When an Entity Uses a Trust Company as Custodian of Its

question 41

Multiple Choice

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the:

• A)trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.
• B)securities are registered in the name of the trust company, rather than the entity itself.
• C)interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities.
• D)trust company places the securities in a bank safe-deposit vault under the custodian's exclusive control.

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Definitions:

Favorable

A term used to describe outcomes or variances that are positive or beneficial to a business, such as lower costs or higher revenues than expected.

Unfavorable

A term used in budgeting and variance analysis indicating costs exceeded the budget or revenue fell short.

Variable Overhead Efficiency Variance

The difference between the expected variable overhead costs based on standard costing and the actual variable overhead incurred, attributable to efficiency.

Materials Price Variance

The difference between the actual cost of raw materials and the standard cost expected to be paid, reflecting changes in price.