Chap 6 7 8 - SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS 6.23...

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SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS 6.23 a. Correct Risk is high when the company always estimates the inventory but never take a complete physical count. b. Incorrect Risk is low when the petty cash box is always locked in the desk of the custodian. c. Incorrect Risk is lower when management has published a company code of ethics and sends frequent communication newsletters about it. d. Incorrect Risk is lower when the board of directors reviews and approves all investment transactions. 6.24 a. Incorrect Airtight control systems of checks and supervision is not the best long-run way to stop fraud. b. Incorrect Name an "ethics officer" who is responsible for receiving and acting upon fraud tips is not the best long-run way to stop fraud. c. Incorrect Place dedicated "hotline" telephones on walls around the workplace with direct communication to the company ethics officer is not the best long-run way to stop fraud. d. Correct Practice management "of the people and for the people" to help them share personal and professional problems is the best long-run way to stop fraud. 6.25 a. Incorrect Numerous cash refunds have been made to different people at the same post office box address is an indicator of cash refund fraud. b. Incorrect Internal auditor cannot locate several credit memos to support reductions of customers' balances is an indicator of returned goods fraud. c. Correct Bank reconciliation has no outstanding checks or deposits older than 15 days is a sign of a good bank reconciliation, a fraud detection technique. d. Incorrect Three people were absent the day the auditors handed out the paychecks and have not picked them up four weeks later is an indicator of padded payroll fraud. 6.26 a. Incorrect Overstating sales revenue and overstating customer accounts receivable balances is a way to misstate financial statements for management fraud. b. Correct Overstating sales revenue and overstating bad debt expense does not misstate income or assets but will hide an employee embezzlement. c. Incorrect Understating interest expense and understating accrued interest payable is a way to misstate financial statements for management fraud. d. Incorrect Omit the disclosure information about related party sales to the president's relatives at below-market prices is a way to misstate financial statements for management fraud. 6.27 a. Correct The inventory warehouse manager can steal inventory and manipulate the records. b. Incorrect Cashier prepared the bank deposit, endorsed the checks with a company stamp, and took the cash and checks to the bank for deposit (no other bookkeeping duties). The cashier might steal currency, but needs access to the records to cover up a theft of customer payments. c.
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This note was uploaded on 09/26/2011 for the course BA 101 taught by Professor Jackson during the Summer '06 term at University of Nevada, Las Vegas.

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Chap 6 7 8 - SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS 6.23...

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