establishing a foundation for monitoring.
B) designing and executing monitoring procedures that are based on risk.
C) developing the objectives for the level of risk that can be tolerated by management.
D) assessing and reporting the results.
116) The problems small businesses encounter with internal control that are addressed by COSO
include the following except
A) effective boards of directors.
B) limited segregation of duties and increased focus on monitoring.
C) compensating for limitations in information technology.
D) outsourcing increased reporting requirements.
117) Small and large companies can gain cost efficiencies in internal control by
A) focusing financial items that have changed the most from period to period.
B) managing reporting objectives.
C) effectively managing the amount and types of documentation on adequate controls.
D) All of the above will enable small companies to gain cost efficiencies.
118) Presented below is a list of terms relating to accounting information systems, followed by
definitions of those terms.
Required: Match the letter next to each definition with the appropriate term. Each answer will be
used only once.
________ 1. Fidelity bond
________ 2. Tickler file
________ 3. Suspense account
________ 4. Anticipation
________ 5. Corrective controls
________ 6. Input controls
________ 7. Authorization
________ 8. Batch sequence
________ 9. Forensic accounting
________ 10. Managerial audit
A. A synonym for batch serial numbers
B. The expectation of a given transaction or event at a particular time
C. A contract with an insurance company that provides a financial guarantee of the honesty of
the individual who is named in the bond contract
D. A synonym for a managerial audit
E. A control total for items awaiting further processing
F. Designed to prevent or detect errors in the beginning stage of processing
G. An activity concerned with preventing and detecting fraud
H. A control file consisting of items sequenced by age used for processing or follow-up
purposes
I. These act to correct errors
J. Limits the initiation of a transaction or performance of an activity to selected individuals
119) Presented below is a list of terms relating to accounting information systems, followed by
definitions of those terms.
Required: Match the letter next to each definition with the appropriate term. Each answer will be
used only once.
________ 1. FCPA
________ 2. Audit committee
________ 3. Collusion
________ 4. Application controls matrix
________ 5. Internal auditing
________ 6. Control environment
________ 7. Cancellation
________ 8. Statutory sanction
________ 9. Format check
________ 10. Endorsement
A. Has responsibility for reviewing the reports of the company’s external auditors
B. The identification of documents to prevent their repeated use
C. A type of exposure
D. A law which requires publicly held companies to maintain adequate accounting systems
E. One of the main components of internal control
F. Agreement or conspiracy among two or more people to commit fraud
G. An example of this procedure is: all characters in the vendor number field are numeric
H. A technique for internal control analysis
I. Marking a form or document to restrict its further processing
J. An example of the monitoring component
120) Listed below is a list of terms relating to internal control processes, followed by definitions
of those terms.
Required: Match the letter next to each definition with the appropriate term. Each answer will be
used only once.
________ 1. Check digit
________ 2. Upstream resubmission
________ 3. Exposure
________ 4. Control register
________ 5. Hash total
________ 6. Internal control questionnaire
________ 7. Physical controls
________ 8. Preventive controls
________ 9. Run-to-run totals
________ 10. General controls
A. These affect all transaction processing
B. An internal control analysis technique
C. A detective control used to determine if input is correct
D. A log indicating the disposition and control values of batches or transactions
E. A detective control use to determine if processing is complete
F. The sum of a batch’s preprinted check numbers is an example
G. Segregation of duties is an example
H. A limited access area, for example
I. Business interruption is an example
J. This is an example of a corrective control
121) Listed below are various controls found in a system of internal control.
Required: Label each of the following controls as preventive (P), detective (D), or corrective (C).
________ 1. Transaction trail
________ 2. Rotation of duties
________ 3. Reconciliation
________ 4. Visual verification
________ 5. Batch controls
________ 6. Endorsement
________ 7. Redundant processing
________ 8. Training of Personnel
________ 9. Batch balancing
________ 10. Automatic error correction
122) Presented below are ten control features, followed by ten statements describing either the
achievement of a control feature (i.e., a system success) or a system deficiency.
Required: On the answer line to the left of each control feature, insert the capital letter from the
list of the most closely related system success or deficiency. Each letter will be used only once.
________ 1. Backup and recovery
________ 2. Check digit
________ 3. Batch balancing
________ 4. Format check
________ 5. Suspense file
________ 6. Hash total
________ 7. Password
________ 8. Turnaround document
________ 9. Forms design
________ 10. Reasonableness test
A. This helps control input accuracy by ensuring that dates are properly entered using the format
MM/DD/YYYY.
B. Many customer account numbers entered into the billing transaction file are invalid.
C. This could help prevent the entry of inconsistent data elements, such as entering a tax code
for a customer for whom sales should be nontaxable.
D. In entering a batch of invoices into the computer, an operator made several errors in keying
the invoice numbers. As a result, the computer program updated computer accounts with
incorrect invoice information.
E. A new field salesperson omitted several data elements when completing the sales order
forms.
F. The vendor master file was damaged in yesterday’s update, and cannot be used for today’s
update.
G. A former employee gained access to the computer system and damaged the customer master
file.
H. A computer operator discovered that he had not input all items in a batch.
I. This feature speeds up data entry because some of the input data is prerecorded on the source
document and can be scanned.
J. A supervisor reviews this document frequently to dispose of partially processed transactions.
123) Listed below are several examples of internal control procedures.
Required: For the following internal control procedures, give the reason or objective of the
control:
a. Checks are mailed by someone other than the person who prepares and signs a check.
b. The accounting department matches invoices received to receiving reports prior to recording
the payable.
c. The cashier deposits cash and mails checks to vendors, but does not record any information in
the accounting system.
d. The employee performing the bank reconciliation does not perform any cash handling or
recording activities.
124) Listed below are examples of several internal control procedures.
Required: For the following internal control procedures, give the objective of the control:
a. The stock of unused checks is kept under lock and key.
b. “Surprise” counts of cash funds are conducted periodically.
c. All purchases must be made by the purchasing department.
d. The accounting department matches invoices to copies of purchase orders.
125) Listed below are four examples of possible exposures found in the various business cycles
of a certain business.
Required: For each example, identify the transaction cycle control objective and give a solution
which will help to reduce the possible exposure found in each example.
a. There is no written policy regarding access to the securities the company purchases as an
investment. The securities are in a file in the bottom drawer of a file cabinet in the office.
b. The office supervisor makes “spur of the moment” decisions regarding the hiring and use of
vendors for office supplies and maintenance of the office and warehouse building.
c. A sales representative sent out a shipment of merchandise to a customer on Friday afternoon,
telling the warehouse supervisor that he would write up the paperwork the following Monday
morning.
d. The clerk who prepares and sends statements to customers was hurt in an auto accident and is
on sick leave. As a result, the sales representative now prepares and sends out customer
statements when he has some free time.
126) Metaluna, Inc., is a new software company that recently began operations in 2003.
Metaluna’s stock is publicly traded. Listed below are several statements made recently by the
CEO and Chairman of the Board of Metaluna at a directors meeting.
Required: Please comment on each statement in light of the requirements imposed by the
Sarbanes-Oxley Act (SOA) of 2002.
a. “I would like our external auditors to have a major role in our financial systems design and
implementation in the future. They seem like a good group of knowledgeable individuals who I
believe can help us in this area.”
b. “As you know, our controller resigned from her position this week. I would like to see if
someone from the auditing firm who worked on our most recent audit would be interested in
coming ‘on board’ with us.”
c. “I am ready to approve a $20,000 company loan to our CIO to help him send his daughter to
Stanford in the fall.”
d. “The audit committee has suggested that a new auditing firm be hired after completion of our
current audit. I would like the board to make a resolution giving me sole discretion and
authorization in this matter, since I believe I am better qualified to make such a decision.”
127) The following three questions on an internal control questionnaire relate to comparisons of
one amount to a second amount.
Required: What is the purpose of each of these comparisons?
a. Does the company compare budgeted amounts with actual expenditures?
b. Does the company mail monthly statements of account to all customers?
c. Does the company adjust inventory records to physical counts at least once a year?
128) Briefly describe five types of common business exposures and their related causes.
129) Discuss three behavioral issues that should be considered when implementing an internal
control plan.
130) Give five examples of ways a company may be exposed to excessive costs.
131) Discuss why a fraud examiner needs to be educated in the fields of accounting, law, and
criminology to properly perform a fraud investigation.
132) What is corporate culture? Why might someone argue that the corporate culture has more
influence over ethical behavior in a firm than the corporate ethics code of conduct?
133) Enterprise risk management contains eight components. Identify at least six and explain its
importance to managing risk within a company.