cpa audit review ch7 review 6

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  1. An effective control that protects against the preparation of improper or inaccurate disbursements is to require that all checks be
    Signed by an officer after necessary supporting evidence has been examined.

    Checks for disbursements should be signed by an officer, normally the CFO, after necessary supporting evidence has been examined. The CFO should also be responsible for canceling the supporting documentation and mailing the signed checks and remittance advices. The documentation typically consists of a payment voucher, purchase order, receiving report, and a vendor invoice.
  2. In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also
    Is responsible for mailing the checks.

    The person responsible for signing the checks also should be responsible for assuring that the checks are mailed. This precaution assures limited access to the checks once they are signed.
  3. Organizations that move to implement EDI often use value-added networks (VANs). Which of the following would not normally be performed by a VAN?

    A.Store electronic purchase orders of one organization to be accessed by another organization.

    B.Provide common interfaces across organizations thereby eliminating the need for one organization to establish direct computer communication with a trading partner.

    C.Provide translations from clients’ computer applications to a standard protocol used for EDI communication.

    D.Maintain a log of all transactions of an organization with its trading partner.
    Provide translations from clients’ computer applications to a standard protocol used for EDI communication.

    Companies must purchase their own software to translate their data to a national standard protocol for EDI purposes, either ANSI X.12 in the U.S. or EDIFACT in Europe and most of the rest of the world. Once the data are in the standard format, the VAN handles all aspects of the communication. VANs are privately owned telecommunications carriers that sell capacity to outside users. Among other things, a VAN provides a mailbox service permitting EDI messages to be sent, sorted, and held until needed in the recipient’s computer system.
  4. An internal auditor is reviewing the company’s policy regarding investing in financial derivatives. The auditor would normally expect to find all of the following in the policy except a

    A.Statement indicating whether derivatives are to be used for hedging or speculative purposes.

    B.Statement requiring board review of each transaction because of the risk involved in such transactions.

    C.Specific limit on the amount authorized for any single trader.

    D.Specific authorization limit for the amount and types of derivatives that can be used by the organization.
    B.Statement requiring board review of each transaction because of the risk involved in such transactions.

    Policies are general statements that guide managers’ decision making. They are developed by the board of directors to provide guidelines for achieving objectives. Management is responsible for daily operations and should abide by the policies. Consequently, the board would not review each transaction.
  5. Which of the following questions is inappropriate on an internal control questionnaire concerning purchase transactions?

    A.Are an approved purchase requisition and a signed purchase order required for each purchase?

    B.Are all goods received in a centralized receiving department and counted, inspected, and compared with purchase orders on receipt?

    C.Are prenumbered purchase orders and receiving reports used and accounted for?

    D.Are intact cash receipts deposited daily in the bank?
    D.Are intact cash receipts deposited daily in the bank?

    The question about the daily deposit of intact cash receipts is related to the cash receipts cycle, not the purchases-payables-cash disbursements cycle.
  6. In meeting the control objective of safeguarding of assets, which department should be responsible for

    Distribution of Paychecks

    Custody of Unclaimed Paychecks

    Segregating paycheck preparation from distribution makes it more difficult for fictitious employees to receive payment. In principle, the payroll function should be divided into its authorization, recording, and custody functions. Authorization of hiring, wage rates, and deductions is provided by human resources. Authorization of hours worked is provided by production. Based upon these authorizations, accounting (the payroll department) calculates and records the payroll and prepares checks. The CFO signs and distributes payroll checks. Consistent with its asset custody function, the CFO should distribute paychecks or cash in a manual system (or make electronic funds transfers in a computerized system) so as to prevent payments to fictitious employees. Furthermore, the CFO, not the payroll department, should receive unclaimed paychecks or cash for safeguarding, and incomplete EFTs should not be returned to any of the other functions.
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cpa audit review ch7 review 6
2014-08-31 02:54:24
cpa audit review ch7

cpa audit review ch7 review 6
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