cpa audit review ch7 review 4

  1. Each of the following is an appropriate control over securities and investments except

    A.Custodian bonded and separate from investment records.

    B.Proper authorization of transactions.

    C.Custodian separate from treasury function.

    D.Storage in a safe-deposit box.
    C.Custodian separate from treasury function.

    The custody of cash and securities should be placed with the treasury function. Thus, the CFO should have custody of securities and investments.
  2. During the audit of a construction contract, it was discovered that the contractor was being paid for each ton of dirt removed. The contract called for payment based on cubic yards removed. Which internal control might have prevented this error?

    A.Comparison of invoices with purchase orders or contracts.

    B.Comparison of invoices with receiving reports.

    C.Comparison of actual costs with budgeted costs.

    D.Extension checks of invoice amounts.
    A.Comparison of invoices with purchase orders or contracts.

    The contractor’s invoice would have stated a unit of measure different from that in the contract. Thus, a comparison of the invoice with the original contract would have disclosed the error.
  3. In assessing risks of material misstatement for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?

    A voucher signifies a liability. Its issuance is recorded in the voucher register after comparison of the vendor’s invoice with the purchase requisition, purchase order, and receiving report. The direction of testing is an important consideration in determining the relevant assertion. Selecting a sample of recorded entries in the voucher register and vouching them to the supporting documentation provides evidence that the transactions occurred.
  4. Which of the following control activities is not usually performed with regard to vouchers payable in the accounting department?

    A.Matching the receiving report with the purchase order.

    B.Controlling the mailing of the check and remittance advice.

    C.Determining the mathematical accuracy of the vendor’s invoice.

    D.Having an authorized person approve the voucher.
    B.Controlling the mailing of the check and remittance advice.

    The cash disbursements department, which is responsible to the CFO, has an asset custody function that should be segregated from the recording function of the accounting department. Consequently, checks for disbursements should be signed by a responsible person in that department after necessary supporting evidence has been examined. This individual also should be responsible for canceling the supporting documentation and mailing the signed checks and remittance advices. The documentation typically consists of a payment voucher, requisition, purchase order, receiving report, and vendor invoice.
  5. Apex Manufacturing Corporation mass produces eight different products. The controller who is interested in strengthening internal control over the accounting for materials used in production is most likely to implement a(n)
    Perpetual inventory system.

    A perpetual inventory system provides for continuous updating of inventory records and thus accounts for materials used. Close and continuous attention must be paid to materials usage to keep a perpetual system up to date.
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cpa audit review ch7 review 4
cpa audit review ch7 review 4