Question 1

Ashland Company's raw materials are kept in a locked stockroom. The stockroom employees are
well trained and bonded. Raw materials are removed upon oral authorization. Which of the
following identifies a control weakness.

Bonding is a waste of money.

Too many people have access.

Oral authorization is undocumented.

Only one supervisor.

Question 2
All of the following would address internal control weaknesses in Ashland's store room except:

Raw materials should be removed from the storeroom only upon written authorization from
an authorized production foreman. The authorization forms should be prenumbered and
accounted for, list quantities and job or production number, and be signed and dated.

The authorization forms should be prenumbered.

The forms should be accounted for, list quantities and job or production number, and be
signed and dated.

The bonding should be cancelled as it is a waste of money.

Question 3
Ashland's practice of monthly physical inventory counts does not compensate for the lack of a:

perpetual inventory system

periodic inventory system

Supervisor

Clerk

Question 4
Quantities on hand at the end of one month may not be sufficient to last until the next month's
count. If the company has taken this into account in establishing reorder levels, then it is
carrying too large an investment in inventory.
True

False

Question 5
Requests for purchases of raw materials should come from the production department
management and be based on production schedules and quantities on hand per perpetual
records.
True

False

Question 6
The accounts payable clerk handles both the purchasing function and payment of invoices. This
is an intrenal weakness at Ashland because:

The accounts payable clerk is already too busy.

This is not a satisfactory separation of duties.

The purchasing clerk is already too busy.

No one is checking the purchase order against the invoice.

Question 7
Raw materials are always purchased from the same vendor. This is an internal control weakness
because:

Quality is substandard from that one vendor.

That one vendor is slow in shipping the goods.

The purchasing department should be required to obtain competitive bids on all purchases
over a specified amount; which helps control costs.

There is the potential to violate the Foreign Corrupts Practices Act.

Question 8
There is no receiving department or receiving report, however, this is not an internal control
weakness.
True

False

Question 9
A receiving department should be established. Personnel in this department should count or
weigh all goods received and prepare prenumbered receiving reports. These reports should be
signed, dated, and controlled. Copies should be sent to the accounting department, purchasing
department, and storeroom.
True

False

Question 10
Please match the internal control procedure to the error, misstatement or other problem that its
is trying to detect or prevent.

Duties are segregated between the cash payments and cash receipts functions
Signature plates are kept under lock and key
Accounting department matches invoices to receiving reports or special
authorizations before payment
Accounting department matches invoices to copies of purchase orders
Bank reconciliations are performed by someone other than the one who writes the
checks and handles cash
Imprest accounts are used for payroll

A.
The separation of duties is meant to safeguard assets
B.
Prevention of unauthorized use.
C.
Ensures payment for goods or services actually received.
D.
Ensures that disbursements are made only for authorized purchases.
E.
To assure that checks are issued to employees only.
F.
Separation of functions prevents one person from diverting cash assets and subsequently
concealing the wrongdoing.