Chap 5 Introduction to internal control

"To ensure that purchases are made at the best possible price." Which one of the following best describes the above statement?

• A risk

• A control objective

• A control procedure

• A test of control

2 The following statements relate to small companies and their internal control systems. For each statement select whether it is true or false. Small companies have no need for internal control systems.

• True

• False

Small companies can use unsophisticated methods of control to compensate for the lack of formal controls.

• True

• False

Small companies have difficulty with implementing segregation of duties controls.

• True

• False

With regards to the following control procedures, select whether they are primarily preventative or detective controls.

Bank reconciliations are prepared on a monthly basis.

• Preventative

• Detective

With regards to the following control procedures, select whether they are primarily preventative or detective controls

Management accounts are compared on a monthly basis against the budget

• Preventative

• Detective

With regards to the following control procedures, select whether they are primarily preventative or detective controls.

Supplier statements are reconciled with trade payables balances

• Preventative

• Detective

4 Which three of the following are likely roles of the audit committee?

• To review the working papers of the external audit firm

• To monitor the independence of the external auditor

• To monitor the effectiveness of the company's internal audit function

• To make recommendations to the board in relation to the external auditor

5 The following are descriptions of internal controls in operation at Lilly Ltd. For each description select the type of control activity which it illustrates

.Only authorised staff may access the inventories storeroom.

• Performance review

• Information processing

• Physical control

5 The following are descriptions of internal controls in operation at Lilly Ltd. For each description select the type of control activity which it illustrates.

The despatch record signed by the customer is agreed to the authorised sales order.

• Performance review

• Information processing

• Physical control