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For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the:
The internal auditor generally is independent of other functions relating to cash.
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Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity’s employees?
A lockbox system is the best means of preventing fraud of cash by employees because they will never have direct access to cash receipts.
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An auditor would be most likely to identify a contingent liability by obtaining a (an):
An auditor would be most likely to identify a contingent liability by obtaining a standard bank confirmation which has an exception and comments box that specifically discloses contingent liabilities as the endorser of loans, for open letters of credit, etc.
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Of the following, which set of information does an auditor usually confirm on one form?
The AICPA standard bank confirmation form includes spaces for the bank to confirm both cash balances on deposit at the bank and collateral pledged on loans originating from the bank.
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Which of the following characteristics would most likely be indicative of check kiting?
Kiting occurs when a check is drawn on one bank and deposited in another bank and no record is made of the disbursement in the balance sheet of the bank.
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Of the following cycles, which would involve purchases, payables, and cash disbursements?
Only the expenditure cycle would involve these three aspects, whereas the cash cycle may include cash disbursements, only the expenditure cycle deals with all three.
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Proper segregation of duties requires that
Proper segregation of duties requires that bank reconciliations are prepared by those employees not associated with disbursing funds.
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Physical control over those in charge of disbursement would be:
Physical control is not associated with procedures. The use methods to protect assets such as physical barriers and mitigating activities such as insurance. The other examples are procedural internal control methods.
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At the end of each month, the senior accountant compares a vendor statement to the accounts payable. This is an example of a
Comparing independent documents with company records is a form of the review procedure. It doesn’t require authorization or physical control.
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In auditing A/P, an auditor's procedures most likely would focus primarily on management's assertion of:
When testing liabilities, an auditor generally is concerned about understatement. Therefore, in auditing A/P, an auditor's procedures most likely would focus primarily on management's assertion of completeness.
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The authority to accept incoming goods in receiving should be based on a(n):
The authority to accept incoming goods in receiving should be based upon an approved purchase order.
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Of the following, which is not a purchase transaction that should be segregated in the expenditure cycle?
Cash receipts would be involved in the revenue cycle so it could not be included in the expenditure cycle.
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An example of an internal control procedure regarding the sale of an item on credit.
In this scenario, management would review the terms of sale. The other choices are controls over the procurement cycle.
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Management would ensure proper segregation of duties by:
Items b, c, and d would be appropriate job duties for specific employees. Combining the preparation of adjusting entries with financial statements would be a departure from internal control.
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To ensure all transactions were included in financial statements
A subsequent test of accounts receivable is necessary to determine that all accounts receivable were included in the financial statements. The auditors will test subsequent receipts to determine if the revenue transaction was included in the appropriate period.
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Tests designed to detect credit sales made before the end of the year that has been recorded in the subsequent year provide assurance about management's assertion regarding:
Cutoff tests are designed to determine whether transactions have been recorded in the proper period. Tests to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about both cutoff and completeness.
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An auditor is required to confirm A/R if the A/R balances are:
The use of audit confirmations for an entity;'s A/R is a required GAAP procedure if the A/R balances are deemed material to the balance sheet.
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Kiting and lapping are methods of potential fraud that would be discovered in which business cycle?
These types of fraud would be cash related frauds as they require the movement of cash.
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For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the:
The internal auditor generally is independent of other functions relating to cash.
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Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity’s employees?
A lockbox system is the best means of preventing fraud of cash by employees because they will never have direct access to cash receipts.
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