Multiple-Choice Questions on Ethics, Fraud, and Internal Control.

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Multiple-Choice Questions

1. Management can expect various benefits to follow from implementing a system of strong internal control. Which of the following benefits is least likely to occur?

a. reduction of cost of an external audit

b. prevention of employee collusion to commit fraud

c. availability of reliable data for decision-making purposes

d. some assurance of compliance with the Foreign Corrupt Practices Act of 1977

e. some assurance that important documents and records are protected

2. Which of the following situations is NOT a segregation of duties violation?

a. The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run the check-signing machine.

b. The warehouse clerk, who has custodial responsibility over inventory in the warehouse, selects the vendor and authorizes purchases when inventories are low.

c. The sales manager has the responsibility to approve credit and the authority to write off accounts.

d. The department time clerk is given the undis- tributed payroll checks to mail to absent employees.

e. The accounting clerk who shares the record- keeping responsibility for the accounts receiva- ble subsidiary ledger performs the monthly rec- onciliation of the subsidiary ledger and the control account.

3. The underlying assumption of reasonable assur- ance regarding implementation of internal control means that

a. auditor is reasonably assured that fraud has not occurred in the period.

b. auditors are reasonably assured that employee carelessness can weaken an internal control structure.

c. implementation of the control procedure should not have a significant adverse effect on efficiency or profitability.

d. management assertions about control effective- ness should provide auditors with reasonable assurance.

e. a control applies reasonably well to all forms of computer technology.

4. To conceal the theft of cash receipts from customers in payment of their accounts, which of the following journal entries should the bookkeeper make?

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a. Miscellaneous Expense Cash

b. Petty Cash Cash

c. Cash Accounts Receivable

d. Sales Returns Accounts Receivable

e. None of the above

5. Which of the following controls would best pre- vent the lapping of accounts receivable?

a. Segregate duties so that the clerk responsible for recording in the accounts receivable subsidiary ledger has no access to the general ledger.

b. Request that customers review their monthly statements and report any unrecorded cash payments.

c. Require customers to send payments directly to the company’s bank.

d. Request that customers make checks payable to the company.

6. Providing timely information about transactions in sufficient detail to permit proper classification and financial reporting is an example of

a. the control environment.

b. risk assessment.

c. information and communication.

d. monitoring.

7. Ensuring that all material transactions processed by the information system are valid and in accordance with management’s objectives is an example of

a. transaction authorization.

b. supervision.

c. accounting records.

d. independent verification.

8. Which of the following is often called a compensating control?

a. transaction authorization

b. supervision

c. accounting records

d. independent verification

9. Which of the following is NOT an element of the fraud triangle?

a. ethics

b. justifiable reliance

c. situational pressure

d. opportunity

10. The fraud scheme that is similar to the ‘‘borrowing from Peter to pay Paul’’ scheme is

a. expense account fraud.

b. bribery.

c. lapping.

d. transaction fraud.

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