Financial Accounting - Chapters 5-9 Exam Questions with Correct Answers
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Course
Financial Accounting
Institution
Financial Accounting
What is the most important element of the Fraud Triangle? - Answer-- Opportunity
Three parts of the Fraud Triangle? - Answer-1. Opportunity
2. Financial Pressure
3. Rationalization
Opportunity - Answer-- for an employee to commit fraud, the working environment must provide opportunities tha...
Financial Accounting - Chapters 5-9
Exam Questions with Correct Answers
What is the most important element of the Fraud Triangle? - Answer-- Opportunity
Three parts of the Fraud Triangle? - Answer-1. Opportunity
2. Financial Pressure
3. Rationalization
Opportunity - Answer-- for an employee to commit fraud, the working environment must
provide opportunities that an employee can take advantage of.
EX: Inadequate monitoring of employee actions can create opportunities for theft - they
do so because they believe they will not get caught
- An employee has check-writing and -signing responsibilities for a small company, as
well as reconciling the bank account.
Financial Pressure - Answer-- Employees sometimes commit fraud because of personal
financial problems caused by too much debt
Ex: An employee's monthly credit card payments are nearly 75% of his or her monthly
earnings.
- An employee has an expensive gambling habit.
Rationalization - Answer-- Employees sometimes justify fraud because they believe
they are underpaid while the employer is making lots of money. Employees feel justified
in stealing because they believe they deserve to be paid more.
Ex: An employee earns minimum wage at a firm that has reported RECORD earnings
for each of the last five years.
True or False:
One of the objectives of internal control is to safeguard assets from employee theft,
robbery, and unauthorized use. - Answer-- TRUE
True or False:
One of the objectives of internal control is to enhance the accuracy and reliability of the
accounting records. - Answer-- TRUE
True or False:
No laws require U.S. corporations to maintain an adequate system of internal control. -
Answer-- FALSE
, Internal Control - Answer-- consists of all the related methods and measures adopted
within an organization to safeguard assets, enhance the reliability of accounting
records, increase efficiency of operations, and ensure compliance with laws and
regulations.
What are the Five primary components of Internal Control? - Answer-1. A control
environment.
2. Risk assessment.
3. Control activities
4. Information and communication.
5. Monitoring.
Why are Control Activities important? - Answer-- they serve as the backbone of the
company's efforts to address the risks it faces, such as fraud
What are The six principles of *Control Activities*? - Answer-• Establishment of
responsibility
• *Segregation of Duties*
• Documentation procedures
• Physical controls
• Independent internal verification
• Human resource controls
Segregation of Duties - Answer-- Is indispensable in an internal control system.
- Making one individual responsible for related activities increases the potential for
errors and irregularities.
What are the 2 most common applications of the *Segregation of Duties*? - Answer-1.
Different individuals should be responsible for related activities.
2. The responsibility for record-keeping for an asset should be separate from the
physical custody of that asset.
What is the Rationale of *Segregation of Duties*? - Answer-- The work of one employee
should, without a duplication of effort, provide a reliable basis for evaluating the work of
another employee. For example, the personnel that design and program computerized
systems should not be assigned duties related to day-to-day use of the system.
Otherwise, they could design the system to benefit them personally and conceal the
fraud through day-to-day use.
What do *Related purchasing activities* include? - Answer-- ordering merchandise
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