IDENTIFY THE FRAUD RISK FACTOR IN EACH OF THE FOLLOWING SITUATIONS: options are:

a.OPPORTUNITY

b.PRESSURE

c.RATIONALIZATION

1.A worker feels that fellow employees are not honest.

2.The bookkeeper is also the company treasurer.

3.No one matches the cash in the register to receipts when shifts end.

4.Managers are expected to grow business or be fired.

5.The owner told the cashier to issue receipt only when a customer requested for it.

6.A worker feels that fellow employees are not honest.

7.The bookkeeper is also the company treasurer.

8.No one matches the cash in the register to receipts when shifts end.

9.Managers are expected to grow business or be fired.

10.The owner told the cashier to issue receipt only when a customer requested for it.

1.Assuming cash receipts from credit sales have been misappropriated, which of the following is likely to conceal the misappropriation and unlikely to be detected?*

a.overstating the accounts receivable control account

b.overstating the accounts receivable subsidiary ledger

c.understating the sales journal

d.overstating the cash receipts journal

2.Which of management's assertions with respect to implementing internal controls is the auditor primarily concerned?*

a.compliance with applicable laws and regulations

b.efficiency of operations

c.reliability of financial reporting

d.effectiveness of operations

3.Acompany frequently sells products ata price below inventory cost. Essential controls in the risk assessment process would include:*

a.adequate controls that address the risk of overstatement of cost of goods sold.

b.adequate controls that address the risk of understatement of inventory.

c.adequate controls that address the risk of overstating inventory.

d.adequate controls that address the risk of not including a purchased item in inventory.

4.Which of the following would a fraudster perceive as a pressure?*

a.lack of management oversight

b.lack of an internal audit function

c.living beyond one's means

d.everyone does it

5.Which of the following assets require the strongest of internal controls?*

a.credit cards

b.computer equipment

c.inventory

d.cash

6.Which of the following is not a limitation of the internal control system?*

a.the industry is inherently risky

b.fraud occurs because of collusion between two employees

c.errors are made due to employee fatigue

d.management instructs the bookkeeper to make fraudulent journal entries

7.Which of the following is not a basic characteristics of a system of cash control?*

a.daily deposit of all cash received

b.combined responsibility for handling and recording cash.

c.use of a voucher system

d.Internal audits at irregular intervals

8.Which of the following control procedures could prevent or detect payment of goods not received?*

a.comparing goods received with goods requisitioned

b.matching the purchase order, receiving report, and vendor's invoice

c.counting goods when received

d.verifying vouchers for accuracy and approval

9.The concept of reasonable assurance suggests that*

a.the objectives achieved by an internal control system vary depending on the data processing method

b.a well-designed system of internal controls will detect all fraudulent activity

c.the effectiveness of internal controls is a function of the industry environment

d.the cost of an internal control should be less than the benefit it provides

10. According to COSO, an effective accounting system performs all of the following except*

a.separates the duties of data entry and report generation

b.identifies and records all valid financial transactions

c.records all financial transactions promptly

d.records financial transactions in the appropriate accounting period

INDICATE WHETHER THE CONTROL FOR CASH REPRESENTS A STRENGTH OR A WEAKNESS.

1.After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.

2.The collection at the Sunday mass is taken by a team of ushers. The head usher counts the collection in the church office after each mass. He then places the collection and a notation of the amount in the church safe. The next morning, the financial secretary opens the safe and recounts the collection.

3.Alongside with the petty cash expense receipts for postage, office supplies, etc., several post-dated employee checks are in the petty cash fund.

4.At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their cash registers.

5.At the end of the day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.

6.After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.

7.The collection at the Sunday mass is taken by a team of ushers. The head usher counts the collection in the church office after each mass. He then places the collection and a notation of the amount in the church safe. The next morning, the financial secretary opens the safe and recounts the collection.

8. Alongside with the petty cash expense receipts for postage, office supplies, etc., several post-dated employee checks are in the petty cash fund.

9.At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their cash registers.

10.At the end of the day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.

IDENTIFY THE EFFECT OF THE FOLLOWING TRANSACTIONS TO THE RISK OF MATERIAL MISSTATEMENT TO FINANCIAL STATEMENTS. options are:

a.INCREASE

b.DECREASE

c.NO EFFECT

1.The internal audit reports to the chairman of the board who is a minority stockholder.

2.The employees of the company are being paid on a weekly basis.

3.The company has shown an ability to generate a positive cash flow from operations, while reporting earnings and earnings growth.

4.The accounting department has experienced a low turnover rate of key personnel.

5.The company recently opened up its new international branch in HongKong, catering to OFWs in that location.

6.The internal audit reports to the chairman of the board who is a minority stockholder.

7.The employees of the company are being paid on a weekly basis.

8.The company has shown an ability to generate a positive cash flow from operations, while reporting earnings and earnings growth.

9.The accounting department has experienced a low turnover rate of key personnel.

10.The company recently opened up its new international branch in HongKong, catering to OFWs in that location.

TRUE OR FALSE

1.Transactions are the basic components of business operations and are, therefore, the primary subject matter of internal control.*

2.Incompatible functions are those that place any person in a position to both perpetrate and conceal errors or irregularities.*

3.Examples of segregation of duties include reporting, reviewing and approving reconciliations, and approval and control of documents.*

4.Bank reconciliation is best prepared by the Accountant rather than the Internal Auditor.*

5.A purchasing agent receiving a kickback from a vendor is a common error in the acquisition and payment cycle and it is difficult to detect.*

6.The write-off of defaulted notes receivable must be approved in writing by the accountant of the company.*

7.An important responsibility of the external auditor is the establishment and maintenance of internal control on an ongoing basis.*

8.An internal audit function acts as a higher level of control to determine that the internal control structure functions effectively.*

9.Opportunity, is a fraud risk factor,that is within the control of the company.*

10. Only those transactions involving material amounts should be authorized before they are executed.*