The Most Likely Result of Ineffective Internal Control Policies and Procedures

question 529

Multiple Choice

The most likely result of ineffective internal control policies and procedures in the revenue cycle is that:

• A) Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped.
• B) Omission of shipping documents could go undetected, causing an understatement of inventory.
• C) Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.
• D) Fictitious transactions could be recorded, causing an understatement of revenues and overstatement of receivables.

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Definitions:

Estimated Liability

Estimated Liability refers to a potential financial obligation that can be reasonably estimated but its exact value or timing is uncertain.

Warranty Expense

Costs incurred by a company to repair, replace, or compensate for faulty products during the warranty period.

Net Sales

The revenue from goods or services sold after deducting returns, allowances for damaged or missing goods, and any discounts allowed.

Expense Warranty Accrual Method

An accounting method that records the estimated costs of warranties as an expense at the time of sale to better match revenues with expenses.