Which of the following is not an internal control procedure designed to safeguard cash?

Overview

There are two basic categories of internal controls – preventive and detective.  An effective internal control system will have both types, as each serves a different purpose.  As you perform routine processes, or when you are thinking of implementing a new procedure or process, it is important to ask the following questions to help determine the appropriate control:

• What could go wrong?
• What steps have been taken to ensure that something does not go wrong?
• How can you verify that nothing went wrong?

The answers to these questions will enable you to better target the type of control that is needed.

Preventive Controls

Preventive controls aim to decrease the chance of errors and fraud before they occur, and often revolve around the concept of separation of duties. From a quality standpoint, preventive controls are essential because they are proactive and focused on quality.

Examples of preventive controls include:

• Separation of duties
• Pre-approval of actions and transactions (such as a Travel Authorization)
• Access controls (such as passwords and Gatorlink authentication)
• Physical control over assets (i.e. locks on doors or a safe for cash/checks)
• Employee screening and training (such as the PRO3 Series to increase employee knowledge)

Detective Controls

Detective controls are designed to find errors or problems after the transaction has occurred.  Detective controls are essential because they provide evidence that preventive controls are operating as intended, as well as offer an after-the-fact chance to detect irregularities.

Examples of detective controls include:

• Monthly reconciliations of departmental transactions
• Review organizational performance (such as a budget-to-actual comparison to look for any unexpected differences)
• Physical inventories (such as a cash or inventory count)

Last Reviewed

09/30/2022: reviewed content

Training

PRO303: Internal Controls at UF

University Controller’s Office: (352) 392-1321

Chapter 10

Multiple-Choice Questions

1.Which of the following is responsible for establishing a private company’s internal control?

easya.Management.

ab.Auditors.

c.Management and auditors.

d.Committee of Sponsoring Organizations.

2.Which of the following is not one of the three primary objectives of effective internal control?

easya.Reliability of financial reporting

db.Efficiency and effectiveness of operations

c.Compliance with laws and regulations

d.Assurance of elimination of business risk.

3. (Public)The Public Company Accounting Oversight Board states that reasonable assurance allows a:

easya.small likelihood of ineffective internal controls.

bb.remote likelihood that material misstatements will not be prevented or detected by

internal control.

c.likelihood that material misstatements will not be prevented or detected by internal

control.

d.high likelihood that material misstatements will not be prevented or detected by

internal control.

4.

easy

Two key concepts that underlie management’s design and implementation of internal control

are:

ca.costs and materiality.

b.absolute assurance and costs.

c.inherent limitations and reasonable assurance.

d.collusion and materiality.

5.Internal controls can never be considered as absolutely effective because:

easya.their effectiveness is limited by the competency and dependability of employees.

ab.not all organizations have internal audit departments.

c.controls are designed to prevent and detect only material misstatements.

d. internal controls prevent separation of duties.

6.A major control available in a small company, which might not be feasible in a big company, is:

easya.a wider segregation of duties.

db.a voucher system.

c.fewer transactions to process.

d.the owner-manager’s personal interest and close relationship with personnel.

7. (Public)Which of the following is responsible for establishing internal controls for a public company?

easya.Management.

ab.The PCAOB.

c.Management and auditors.

d.Committee of Sponsoring Organizations.

8.

medium

Which of the following parties provides an assessment of the effectiveness of internal control

over financial reporting for public companies?

a

ManagementFinancial statement auditors

Arens/Elder/Beasley

Which of the following is an internal control procedure designed to protect cash receipts?

Which of the following items is not included in the definition of cash?

Why must cash be subject to strict internal controls?

What would cause a bank statement not to agree with cash balance in the accounting records?