Internal Control Homework

Front 1

One the last day of the year, a truckload of beef was set aside for shipment but was not shipped. Because it was still on hand the inventory was counted. The shipping document was dated the last day of the year, so it was also included as a current-year sale.

Back 1

LOC- adequate doc/recs, independent checks

AO- Timing

C- Coordinate the physical count of inventory on the last day of the year with the recording of sales to make sure certain counted inventory has not been billed and billed inventory has not been counted

Front 2

The incorrect price was used on sales invoices for billing shipments to customers because the wrong price was entered into the computer mast file of prices.

Back 2

LOC- adequate docs, independent checks

AO- Accuracy

C- changes to the computer master file of prices are reviewed when master file is update

Front 3

A vendor invoice was paid even though no merchandise was ever received. The accounts payable software application does not require the input of a valid receiving report number before payment can be made

Back 3

LOC- Proper authorization, adeq docs

AO- Existence

C- software requires the input of a valid RR number before the software will process a payment

Front 4

Employees in the receiving department took sides of beef for their personal use. When a shipment of meat was received, the receiving department filled out a RR and forwarded it to the accounting department for the amount of goods actually received. At the time, 2 sides of beef were put in an employee's pickup truck rather than in the storage freezer.

Back 4

LOC- Adeq docs, physical controls, proper autho

AO- Existence

C- Take physical counts of actual inventory periodically

Front 5

An accounts payable clerk processed payments to himself by adding a ficitious vendor address to the approved vendor master file

Back 5

LOC- Separation of duties

AO- Existence

C- Restrict acc payable clerk from being able to make changes to vendors master file

Front 6

During the physical count of inventory of the retail grocery, one counter wrote down the wrong description of several products and miscounted the quantity.

Back 6

LOC- Independent check on performance

AO- Accuracy

C- counts by qualified personnel and checks on performance

Front 7

A salesperson sold an entire carload of lamb at a price below cost because she did not know the cost of lamb had increased in the past week

Back 7

LOC- Proper authorization

AO- Accuracy

C- Salesperson has current price list and require independent approval of all transactions before shipment is made

Front 8

A vendor's invoice was paid twice for the same shipment. The second payment arose because the vendor sent a duplicate copy of the original 2 weeks after the payment was due.

Back 8

LOC- Adeq recs

AO- Existence

C- RR attaced to vendor's invoice before a payment is made

Front 9

When considering IC, an auditor must be aware of the concept of reasonable assurance, which recognizes the

Back 9

cost of IC should not exceed the benefits expected to be derived

Front 10

Which of the following is not a inherent limitation of the potential effectiveness of an entity's IC structure?

Back 10

Incompatible duties

Front 11

The accounts payable supervisor reviews the completed reconciliations to ensure they have been completed. The work performed by supervisor is example of what?

Back 11

Monitoring

Front 12

What is an example of an operation deficiency in internal controls?

Back 12

Clerks who conduct monthly reconciliation of intercompany accounts do not understand the nature of misstatements that could occur in those accounts

Front 13

A material weakness in IC represents a control deficiency that

Back 13

results in a reasonable possibility that internal control will not prevent or detect material f.s. misstatements

Front 14

An auditor of a large public company identifies a material weakness in IC. The auditor

Back 14

must issue an adverse opinion on IC over financial reporting

Front 15

When a private company auditor's TOC identify deficiencies in IC, the auditor

Back 15

must communicate both significant deficiencies and material weaknesses to those charged with governance

Front 16

When obtaining an understanding of an entity's IC procedures, an auditor should concentrate on the substance of procedures rather than their form because

Back 16

management may establish appropriate procedures but not enforce compliance with them

Front 17

The auditor's TOC revealed that required approvals of cash disbursements were absent for a large number of sample transactions examined. The auditor will least likely response

Back 17

by increasing the PDR

Front 18

An auditor uses assessed CR to

Back 18

determine the acceptable level of PDR for f.s. assertions

Front 19

On the basis of audit evidence gathered and evaluated, an auditor decides to increase assessed CR from that originally planned. To achieve an audit risk that is substantially the same as the planned, the auditor will

Back 19

decrease PDR