TBS UPDATED ACTUAL EXAM QUESTIONS
AND CORRECT ANSWERS FULL SOLUTION
GRADED A+
◉ Roger Johnson, a CPA, worked as a volunteer at the International
Commonwealth Track and Field Games (ICTFG). Each day of the
six‐day games, about $100,000 in cash and $2 million in credit card
revenues came into the accounting office. Roger's volunteer duties
included counting cash each evening and reconciling the credit card
receipts and credit card fee payments to the cash receipts journal and
general ledger. Control procedures required at least two individuals to
be present in the accounting office at all times. However, Melanie
Smurf, the other volunteer who was to work with Roger on Thursday
evening, had a six‐year‐old daughter who was ill. Hence, Melanie
requested that Roger count the cash and perform the reconciliations
for this day by himself, since she could not fulfill her volunteer duties
that evening.
Please write a memo discussing the role of monitoring of internal
control in improving corporate governa. Answer: Over time, controls
deteriorate. This deterioration is called "entropy." Control monitoring
is important because people forget, quit jobs, get lazy, get distracted,
or, come to work drunk, stoned, or hung over; in addition, machines
fail and technology changes.
Monitoring is the core, foundational component in the COSO ERM
model. Its position, i.e., as the foundation of risk management, is
,intentional. Monitoring is essential to achieving strong internal
control and effective risk management. With good control monitoring
control problems are identified, and identified more quickly. Decision
makers receive better, more timely information. Certifications of
internal control are easier and more timely, and organizations are
more efficient and have lower costs.
Effective cash control requires segregation of duties. Monitoring the
control requirement, i.e., that at least two individuals be present for
cash counts, would reveal that a backup, additional individual is
needed in the system, to ensure that no individual ever counts cash
alone. Hence, monitoring is useful, as in this case, in revealing that
the specified control procedures are infeasible or inadequate.
In short, the situation at ICTFG suggests a control deficiency that
should be identified by effective monitoring and corrected through
proper segregation of duties.
Sincerely,
Accountant
◉ Assume that you are acting as a consultant for Winston Co. The
president of the company is considering implementing an enterprise
risk management system. To evaluate whether to go forward with the
project, the president has asked you to describe the limitations of an
enterprise risk management system.
,Prepare a memorandum to Winston's president describing the purpose
and limitations of an enterprise risk management system.. Answer:
You have requested that I provide you with information about an
enterprise risk management system. You are particularly concerned
with the limitations of such a system. The primary purpose of an
enterprise risk management system is to provide processes to identify
potential risks to achieving a company's objectives, and, to manage
those risks to be within the company's risk appetite.
In considering implementation of an enterprise risk management
system, it is important to recognize that these systems have
limitations. All enterprise risk management systems rely on judgments
about future events that may or may not occur. Also, while an
enterprise risk management system provides information about risks
to achieving the company's objectives, it does not provide complete
assurance that the objectives will be achieved. Finally, as with all
control systems, an enterprise risk management system can break
down for a number of reasons, including bad judgments about risks
and their impact, collusion among two or more individuals, or
override by management. Also, due to cost‐benefit constraints, no
enterprise risk management system can be perfect.
Adopting a structured plan for assessing the need for and developing a
high-quality ERM system can mitigate these risks. If you have any
additional questions about enterprise risk management systems,
please contact me.
◉ Skyview, Inc., a small start‐up company, has hired you as a
consultant to assess its financial systems and related processes.
During your review, you learned that the company accountant is
, responsible for providing general ledger access to others in the
company, processing of transactions in the general ledger, and
printing checks. The president of the company must authorize write‐
offs in the system, but the accountant has access to the president's user
name and password.
Prepare a memorandum to Skyview's president assessing these
responsibilities in the context of segregation of duties. Also assess the
possibility of the accountant committing fraud.. Answer: You have
requested that an independent assessment of Skyview's financial
systems and related processes. In a properly controlled financial
system the duties of authorization of transactions, approval of
transactions, custody of assets, and record keeping should all be
segregated. In other words, these functions should all be performed by
different individuals. Your current financial system and processes do
not include this proper segregation of duties. Skyview's accountant
has incompatible duties that would allow him to make an error or
perpetrate a fraud and prevent its detection. He processes transactions
and has access to assets (printed checks). As an example, he could
process fictitious purchase transactions to his own shell companies
and cause payments to be made for goods or services that were not
received by Skyview.
In addition, the fact that the accountant has access to your user name
and password allows him to circumvent the control provided by your
being the only individual authorized to write off accounts. This would
allow the accountant to process an unauthorized sales transaction to
his own shell company and use your user name and password to write
off the account.
AND CORRECT ANSWERS FULL SOLUTION
GRADED A+
◉ Roger Johnson, a CPA, worked as a volunteer at the International
Commonwealth Track and Field Games (ICTFG). Each day of the
six‐day games, about $100,000 in cash and $2 million in credit card
revenues came into the accounting office. Roger's volunteer duties
included counting cash each evening and reconciling the credit card
receipts and credit card fee payments to the cash receipts journal and
general ledger. Control procedures required at least two individuals to
be present in the accounting office at all times. However, Melanie
Smurf, the other volunteer who was to work with Roger on Thursday
evening, had a six‐year‐old daughter who was ill. Hence, Melanie
requested that Roger count the cash and perform the reconciliations
for this day by himself, since she could not fulfill her volunteer duties
that evening.
Please write a memo discussing the role of monitoring of internal
control in improving corporate governa. Answer: Over time, controls
deteriorate. This deterioration is called "entropy." Control monitoring
is important because people forget, quit jobs, get lazy, get distracted,
or, come to work drunk, stoned, or hung over; in addition, machines
fail and technology changes.
Monitoring is the core, foundational component in the COSO ERM
model. Its position, i.e., as the foundation of risk management, is
,intentional. Monitoring is essential to achieving strong internal
control and effective risk management. With good control monitoring
control problems are identified, and identified more quickly. Decision
makers receive better, more timely information. Certifications of
internal control are easier and more timely, and organizations are
more efficient and have lower costs.
Effective cash control requires segregation of duties. Monitoring the
control requirement, i.e., that at least two individuals be present for
cash counts, would reveal that a backup, additional individual is
needed in the system, to ensure that no individual ever counts cash
alone. Hence, monitoring is useful, as in this case, in revealing that
the specified control procedures are infeasible or inadequate.
In short, the situation at ICTFG suggests a control deficiency that
should be identified by effective monitoring and corrected through
proper segregation of duties.
Sincerely,
Accountant
◉ Assume that you are acting as a consultant for Winston Co. The
president of the company is considering implementing an enterprise
risk management system. To evaluate whether to go forward with the
project, the president has asked you to describe the limitations of an
enterprise risk management system.
,Prepare a memorandum to Winston's president describing the purpose
and limitations of an enterprise risk management system.. Answer:
You have requested that I provide you with information about an
enterprise risk management system. You are particularly concerned
with the limitations of such a system. The primary purpose of an
enterprise risk management system is to provide processes to identify
potential risks to achieving a company's objectives, and, to manage
those risks to be within the company's risk appetite.
In considering implementation of an enterprise risk management
system, it is important to recognize that these systems have
limitations. All enterprise risk management systems rely on judgments
about future events that may or may not occur. Also, while an
enterprise risk management system provides information about risks
to achieving the company's objectives, it does not provide complete
assurance that the objectives will be achieved. Finally, as with all
control systems, an enterprise risk management system can break
down for a number of reasons, including bad judgments about risks
and their impact, collusion among two or more individuals, or
override by management. Also, due to cost‐benefit constraints, no
enterprise risk management system can be perfect.
Adopting a structured plan for assessing the need for and developing a
high-quality ERM system can mitigate these risks. If you have any
additional questions about enterprise risk management systems,
please contact me.
◉ Skyview, Inc., a small start‐up company, has hired you as a
consultant to assess its financial systems and related processes.
During your review, you learned that the company accountant is
, responsible for providing general ledger access to others in the
company, processing of transactions in the general ledger, and
printing checks. The president of the company must authorize write‐
offs in the system, but the accountant has access to the president's user
name and password.
Prepare a memorandum to Skyview's president assessing these
responsibilities in the context of segregation of duties. Also assess the
possibility of the accountant committing fraud.. Answer: You have
requested that an independent assessment of Skyview's financial
systems and related processes. In a properly controlled financial
system the duties of authorization of transactions, approval of
transactions, custody of assets, and record keeping should all be
segregated. In other words, these functions should all be performed by
different individuals. Your current financial system and processes do
not include this proper segregation of duties. Skyview's accountant
has incompatible duties that would allow him to make an error or
perpetrate a fraud and prevent its detection. He processes transactions
and has access to assets (printed checks). As an example, he could
process fictitious purchase transactions to his own shell companies
and cause payments to be made for goods or services that were not
received by Skyview.
In addition, the fact that the accountant has access to your user name
and password allows him to circumvent the control provided by your
being the only individual authorized to write off accounts. This would
allow the accountant to process an unauthorized sales transaction to
his own shell company and use your user name and password to write
off the account.
