AIS Sample Exam 1

a. The use of batch totals.
b. Reconciling the accounts receivable subsidiary file with the control account.
c. Requirement that two persons open mail.
d. Preparation of bank reconciliations.

3. When considering internal control one should be aware that

a. Employment of competent personnel provides assurance that the objectives of
internal control will be achieved.
b. Segregation of incompatible functions is necessary to ascertain that
internal control is effective.
c. Cost of internal control should not exceed the benefits expected to be
derived from internal control.
d. Establishment and maintenance of an I/C structure is an important
responsibility of the management and not of the auditor.

4. The definition of internal control developed by the Committee of Sponsoring Organizations (COSO)

a. Safeguarding of entity assets.
b. Effectiveness of prevention of fraudulent occurrences.
c. Compliance with applicable laws and regulations.
d. Incorporation of ethical business practice standards.

5. The most likely result of ineffective internal controls in the revenue cycle is that

a. Fictitious transactions could be recorded, causing an understatement of
revenues and overstatement of receivables.
b. Irregularities in recording transactions in the subsidiary accounts could
result in a delay in goods shipped.
c. Sales department personnel authorize credit which could permit
an employee defalcation scheme.
d. Omission of shipping documents could go undetected, causing an
understatement of inventory.

6. Which of the following is not ordinarily considered a factor indicative of increased financial reporting

a. Corporate restructuring.
b. Implementation of a new information system.
c. Rapid growth organization.
d. Commissioned sales personnel.

7. Which of the following best describes an inherent limitation of an internal control structure?

a. The benefits expected to be derived from effective internal control usually
do not exceed the costs of such control.
b. The competence and integrity of client personnel provide an environment
conducive to control and provides assurance that effective control will be
achieved.
c. Procedures designed to assure the execution and recording of transactions
in accordance with proper authorizations are effective against
irregularities perpetrated by management.
d. Procedures whose effectiveness depends on segregation of duties can be
circumvented by collusion.

8. You would not expect to find which of the following in a receiving file

a. Packing slip number.
b. Vendor number.
c. Purchase order number.
d. Item.
e. Vendor address.

9. Many accounting documents and records have more than one name. Which of the following is an

a. Bill of lading, shipping document.
b. Deposit slip, remittances advice.
c. Vendor's invoice, sales invoice.
d. Cash receipts journal, receiving report.
e. Purchase requisition form, purchase order.

10. Which of the following is not a valid concept of proper internal control?

a. Control procedures integrated into the accounting system may appropriately
be applied on a test basis in some circumstances.
b. When one person is responsible for all phases of a transaction, there
should be a clear designation of that person's responsibility.
c. The recorded accountability for assets should be compared with the existing
assets at reasonable intervals and appropriate action should be taken if
there are differences.
d. Procedures designed to detect errors and irregularities should be performed
by persons other than those in a position to perpetuate irregularities.

11. Effective internal control in a small company that has an insufficient number of employees to

a. Employment of temporary personnel to aid in the separation of duties.
b. Delegation of full, clear-cut responsibility to each employee for the
functions assigned to each.
c. Engaging a CPA to perform monthly write-up work.
d. Direct participation by the owner of the business in the record-keeping
activities of the business.

12. Adjusting journal entries are prepared for which of the following?

a. Record depreciation expense.
b. Adjust payroll expense for wages earned but not yet paid.
c. Record an inventory purchase.
d. a and b only.
e. a, b, and c.

13. Which of the following controls would you not expect to find on a well-designed cash register?

a. Automatic price keys.
b. Internal register tape.
c. Reconciliation of cash with the register tape.
d. A bell on drawers when opened.

14. Which of the following is an effective control to ensure that sales returns are valid?

a. Require that the sales returns are handled by the same employee who credits the

customer's account.
b. Periodically select a sample of credit memorandums and ensure that they have been

properly recorded.
c. Do not allow credit memorandums to be recorded in the sales journal; rather, create

a separate sales returns journal.
d. Trace the monthly totals on the sales journal to the general ledger to ensure that they

are correctly posted.
e. Require a receiving report to be attached to all credit memorandums prior to approving

the return.

15. Which of the following internal control procedures most likely would assure that all billed sales

a. Each shipment on credit is supported by a prenumbered sales invoice.
b. Each sales invoice is supported by a prenumbered shipping document.
c. The accounts receivable ledger is reconciled daily to the control account
in the general ledger.
d. Daily sales summaries are compared to daily postings to the accounts
receivable ledger.

16. A key internal control is the separation of duties between cash handling and record keeping.

a. Cash receipts transactions as recorded in the cash receipts journal are
reasonable.
b. Funds actually received by the company are recorded.
c. Cash receipts are properly classified.
d. Cash receipts are recorded on a timely basis.

17. Which of the following is not an important aspect of good internal control?

a. Separation of authorization, recording and custody functions.
b. Rotation of controls.
c. A system of approvals and authorizations.
d. A system of comparisons and reconciliations.

18. Which of the following is not consistent with good internal control over sales transactions?

a. The billing department accounts for the numerical sequence of shipping
documents.
b. Posting to perpetual inventory records is performed based on shipping
documents.
c. Receivables judged to be uncollectible are written-off and transferred to a
separate ledger and control account.
d. The credit department approves the extension of credit to customers on a
monthly basis.

19. Which of the following control procedures would most likely help assure that goods shipped

a. Reviewing the sales journal for sequential and unusual entries.
b. Examining shipping documents for matching copies of sales invoices.
c. Comparing the accounts receivable ledger to daily sales summaries.
d. Inspecting unused sales invoices for consecutive prenumbering.
e. Examine customer orders for matching bills of lading.

20. An example of an internal control weakness in the payroll function is to assign to a

a. Initiating requests for salary adjustments for employees.
b. Reviewing and approving time reports for subordinates.
c. Interviewing applicants for subordinate positions prior to hiring by the
personnel department.
d. Distributing payroll checks to subordinate employees.

21. Which of the following in not a likely decision management makes with information from

a. Short-term borrowings.
b. Credit Terms.
c. Pricing Decisions.
d. Inventory needs.

22. Which of the following internal controls would most likely prevent payment of vendors'

a. Canceling invoices by means of a "Paid" stamp or perforation prior to approval.
b. Prenumbering unused voucher forms and periodically checking
from missing numbers.
c. Sending cancelled checks to the bank reconciliation unit.
d. Determining that vouchers are properly authorized and approved and include
original documentation (vendor's invoice, receiving report, purchase order and
purchase requisition) prior to check preparation.
e. Requiring two authorized signatures for vouchered checks.

23. Which of the following is a control procedure that most likely could help prevent employee

a. The personnel department promptly sends employee termination notices to
the payroll supervisor.
b. Employees who distribute payroll checks forward unclaimed payroll checks
to the absent employee's supervisors.
c. Salary rates resulting from new hires are approved by the payroll supervisor.
d. Total hours used for determination of gross pay are calculated by the
payroll supervisor.

24. For effective internal control, the accounts payable department generally should

a. Stamp, perforate, or otherwise cancel supporting documentation after
payment is mailed.
b. Ascretain that each requisition is approved as to price, quantity, and quality
by an authorized employee.
c. Obliterate the quantity ordered on the receiving department's copy of the
purchase order.
d. Establish the agreement of the vendor's invoice with the receiving report and
purchase order.

25. In manufacturing environments, employees are often required to use time cards and job time tickets.

a. Payroll should be prepared from job time tickets.
b. Only one time card should exist for each employee.
c. Time reported on job time tickets should be reconciled to time cards.
d. Job time tickets are completed by employees for each job worked on,
and an employee may have one or many job time tickets in a day.

26. Which of the following would not normally be included on a purchase order form?

a. Purchase order execution date.
b. Purchase discount information.
c. Purchase invoice information.
d. Purchase order number.
e. All of the above.

27. Which of the following internal control procedures would prevent a cash defalcation by a grocery

a. Regular independent reconciliation of bank accounts.
b. Regular monthly statements to customers.
c. Use of prenumbered remittance advice.
d. A procedure requiring the recording of cash receipts on a daily basis.
e. None of the above would be effective.

28. Which of the following questions would not appear on an internal control questionnaire

a. Is a check protection device used in printing the check amount?
b. Is an approved purchase requisition required for each purchase?
c. Are prenumbered receiving reports used and accounted for?
d. Are voided checks retained and accounted for?
e. Are all checks signed by the controller on a timely basis?

29. The accounts payable system should handle all cash disbursements except

a. Payments to a large quantity vendor.
b. Payments for payroll.
c. Payments to utility companies.
d. Payment of unemployment compensation insurance for employees.
e. b and d above.

30. Which of the following systems has the need to interface with the general ledger?

a. Accounts payable.
b. Accounts receivable.
c. Payroll.
d. All of the above.
e. a and b above.

31. The document flow for the expenditure cycle would be

a. Customer purchase order, receiving report, vendor's invoice, voucher and check.
b. Purchase approval form, receiving report,vendor's invoice.
c. Purchase requisition, purchase order, receiving report,vendor's invoice,
voucher, and check.
d. Purchase requisition, customer purchase order, bill of lading, vendor's
invoice, voucher and check.

32. Which of the following would be considered a good access control if found in the payroll function?

a. The personnel department will maintain custody over the check signing machine.
b. Custody of blank checks and other employee earnings information should
be held in the personnel department.
c. The payroll department will have custody of all unclaimed payroll checks.
d. Unclaimed payroll checks will be held by the treasurer office until
picked up by a person with the appropriate identification or upon appropriate
written request.

33. Which of the following is not a universal rule for good internal control?

a. Key employees with access to large amounts of cash should be bonded.
b. Purchase requisition forms should be prenumbered and accounted for.
c. The purchase order copy which is forwarded to the receiving department should omit the
quantity.
d. All of the above are universal rules for good internal control.

34. Reconciliation of the accounts receivable general ledger and the subsidiary ledger

a. Document Controls.
b. Authorization controls.
c. Access controls.
d. Segregation of functions.
e. Independent checks.

35. The most important internal control is

a. Document Controls.
b. Authorization controls.
c. Access controls.
d. Segregation of functions.
e. Independent checks.

Errors & Control Procedures (1 point each)

Possible Error or Irregularity Internal Control Procedures
36. Invoices for goods sold are posted to incorrect customer accounts.	C F G K L
37. Goods ordered by customers are shipped, but are not billed to anyone.	B C F G L
38. Invoices are sent for shipped goods and are recorded in the sales journal, but are not posted to any customer account.	B D K F L
39. Credit sales are made to individuals with unsatisfactory credit ratings.	B G I J N
40. Customers' checks are received for less than the customers' full account balances, but the customers' full account balances are credited.	F H K L N
41. Customers' checks are misappropriated before being forwarded to the cashier for deposit.	C F I K N
42. Customers' checks are credited to incorrect customer accounts.	C D F K N
43. Goods are removed from inventory for unauthorized purposes.	A B D N O
44. Customers' checks are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipts journal.	C F K N O
45. Customers' checks are misappropriated after being forwarded to the cashier for deposit. Assume the cashier has no recordkeeping responsibilities.	B C F K O
Internal Control Procedures
Shipping clerks compare goods received from the warehouse with the details on the shipping documents. Approved sales orders are required for goods to be released from the warehouse. Monthly statements are mailed to all customers with outstanding balances. Shipping clerks compare goods received from the warehouse with approved sales orders. Customer orders are compared with the inventory master file to determine whether items ordered are in stock. Daily sales summaries are compared with control totals of invoices. Shipping documents are compared with sales invoices. Sales invoices are compared with the master price file. Customer orders are compared with an approved customer list. Sales orders are prepared for each customer order. Control amounts posted to the accounts receivable ledger are compared with control totals of invoices. Sales invoices are compared with shipping documents and approved customer orders before invoices are mailed. Prenumbered credit memos are used for granting credit for goods returned. Total amounts posted to the accounts receivable ledger from remittance advices are compared with the total of checks shown on the validated bank deposit slip. An employee, other than the bookkeeper, periodically prepares a bank reconciliation comparing the daily deposit slips to the cash receipts journal and accounts receivable subsidiary ledger.

Internal Control Weakness (2 points each)

46. The best person to authorize bad debt write-off is (CHART)

a. Sales Clerk
b. Bookkeeper A
c. Bookkeeper B
d. Bookkeeper C

47. Which of the following is not a weakness in this company's internal control structure?

a. Timing of invoice preparation.
b. Timing of restrictive endorsement.
c. Timing of credit approval.
d. Timing of bank deposits.

48. Examining the flowchart of the revenue cycle yields a conclusion that

a. Misappropriation of assets by Bookkeeper C.
b. Misappropriation of assets by Bookkeeper A.
c. Misappropriation of assets by the shipping department.
d. Misappropriation of assets by the collection clerk.

49. Which of the following is likely a problem with the company's internal control structure?

a. Legitimate sales will not get recorded.
b. Fake sales will get recorded.
c. Customers may be billed for goods they did not receive.
d. Customer orders will be lost.

50. A serious lack of segregation of recordkeeping & authorization occur with (CHART)

a. The shipping department.
b. The collection clerk.
c. Bookkeeper A.
d. Bookkeeper C.

Internet True/False (1 point each)

True False

52. If I wanted to transfer a file between computers, I would use FTP.

True False

53. The tool that lets me find information on the internet is called a Search Engine.

True False

54. The protocol that the internet uses is TCP/IP and a connection that allows users to gain access into the

True False

55. A cross platform application will only run on computers using Windows 95.

True False

56. A client computer provides services or resources to other computers that are connected with it

True False

57. The language behind a homepage is called http.

True False

58. If I want to connect to the Internet from home, I might consider using a commercial on-line

True False

59. One reason to compress (zip) files is to increase speed when transferring (copying) them.

True False

60. Text browsers, such as Lynx, allow you to see a vast amount of multimedia (graphical)

True False

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