BT 15,16 (2)

Which of the service feature describes services that cannot be stored for later?

Answer explanation

The correct choice is 'Perishability', which refers to the characteristic of services that cannot be stored or saved for future use. Once a service is provided, it cannot be retained, making it perishable.

Consider the following statements regarding control activities:

1 The primary purpose of the segregation of duties between individuals within the organisation is to locate and identify frauds that employees have perpetrated.

2 ‘General’ computer controls include physical controls to prevent unauthorised access to computer equipment, such as door locks and card entry systems.

Which of these options is/are correct?

• 1 only

• 2 only

• Both

• Neither

Answer explanation

Statement 1 is incorrect; segregation of duties aims to prevent fraud, not just identify it. Statement 2 is correct as it describes general computer controls, which include physical security measures like locks and card systems.

Consider the following two statements:

1 Responsibility for the internal controls is shared between management and the internal auditors.

2 The internal auditor’s role often includes helping to set corporate objectives and the design and monitoring of performance measures.

Which of these options is/are correct?

• 1 only

• 2 only

• Both

• Neither

Which of the following statements are correct with regards to external audit?

(i) Due to their in-depth examination of the business, external auditors are often able to provide advice to management on possible improvements to the business.

(ii) External auditors often have an independence problem as they report to management and yet are also expected to give an objective opinion on them.

(iii) External audits can help to resolve management disputes, such as disagreements over company valuations or profit-sharing agreements.

(iv) External auditors have little or no interest in the internal controls of the organisation as these are the responsibility of the internal auditors.

• (ii) and (iii)

• (i), (ii) and (iv)

• (i), (iii) and (iv)

• (ii) and (iv)

Answer explanation

Statements (ii) and (iv) are correct. External auditors can provide valuable advice to management based on their findings and can help resolve disputes, while (i) and (iii) misrepresent the auditors' roles regarding independence and internal controls.

Every evening the last person leaving the office premises needs to switch on the security alarm. This control belongs to which of the following categories?

• Authorisation

• Verification

• Reconciliation

• Logical

Answer explanation

The action of switching on the security alarm by the last person leaving the office is a logical control. It ensures that the alarm is activated, thereby protecting the premises, which aligns with logical security measures.

The fact that managers are not aware of problems a company is facing, such as not knowing that a major incident of fraud has recently taken place, would weaken which of the following components of internal controls?

• Control environment

• The entity’s risk assessment process

• Control activities

• The entity's process to monitor the system of internal control

Answer explanation

The control environment reflects the overall attitude of management towards internal controls. If managers are unaware of significant issues like fraud, it undermines their commitment to maintaining a strong control environment.

The key purpose of internal auditing is to:

• detect errors and fraud

• evaluate the organisation’s risk management processes and systems of control

• give confidence as to the truth and fairness of the financial statements

• express an internal opinion on the truth and fairness of the financial statements

Answer explanation

The key purpose of internal auditing is to evaluate the organisation’s risk management processes and systems of control, ensuring that risks are managed effectively and controls are in place.

Which of the following would be most likely to be classed as a preventive control?

• Having a supervisor present on the shop floor at all times

• Conducting regular receivables statement reconciliations

• Year-end inventory checks

• Establishing procedures for irrecoverable debt collection

Answer explanation

Having a supervisor present on the shop floor at all times is a preventive control as it helps to monitor activities and prevent issues before they occur, unlike the other options which are more reactive or corrective.

Which of the following is a feature of services provided by an organisation?

• Permanence

• Innovation

• Variability

• Separability

Answer explanation

Variability is a key feature of services, as they can differ in quality and performance depending on who provides them and when. This makes it distinct from the other options, which do not capture this essential characteristic.

Which of the following is NOT a way in which an organisation’s production department would co-ordinate with its accounting department?

• Calculating charge out rates for services provided by the organisation

• Calculating the budgets for the number of units to be produced

• Estimation of the costs of the raw materials required for production

• Decisions on the quality of raw materials that the organisation can afford to use

Answer explanation

Calculating charge out rates is typically a function of pricing strategy, not a direct coordination task between production and accounting. The other options involve direct production cost management.