CB Quality Assurance & Compliance 2 — Questions and Answers
Question 1: A bookkeeper discovers that a vendor invoice was posted twice in the same period. Which control procedure is designed to prevent this type of error?
- Bank reconciliation
- Invoice matching using unique invoice numbers (Correct answer)
- Petty cash reconciliation
- Payroll audit
Correct answer: Invoice matching using unique invoice numbers
Assigning and verifying unique invoice numbers during the accounts payable process prevents duplicate invoice postings.
Question 2: Under IRS recordkeeping requirements, how long must a business generally retain employment tax records?
- 1 year after the tax due date
- 3 years after the tax due date
- 4 years after the tax due date (Correct answer)
- 7 years after the tax due date
Correct answer: 4 years after the tax due date
The IRS requires employment tax records to be kept for at least 4 years after the date the tax is due or paid, whichever is later.
Question 3: Which of the following best describes a 'three-way match' in accounts payable?
- Matching bank statement, general ledger, and trial balance
- Matching purchase order, receiving report, and vendor invoice (Correct answer)
- Matching payroll register, timesheet, and bank deposit
- Matching vendor statement, accounts payable ledger, and check register
Correct answer: Matching purchase order, receiving report, and vendor invoice
A three-way match compares the purchase order, receiving report, and vendor invoice to ensure all three agree before payment is authorized.
Question 4: An employee handles both cash receipts and the accounts receivable ledger. This represents a violation of which internal control principle?
- Documentation procedures
- Physical controls
- Segregation of duties (Correct answer)
- Independent verification
Correct answer: Segregation of duties
Segregation of duties requires that no single employee control both the custody of assets and the recording of transactions involving those assets.
Question 5: Which financial statement error would most likely be caught by performing a horizontal (trend) analysis?
- Misclassification of an expense between two similar accounts in the same period
- A significant unexplained change in gross profit margin compared to prior year (Correct answer)
- An arithmetic error that overstates both an asset and a liability equally
- Failure to record depreciation for a newly acquired asset
Correct answer: A significant unexplained change in gross profit margin compared to prior year
Horizontal analysis compares figures across periods, making significant unexplained fluctuations in ratios like gross profit margin highly visible.
Question 6: A company's policy requires that all journal entries above $5,000 must be approved by a supervisor. This control is best classified as:
- A preventive control (Correct answer)
- A detective control
- A corrective control
- A compensating control
Correct answer: A preventive control
A supervisory approval requirement before an entry is posted is a preventive control because it stops errors or fraud before they occur.
Question 7: Under the Sarbanes-Oxley Act (SOX), which of the following applies to publicly traded companies regarding internal controls?
- Management must attest to the effectiveness of internal controls over financial reporting (Correct answer)
- External auditors are prohibited from evaluating internal controls
- Small public companies are permanently exempt from all SOX requirements
- Internal control reports must be filed annually with the IRS
Correct answer: Management must attest to the effectiveness of internal controls over financial reporting
SOX Section 404 requires management of public companies to assess and report on the effectiveness of internal controls over financial reporting.
CB Quality Assurance & Compliance 2
A bookkeeper discovers that a vendor invoice was posted twice in the same period.
Which control procedure is designed to prevent this type of error?