TBS Exam Questions and Answers
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 - Correct Answers -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. - Correct Answers -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. - Correct Answers -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.
I recommend that you purchase or develop a new financial accounting system that
would include appropriate segregation of duties to ensure that no individual in the
organization has the ability to perpetrate errors or fraud without it being detected in the
normal course of operations. In addition, you should establish polices regarding the
maintenance and confidentiality of user names and passwords to ensure that the
controls cannot be circumvented. While such actions will in the short-term increase the
costs of the accounting system, they will help to prevent the potentially disastrous
occurrence of a major fraud at Skyview.
If you have any
At a monthly staff planning meeting, the outlook for the national economy was a topic of
discussion. During the discussion, one participant noted that gross domestic product
(GDP) was expected to increase only slightly for the coming year. Another commented
that a slight increase in the expected GDP did not necessarily mean an increase in
business activity or output. Still another participant asked about the role of GDP per
capita as it relates to planning.
The partner‐in‐charge of the meeting asked that, prior to the next planning meeting, you
prepare and distribute a brief memorandum defining and describing (1) GDP, (2) real
GDP, and (3) GDP per capita, and how each may be used for analytical purposes. -
Correct Answers -This memorandum is to provide information about the three measures
of gross domestic product identified at the last staff planning meeting. Those measures
are: (1) nominal gross domestic product, (2) real gross domestic product, and (3) gross
domestic product per capita. Each measure will be defined and the role of each for
analytical purposes will be described.
Nominal gross domestic product (GDP) measures in current prices the total output of
final goods and services produced within a country during a period for exchange in the
market. It does not include (1) the value of goods which require additional processing,
(2) the value of activities which do not go through standard markets, or (3) goods or
services produced by domestic entities outside the country. Importantly, nominal GPD
does not adjust for changes in prices that occur over time.
For analytical purposes, nominal GDP is useful as a measure of the level of current
output, but because it is not adjusted for changing prices, it does not provide a useful
measure of the level of output over time. For example, if nominal GDP increases only
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 - Correct Answers -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. - Correct Answers -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. - Correct Answers -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.
I recommend that you purchase or develop a new financial accounting system that
would include appropriate segregation of duties to ensure that no individual in the
organization has the ability to perpetrate errors or fraud without it being detected in the
normal course of operations. In addition, you should establish polices regarding the
maintenance and confidentiality of user names and passwords to ensure that the
controls cannot be circumvented. While such actions will in the short-term increase the
costs of the accounting system, they will help to prevent the potentially disastrous
occurrence of a major fraud at Skyview.
If you have any
At a monthly staff planning meeting, the outlook for the national economy was a topic of
discussion. During the discussion, one participant noted that gross domestic product
(GDP) was expected to increase only slightly for the coming year. Another commented
that a slight increase in the expected GDP did not necessarily mean an increase in
business activity or output. Still another participant asked about the role of GDP per
capita as it relates to planning.
The partner‐in‐charge of the meeting asked that, prior to the next planning meeting, you
prepare and distribute a brief memorandum defining and describing (1) GDP, (2) real
GDP, and (3) GDP per capita, and how each may be used for analytical purposes. -
Correct Answers -This memorandum is to provide information about the three measures
of gross domestic product identified at the last staff planning meeting. Those measures
are: (1) nominal gross domestic product, (2) real gross domestic product, and (3) gross
domestic product per capita. Each measure will be defined and the role of each for
analytical purposes will be described.
Nominal gross domestic product (GDP) measures in current prices the total output of
final goods and services produced within a country during a period for exchange in the
market. It does not include (1) the value of goods which require additional processing,
(2) the value of activities which do not go through standard markets, or (3) goods or
services produced by domestic entities outside the country. Importantly, nominal GPD
does not adjust for changes in prices that occur over time.
For analytical purposes, nominal GDP is useful as a measure of the level of current
output, but because it is not adjusted for changing prices, it does not provide a useful
measure of the level of output over time. For example, if nominal GDP increases only
