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Unformatted text preview: Internal Control: Concepts M ULT IPLE CHO ICE: 1. The basic concept of internal control which recognizes that the cost of internal control should not exceed the benefits expected to be derived is known as a. Management by exception. b. Management responsibility. c. Limited liability. d. Reasonable assurance. 2. Of the following control environment characteristics, identify the one that contributes most to effective internal control a. The audit committee consists of the president, two vice- presidents, and the corporate controller. b. The company does not have a centralized human resources function. c. The company has an effective internal audit staff that monitors controls on a continuous basis. d. The company routinely transacts business with related parties. 3. It would be appropriate for the payroll accounting department to be responsible for which of the following functions? a. Approval of employee time records. b. Maintenance of records of employment, discharges, and pay increases. c. Preparation of periodic governmental reports as to employees' earnings and withholding taxes. d. Temporary retention of unclaimed employee paychecks. 4. The most effective control to prevent unbilled and unrecorded shipments of finished goods is to a. Require all outgoing shipments to be accompanied by a prenumbered shipping order and bill of lading (signed by the carrier). Forward a copy of these documents to accounting, to be placed in an open file awaiting receipt of the customer invoice copy. b. Forward a copy of the shipping order and bill of lading to billing. c. Implement a policy that prevents sales invoices from being mailed to customers in the absence of a properly approved shipping order and bill of lading signed by the carrier. d. Forward a copy a the signed bill of lading to the stores manager. 5. Apex Manufacturing Corporation mass produces eight different products. The controller, who is interested in strengthening internal controls over the accounting for materials used in production, would be most likely to implement a. An economic order quantity (EOQ) system. b. A job order cost accounting system. c. A perpetual inventory system. d. A separation of duties among production personnel. 6. Which of the following activities represents both an appropriate human resources function and a deterrent to payroll fraud? a. Distribution of paychecks. b. Authorization of overtime. c. Authorization of additions to and deletions from the payroll. d. Collection and retention of unclaimed paychecks. 7. Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control procedures over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls could cause an a. Understatement of revenues, receivables, and inventory....
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- Spring '10