Question 1To what does the following relate: The Internal Auditors perform random testing on controls to ensure that they are operating effectively 1.Control activities – access controls 2.Monitoring of controls 3.Inherent limitations – cost vs benefit 4.Inherent limitations – human error, time constraints Question 2The following is not one of the five components of internal control. 1.Control Environment 2.Entity’s risk assessment process 3.Information system 4.Segregation of dutiesQuestion 3 To what does the following relate: All invoices are pre-printed, sequentially numbered, and pre-numbered 1.Control activities – documentation and records 2.Validity of transactions 3.Monitoring of controls 4.Inherent limitations-human error, time constraintsQuestion 4To what does the following relate: Before a purchase of inventory can be made, it has to be authorized and supported by all relevant supporting documentation. 1.Monitoring of controls 2.Validity of transactions 3.Inherent limitations- cost vs benefit 4.Inherent limitations – human error, time constraints Question 5To what does the following relate: Although the barcoding system in the warehouse is outdated and ineffective, the company cannot see the benefit in upgrading the system based on the high cost of the system. 1.Control environment 2.Inherent limitations – cost vs benefit 3.Validity of transactions 4.Control activities – independent checks and reconciliationsQuestion 6One of the six areas that an auditor needs to consider when obtaining an understanding of the entity is 1.Skills and competence of the audit team 2.Communication with the previous auditors 3.The entity’s internal control 4.Detection riskQuestion 7To what does the following relate: Any warehouse personnel who is caught stealing inventory is dismissed immediately 1.Validity of transactions 2.Control activities – independent checks and reconciliations 3.Control environment 4.Inherent limitations – Human Error, Time Constraints

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Answered: Question 1 To what does the following…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 1

To what does the following relate: The Internal Auditors perform random testing on controls to ensure that they are operating effectively

	1.	Control activities – access controls
	2.	Monitoring of controls
	3.	Inherent limitations – cost vs benefit
	4.	Inherent limitations – human error, time constraints

Question 2

The following is not one of the five components of internal control.

	1.	Control Environment
	2.	Entity’s risk assessment process
	3.	Information system
	4.	Segregation of duties

Question 3

To what does the following relate: All invoices are pre-printed, sequentially numbered, and pre-numbered

	1.	Control activities – documentation and records
	2.	Validity of transactions
	3.	Monitoring of controls
	4.	Inherent limitations-human error, time constraints

Question 4

To what does the following relate: Before a purchase of inventory can be made, it has to be authorized and supported by all relevant supporting documentation.

	1.	Monitoring of controls
	2.	Validity of transactions
	3.	Inherent limitations- cost vs benefit
	4.	Inherent limitations – human error, time constraints

Question 5

To what does the following relate: Although the barcoding system in the warehouse is outdated and ineffective, the company cannot see the benefit in upgrading the system based on the high cost of the system.

	1.	Control environment
	2.	Inherent limitations – cost vs benefit
	3.	Validity of transactions
	4.	Control activities – independent checks and reconciliations

Question 6

One of the six areas that an auditor needs to consider when obtaining an understanding of the entity is

	1.	Skills and competence of the audit team
	2.	Communication with the previous auditors
	3.	The entity’s internal control
	4.	Detection risk

Question 7

To what does the following relate: Any warehouse personnel who is caught stealing inventory is dismissed immediately

	1.	Validity of transactions
	2.	Control activities – independent checks and reconciliations
	3.	Control environment
	4.	Inherent limitations – Human Error, Time Constraints

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