The Chief Financial Officer (CFO) of Bloomingdale found the below mentioned lapses in the internal control system of the firm upon investigation. You are required to identify which components of internal control and the related principles the firm has not been adhered to, due to which the lapses occurred. Also identify limitations of internal controls which are evident from the below mentioned scenarios.

Question-1: Bloomingdale saw a 35% growth in revenue in the last year. The increased sales was mainly due to the robust marketing strategy adopted by the firm and the liberal credit terms extended to its customers. The personnel at the collection department were not able to cope up with the sudden increase in work flow. Due to this the bad debts increased from a previous 2% of credit sales to 10.5% of credit sales during the current year.

Select one:

a. Control environment

b. Risk assessment

c. Existing control activities

d. Monitoring

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Question 2

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Due to an increase in the raw material prices, profits dropped considerably

Select one:

a. Existing control activities

b. Risk assessment

c. Control Environment

d. Monitoring

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Question 3

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Due to high level of production activities being carried out continuously during most part of the year, adequate machine maintenance was not undertaken. This has led to more than usual wear and tear of the factory machines. The manufacturing head was aware of the increased load of the excess production requirement on the machines but delayed the maintenance work in order to meet the production targets.

Select one:

a. Existing control activities

b. Risk assessment

c. Information and Communication

d. Monitoring

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Huge stock of inventory that were purchased became obsolete

Select one:

a. Risk Assessment

b. Existing control activities

c. Information and Communication

d. Monitoring

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In order to ensure that there were no delays in production process due to lack of raw material, the purchase department ordered raw material weeks before its requirement in the manufacturing process. Large stock of raw material was held during most part of the year, which led to increased need for working capital during the year.

Select one:

a. Risk Assessment

b. Control environment

c. Information and Communication

d. Monitoring

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Question 6

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In order to motivate the sales personnel to achieve higher sales targets their performance incentive was increased from 25% to 50%. Higher sales was also accompanied by an increase in accounts receivables and bad debts

Select one:

a. Control environment

b. Risk assessment

c. Information and Communication

d. Monitoring

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In order to motivate the sales personnel to achieve higher sales targets their performance incentive was increased from 25% to 50%. Higher sales was also accompanied by an increase in accounts receivables and bad debts Limitations of internal control?

Select one:

a. Cost constraints

b. Obsolescence

c. Collusion

d. Override by management

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Machine breakdown due to more than the usual production schedules carried on

Select one:

a. Control environment

b. Risk assessment

c. Monitoring

d. Existing control activities

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Question 9

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The finance manager of the firm has time and again pointed out the need to increase the number of staff in the accounts department of the firm in order to ensure adequate segregation of duties.

Select one:

a. Control environment

b. Existing control activities

c. Information and Communication

d. Risk Management

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Question 10

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The person managing the cash receipts was also posting the balances in the AR accounts, due to restricted number of employees in the accounts section.

Select one:

a. Control environment

b. Existing control activities

c. Information and Communication

d. Monitoring