EBK AUDITING & ASSURANCE SERVICES: A SY
10th Edition
ISBN: 9781259293245
Author: Jr
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 13, Problem 13.16MCQ
To determine
Concept Introduction:
Internal controls are policies and procedures defined by the management to ensure the smooth functioning of the business processes. Internal controls ensure the complete and correct accounting and safeguards to the assets.
To choose: the internal control activity designed to detect errors and frauds related to the custody of inventory.
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What are the risks that are caused by the following combination of tasks?
- The warehouse clerk who has custodial responsibility over inventory in the warehouse, updates the inventory subsidiary ledger and prepares an inventory summary for the general ledger department.
- The billing clerk bills customers and records sales in the sales journal.
Which of the following is not generally an internal control activity?
a.Physically counting inventory in a perpetual inventory system
b.Establishing clear lines of authority to carry out specific tasks
c.Reducing the cost of hiring seasonal employees
d.Limiting access to computerized accounting records
Which of the following internal control activities most likely addresses the completeness assertion for inventory?a. The work-in-process account is periodically reconciled with subsidiary inventory records.b. Employees responsible for custody of finished goods do not perform the receiving function.c. Receiving reports are prenumbered, and the numbering sequence is checked periodically.d. There is a separation of duties between the payroll department and inventory accounting personnel
Chapter 13 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
Ch. 13 - Prob. 13.1RQCh. 13 - Prob. 13.2RQCh. 13 - Prob. 13.3RQCh. 13 - Prob. 13.4RQCh. 13 - Prob. 13.5RQCh. 13 - Prob. 13.6RQCh. 13 - Prob. 13.7RQCh. 13 - Prob. 13.8RQCh. 13 - Prob. 13.9RQCh. 13 - Prob. 13.10RQ
Ch. 13 - Prob. 13.11RQCh. 13 - Prob. 13.12RQCh. 13 - Prob. 13.13RQCh. 13 - Prob. 13.14MCQCh. 13 - Prob. 13.15MCQCh. 13 - Prob. 13.16MCQCh. 13 - Prob. 13.17MCQCh. 13 - Prob. 13.18MCQCh. 13 - Prob. 13.19MCQCh. 13 - Prob. 13.20MCQCh. 13 - Prob. 13.21MCQCh. 13 - Prob. 13.22MCQCh. 13 - Prob. 13.23MCQCh. 13 - Prob. 13.24MCQCh. 13 - Prob. 13.25MCQCh. 13 - Prob. 13.26MCQCh. 13 - Prob. 13.27PCh. 13 - Prob. 13.28PCh. 13 - Prob. 13.29PCh. 13 - Prob. 13.30PCh. 13 - Prob. 13.31PCh. 13 - Prob. 13.32P
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- Following are audit procedures commonlyperformed in the inventory and warehousing cycle for a manufacturing company:1. Read the client’s physical inventory instructions and observe whether they are beingfollowed by those responsible for counting the inventory.2. Account for a sequence of inventory tags and trace each tag to the physical inventoryto make sure it actually exists.3. Compare the client’s count of physical inventory at an interim date with the perpetualinventory master file.4. Trace the auditor’s test counts recorded in the audit files to the final inventorycompilation and compare the tag number, description, and quantity.5. Compare the unit price on the final inventory summary with vendors’ invoices.6. Account for a sequence of raw material requisitions and examine each requisitionfor an authorized approval.7. Trace the recorded additions on the finished goods perpetual inventory master fileto the records for completed production.a. Identify whether each of the procedures…arrow_forwardSales orders are written by sales people who have no access to the goods, which are released by warehouse personnel. This is example of: an analytical review establishing a system for storing and counting inventory proper documentation that is monitored properly segregation of dutiesarrow_forwardKent manages the physical goods inventory in the warehouse and he also maintains the accounting records of the inventory held there. Which of the following internal control activities have been violated? A. Establishment of authorization B. Segregation of duties C. Documentation and record keeping procedures D. Checks on recorded amountsarrow_forward
- How does the procedure for determining inventory requirements differ between a basic batch-processing system and batch processing with real-time data input of sales and receipts of inventory? What about for the procedures the receiving department uses?arrow_forwardWhich of the following will be the most appropriate test to determine wherether purchase orders are being processed on a timely basis? a. Determine the dates of unpaid accounts payable invoices. b.Compare dates of selected purchase orders with those of purchase requisitions c.select a block of used purchase order numbers and account for all number in the block d. discuss proccessing procedures with operating personnel and observe actual processing of purchases.arrow_forwardSegregation of Functions Comment on the specific risks (if any) that are caused by the following combination of tasks. A) A sales manager, who works on commission based on gross sales, approves credit and has the authority to write off uncollectible accounts. B) The warehouse clerk, who has custodial responsibility over inventory in the warehouse, updates the inventory subsidiary ledger and prepares an inventory summary for the general ledger department. C). The billing clerk bills customers and records sales in the sales journal. D). The shop foreman approves and submits time cards to timekeeping and distributes paychecks to employees. E) The accounting clerk posts to individual accounts receivable subsidiary accounts and performs the reconciliation of the subsidiary ledger and the GL control account.arrow_forward
- Which, if any, of the following situations represent improper segregation of functions?a. The billing department prepares the customers’ invoices, and the accounts receivable department posts to the customers’ accounts.b. The sales department approves sales credit memos as the result of product returns, and subsequent adjustments to the customer accounts are performed by the accounts receivable department.c. The shipping department ships goods that have been retrieved from stock by warehouse personnel.d. The general accounting department posts to the general ledger accounts after receiving journal vouchers that are prepared by the billing department.arrow_forwardAnswer the following questions. a. Which department is responsible for initiating the purchase of materials? b. What is the name of the document generated by the department identified in (a) above? c. Typically, multiple copies of a purchase order are prepared. One copy should go to the vendor, and one is retained in the purchasing department. To achieve proper control, which other departments should receive copies of the purchase order? d. What documents does the accounts payable clerk review before setting up a liability? e. Which document transfers responsibility for goods sold to a common carrier?arrow_forwardPayable ICQ Items: Assertions, Tests of Controls, and Possible Errors or Frauds. Following is a selection of items from internal control questionnaires.1. Are purchase orders above a certain level approved by an officer?2. Are the quantity and quality of goods received determined at the time of receipt by receiving personnel independent of the purchasing department?3. Are vendors’ invoices matched against purchase orders and receiving reports before a liability is recorded?4. Are journal entries authorized at appropriate levels?Required:For each preceding item:a. Identify the management assertion to which it applies.b. Specify one test of controls auditors could use to determine whether the control was operating effectively.c. Give an example of an error or fraud that could occur if the control were absent or ineffective.d. Write a substantive procedure that could find errors or frauds that could result from the absence or ineffectiveness of the control items.arrow_forward
- "In order to determine whether internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor would select from a sample of transactions from the population represented by the" Customer order file. Bill of lading file. Subsidiary-ledger Sales invoice filearrow_forwardWhich, if any, of the following situations represent improper segregation of functions?A. The billing department prepares the customers ‘invoices, and the AR department posts to thecustomers’ accounts.B The sales department approves sales credit memos as the result of product returns, and subsequentadjustments to the customer accounts are performed by the AR department.C The shipping department ships goods that have been retrieved from stock by warehouse personnel.D. The general accounting department posts to the general ledger accounts after receiving journalvouchers that are prepared by the billing department.arrow_forwardWhen evaluating inventory controls, an auditor would be least likely toa. Inspect documents.b. Make inquiries.c. Observe procedures.d. Consider policy and procedure manualsarrow_forward
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