Concept explainers
Authorization of transactions is a key control in most organizations. Authorizations should not be made by individuals who have incompatible functions. For each transaction (listed as A through I), indicate the individual or function (e.g., the head of a particular department) that should have the ability to authorize that transaction. Briefly provide a rationale for your answer.
a. Writing off old accounts receivable.
B. Committing the organization to acquire another company that is half the size of the existing company.
C. Paying an employee for overtime.
D. Shipping goods on account to a new customer.
E. Purchasing goods from a new vendor.
F. Temporarily investing funds in common stock investments instead of
G. Purchasing a new line of manufacturing equipment to remodel a production line at one of the company’s major divisions (the purchase represents a major new investment for the organization).
H. Replacing an older machine at one of the company’s major divisions.
I. Rewriting the company’s major computer program for processing purchase orders and accounts payable (the cost of rewriting the program will represent one quarter of the organization’s computer development budget for the year).
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Chapter 3 Solutions
ACP AUDITING - RISK BASED APPROACH
- Authorization of transactions is a key control in most organizations.Authorizations should not be made by individuals who haveincompatible functions. For each transaction (listed as A through I),indicate the individual or function (e.g., the head of a particular department)that should have the ability to authorize that transaction. Brieflyprovide a rationale for your answer.A. Writing off old accounts receivable.B. Committing the organization to acquire another company that ishalf the size of the existing company.C. Paying an employee for overtime.D. Shipping goods on account to a new customer.E. Purchasing goods from a new vendor.F. Temporarily investing funds in common stock investments insteadof money market funds.G. Purchasing a new line of manufacturing equipment to remodel aproduction line at one of the company’s major divisions (the purchaserepresents a major new investment for the organization).H. Replacing an older machine at one of the company’s majordivisions.I. Rewriting…arrow_forwardAuthorization of transactions is a key control in most organizations. Authorizations should not be made by individuals who have incompatible functions. For each transaction (listed as A through I), indicate the individual or function (e.g., the head of a particular department) that should have the ability to authorize that transaction. Briefly provide a rationale for your answer. Writing off old accounts receivable. Committing the organization to acquire another company that is half the size of the existing company. Paying an employee for overtime. Shipping goods on account to a new customer. Individual(Salesperson)- The salesperson may ship the goods which can be supervised by a senior. Purchasing goods from a new vendor. Individual- The purchase manager is responsible for acquiring goods from new vendors Temporarily investing funds in common stock investments instead of money market Funds. CEO Purchasing a new…arrow_forwardWhich of the following is NOT an issue with the Bradmark internal controls as it pertains to the revenue cycle? James Walker authorizes and executes transactions. The credit manager verbally authorizes credit increases. The warehouse clerk has access to assets and record keeping. Mary receives checks and remittances from the customer.arrow_forward
- Determine whether each procedure described below is an internal control strength or weakness; then identify the internal control principle violated or followed for each procedure. 1. The same employee requests, records, and makes payment for purchases of inventory. 2. The company saves money by having employees involved in operations perform the only review of internal controls. 3. Time is saved by not updating records for use of supplies. 4. The recordkeeper is not allowed to write checks or initiate EFTs. 5. Each salesclerk is in charge of her own cash drawer.arrow_forwardMini-Case Analysis Authorization of transactions is considered a key role in most organizations. Authorizations should not be made by individuals who have incompatible functions: Required: Indicate the individual or function (e.g. the head of a particular department) that should have the ability to authorize each if the following transactions. Briefly indicate the rationale for your answer. Writing off old accounts receivable Paying the employee for overtime Shipping goods on account to a new customer Temporarily investing funds in common stock investments instead of money market funds Rewriting the company’s major computer programs for processing purchase orders and accounts payable (the cost of rewriting the program will represent one quarter of the organization’s computer development budget for the year.arrow_forwardYou have been assigned to review the payment system of an enterprise. The finance director suspects that some duplicate payments may have been made. List five control procedures which you would expect to find.arrow_forward
- Which of the following does not demonstrate internal control practices? a. Allowing access of accounting computers to everyone b. Development of written policies and procedures c. Performing regular reconciliations of accounts d. Ensuring that cashier and bookkeeping duties are segregatedarrow_forwardVendor invoices are recorded for items that were never ordered by the company. Which of the following controls can best address this issue? O Procedures for rejected inputs O Reconcile bank account O Independent authorization to make payment Independent validation of vendor invoicesarrow_forwardWhich of the following benefits of an effective accounting information system provides safeguards for a business’s assets and reduces the likelihood of fraud and errors? a. Flexibility b. Relevance c. Control d. Compatibilityarrow_forward
- Internet Exercise: Reporting on Service Organization Controls. Search for a service organization auditor’s report on internal controls on the web. (Hint: You may have to look under the old name “SAS 70 reports.”) If you cannot find an auditor’s report, find a company’s news release describing its auditor’s service organization report. Required:a. Why do you think it is so difficult to find an actual report?b. If you found an auditor’s report, were any deficiencies noted? If so, what were they?c. Why would a service organization publicize the results of its auditor’s report?arrow_forwardWhich of the following is not considered to be part of the internal control structure of a company? A. Ensure that assets are kept secure. B. Monitor operations of the organization to ensure maximum efficiency. C. Publish accurate financial statements on a regular basis. D. Ensure assets are properly used.arrow_forwardInternal control is said to be the backbone of all businesses. Which of the following is the best description of internal controls? A. Internal controls ensure that the financial statements published are correct. B. The only role of internal controls is to protect customer data. C. Internal controls and company policies are important to protect and safeguard assets and to protect all company data and are designed to protect the company from fraud. D. Internal controls are designed to keep employees from committing fraud against the company.arrow_forward
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