[Anonymous]

Field, CPA, is auditing the financial statements of Miller Mailorder, Inc., (MMI) for the year ended January 31, 20X1. Field has compiled a list of possible errors and fraud that may result in the misstatement of MMI’s financial statements, and a corresponding list of internal controls that, if properly designed and implemented, could assist MMI in preventing or detecting the errors and fraud. Select the internal control that most likely could assist MMI in preventing or detecting when customers’ checks are misappropriated after being forwarded to the cashier for deposit.

A.

Remittance advices are separated from the checks in the mailroom and forwarded to the accounting department.

B.

Total amounts posted to the accounts receivable ledger from remittance advices are compared with the validated bank deposit slips.

C.

Validated deposit slips are compared with the cashier’s daily cash summaries.

D.

An employee other than the bookkeeper periodically prepares a bank reconciliation.

Answer B. Comparing total amounts posted to the accounts receivable ledger from remittance advices with the validated bank deposit slips is the internal control that, if properly designed and implemented, most likely could assist MMI in preventing or detecting when customers’ checks are misappropriated after being forwarded to the cashier for deposit.

Because the remittance advices are separated from the checks in the mailroom and forwarded to the accounting department, the total posted to the accounts receivable ledger is assumed to be complete. If, after receiving the checks but before making the deposit, the cashier steals money, the bank deposit will be less than the total posted to the accounts receivable ledger for that day. This is an example of an independent check being used as a control.

Note that if the cashier is taking the money, the validated deposit slips will always match with the cashier’s daily cash summaries. Comparing these two will not help to prevent or detect misappropriation by the cashier.

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When I see a question like this, I completely draw a blank, and all of the answers sound similar. How do you get better at questions like this?

[Anonymous]

Here's another example of this kind of questions.

Which of the following controls is not usually performed in the vouchers payable department?

A.

Matching the vendor's invoice with the related receiving report

B.

Approving vouchers for payment by having an authorized employee sign the vouchers

C.

Indicating the asset and expense accounts to be debited

D.

Accounting for unused prenumbered purchase orders and receiving reports

Answer D. The vouchers payable department should not account for unused prenumbered purchase orders and receiving reports; this is the responsibility of the purchasing and receiving departments, respectively. Access to unused purchase orders and receiving reports and also to payables constitutes an inadequate segregation of duties. Consider what could happen: a vouchers payable clerk could write a fake purchase order, confirm receipt of the nonexistent goods, and then authorize payment to him or herself.

The vouchers payable department should:

match vendor's invoice with the related receiving report, which ensures that goods billed were received (i.e., that voucher is valid).

approve vouchers for payment by having an authorized employee sign the vouchers (authorization).

indicate the asset and expense accounts to be debited (ensuring proper classification).

[Anonymous]

I sucked at these as well. Just keep practicing and hopefully they will start to stick. I definitely remember seeing a few on the cpa exam that were similar to the ones in my test bank.

[Anonymous]

I think you want to break down the answers to see if a control exists that could detect some sort of misdoing, by seeing if there is segregation of duties in play (since that is such a huge control in a work enviornment).

So lets break down the potential answers:

A – “Remittance advice's are separated from the checks in the mail room and forwarded to the accounting department.”

This doesn't assist in detecting or preventing misappropriation of the checks. This is simply a step in the process of opening mail and giving the remittance advice to Accounting.

B – “Total amounts posted to the accounts receivable ledger from remittance advice's are compared with the validated bank deposit slips.”

This a control that is making sure everything deposited daily is recorded to the ledger as well. With proper segregation of duties, the person posting to AR ledger is different from the person with custody depositing the checks. It detects possibly occurrence of fraud.

C -“Validated deposit slips are compared with the cashier's daily cash summaries.”

This doesn't detect anything. It simply is a control for the Cashier only. She receives checks, she enters daily summaries and she matches those same summaries to what she deposits (1 employee with Custody). Unlike answer B, that had two independently working employees (accounting entering to GL (Recorder) and cashier depositing (custody). Think of segregation of duties working.

D – “An employee other than the bookkeeper periodically prepares a bank reconciliation.”

Bookeeper does recording, another employee doing it the bank recon could also be an employee who does recording. Once again, there are not 2 items in segregation of duties at play here (Recording, Authorizing, or Custody) to help assist in preventing or detecting occurence of fraud.

Don't know if my rambling helped, but when I looked at the choices of answers and took into consideration segregation of duties (since this is such an awesome control) it seemed to help guide me toward reaching answer B.

[Skynet]

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[SullivanNJD]

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[Author]

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