MUHASEBE I - Deneme Sınavı - 10

First-In, First-Out (FIFO) Method an inventory costing method in which the first costs into inventory are the first costs out to cost of goods sold. Ending inventory is based on the costs of the most recent purchases. The correct choice is A.

The correct answer is C. The objective of internal control is to provide reasonable assurance that (1) assets are safeguarded and used for business purposes, (2) business information is accurate, and (3) employees comply with laws and regulations.

The correct answer to question is option A. Effective internal control to be established in enterprises aims to prevent errors and frauds that may occur by all employees in order to achieve their goals and targets. The option of reducing the fees of the independent audit may be considered false. Because the company's effective internal control may not eliminate the need for external audit. Assurances that are in compliance with government regulations are not actions of internal control in the enterprise, but an action that may be provided to ensure internal control. Option D may be considered false because the reliability and integrity of management decision-making information can help senior management make effective decisions. Internal control is accurate because it provides reasonable assurance that the objectives of operations, reporting and compliance are achieved.

The correct answer to question is option A. According to the COSO Report, an internal control system must include five interrelated components at the same time to be effective. These five components are the control environment, risk identification, control activities, IT and communication and monitoring. In order to establish internal control in the enterprise, information and communication systems should be monitored and risk assessments should be made. Organizational structure, management philosophy and planning components need to be considered by senior management to establish internal control, but do not fully express the components of internal control. Likewise, the components expressed in other embodiments do not fully express the internal control components.

The correct answer is question E. A, B and D are a control activities. Option C can be considered as the identification of risks from the internal control components.

Management is responsible for setting up and maintaining internal control in the enterprise. The external auditor may examine internal control but is not responsible for the establishment and maintenance of the entity. The internal auditor is responsible for auditing the activities related to internal control in the enterprise. It can be said that the accountant is responsible for performing the records related to financial transactions in the enterprise. The salesman is responsible for marketing activities in the organization.

The correct answer is B. The principle of separation of duties may be ensured by the fact that the personnel who record cash receipts in the enterprise and perform bank reconciliations are different persons. Internal control is thus well designed. If these two tasks are performed by the same personnel, there is a possibility of embezzlement. The fact that staff records the amount of cash inflows and cash payments in the large ledger does not constitute an internal control violation since there is no cash access. The same personnel performing the tasks specified in A and E may not be a problem in terms of internal control in the enterprise since the tasks are independent.

The correct answer is B. The fraud triangle is pressure, opportunity, and rationalization.

The correct answer is D. Cash ratio is (Cash + Cash Equivalents) / Total Current Liabilities. Current Assets and the first current asset is “Cash” which is the most liquid asset of a business. For different proposes of financial statement presentation process, it can be written as Cash equivalents which is a highly liquid investment that can be converted into cash in a short term.

The correct answer is C. In accordance with the principle of separation of duties, access to assets should be provided by authorized persons in ensuring internal control.

It can be said that the internal control system is sufficient if the fraud done by a single personnel can be detected. It may be easier to identify actions by several people. Therefore, B, C and C options may be considered incorrect. Errors and tricks that can be made in the enterprise can be performed not only by management personnel but also by all personnel. Therefore, option A is considered false.

The framework that suggested by COSO is useful for board of directors, management, all personnel, and all other related parties. However, this internal control framework has a particular importance and benefit for board of directors and management. Below are explained some important points which are beneficial for board of directors and management. COSO framework:

• can be applied to all types of business.

• has a principle-based approach and this approach can provide flexibility to the internal control process.

• states how components and related principles are present and functioning and how components operate together. So, they can understand the requirements for effective controls.

• facilitates risk assessment prepares an appropriate response within acceptable level and deals with fraud.

• can be applied not only in financial reporting but also all other types of reporting, operating and compliance objectives.

• can help to eliminate ineffective, redundant, or inefficient controls.

The correct answer is B.

Internal control has five components: control environment, risk assessment, control activities, information and communication, and monitoring activities. The correct answer is B.

Risk Assessment: It is a process to identify and assess risks to the achievement of objectives. Accordingly, this process forms a basis to determine the way of risk management. Because of the numbers and diversity of the risk that the businesses are subject to, risk assessment must be a dynamic and iterative process in this changing environment. The correct answer is D.

Control activities are some policies and procedures which ensure that the actions taken for the achievement of the objectives are performed effectively. The correct answer is D.

Separation of duties means dividing responsibilities between different people to prevent fraud and errors. Generally, smart management separates custody of assets, record keeping and authorization of transactions. In this context, the accounting department should be separated from all other operating departments. For example, a sales person who may have some premium from total sales shouldn’t approve or journalize the sales transactions. Likewise, in some cases, if a person is responsible for protecting some assets, he/she shouldn’t have any responsibility about the accounting process The correct answer is B.

Assignment of responsibilities requires that different people should be determined for each different duty. Their responsibilities should be assigned and explained clearly The correct answer is C.

Documentation, which is related to the accounting process, provides the details about financial transactions in a business. These include sales invoice, purchase orders, shipping records, reports, etc. For each transaction, separate and adequate documents should be prepared as hard copy or in an electronic format. Documents should be pre-numbered to assure the completeness of the transaction and to prevent control deficiencies. The correct answer is E.

It can be calculated with an equation as follows:

Cash Ratio = (Cash + Cash Equivalents) / Total Current Liabilities

The correct answer is A.

Cash ratio is a measure of a company’s ability to pay current liabilities from cash and cash equivalents. The correct answer is E.