An Internal Auditor Noticed That Employees with Responsibilities for Cash

question 304

Multiple Choice

An internal auditor noticed that employees with responsibilities for cash collection had recently issued an unusually large number of credit memos, indicating that the original charges had been made to the wrong customer accounts. From a control standpoint, the auditor would be concerned with the possibility that:

• A) The organization is selling a large number of defective items.
• B) Employees in this function are concealing a theft of cash collected from customers.
• C) Credit memos are not being submitted on a timely basis.
• D) The credit department has not been properly screening customers and, as a result, a large portion of the accounts receivable may not be collectible.

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Definitions:

Capital Requirements

The total amount of capital needed for a business to carry out its operations, including costs for assets, staffing, and day-to-day expenses.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Undifferentiated Products

Goods or services that are viewed as interchangeable with others in the market, lacking distinct features to stand out from competitors.

High Switching Costs

High switching costs are barriers that prevent customers from changing products or services, due to financial, emotional, time-related, or effort-based factors.