CIMA BA3 · Chapter 8
Control of accounting systems MCQs with Answers
10 multiple-choice questions on Control of accounting systems for CIMA BA3 Fundamentals of Financial Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
What is the main purpose of internal controls in an accounting system?
- A) To help ensure that transactions are properly authorised and recorded, assets are safeguarded, and errors and fraud are prevented or detected
- B) To guarantee that no errors or frauds can ever occur
- C) To replace the need for an external audit
- D) To maximise the reported profit of the business
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Answer: A) To help ensure that transactions are properly authorised and recorded, assets are safeguarded, and errors and fraud are prevented or detected
Internal controls give reasonable, not absolute, assurance that the business is run in an orderly way, that assets are protected and that the accounting records are accurate and complete. They do not remove the legal need for an audit, and they have nothing to do with maximising reported profit.
Question 2
Which of the following is an example of segregation of duties?
- A) All payments over $5,000 must be signed by two directors
- B) The employee who records cash receipts in the cash book is not the employee who banks the cash
- C) Computer files are protected by passwords
- D) Inventory is counted at the end of each year
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Answer: B) The employee who records cash receipts in the cash book is not the employee who banks the cash
Segregation of duties splits the recording, custody and authorisation of a transaction between different people, so that one person cannot both commit and conceal a fraud. Dual signatures are an authorisation control, passwords are an access control and inventory counts are a physical verification control.
Question 3
What is the main role of an external auditor of a limited company?
- A) To prepare the company's financial statements
- B) To detect every fraud that has taken place in the company
- C) To express an independent opinion on whether the financial statements give a true and fair view
- D) To design the company's system of internal control
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Answer: C) To express an independent opinion on whether the financial statements give a true and fair view
The external auditor gives an independent opinion to the shareholders on whether the financial statements give a true and fair view in accordance with the applicable framework. Preparing the statements and designing internal controls are the responsibility of management, and an audit is not designed to find every fraud.
Question 4
Which of the following statements about internal audit is correct?
- A) Internal auditors must be independent of the company and appointed by the shareholders
- B) An internal audit is a legal requirement for all limited companies
- C) Internal auditors express an opinion on the truth and fairness of the published financial statements
- D) Internal auditors usually report to management or an audit committee and review the effectiveness of internal controls
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Answer: D) Internal auditors usually report to management or an audit committee and review the effectiveness of internal controls
Internal audit is a function set up by management, often staffed by employees, which reviews controls, risk management and operations and reports to management or the audit committee. Independence from the company, appointment by shareholders and the true and fair opinion are features of external audit, and internal audit is not required by law for all companies.
Question 5
A cashier steals money received from customer A, then uses money later received from customer B to clear customer A's account, and so on. What is this type of fraud known as?
- A) Teeming and lading
- B) Window dressing
- C) Compensating error
- D) Collusion
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Answer: A) Teeming and lading
Teeming and lading (also called lapping) hides the theft of receipts by using later receipts to cover earlier ones. It can be detected by comparing remittance details with postings, by rotating staff duties and by sending statements to customers. Window dressing is the manipulation of year-end figures.
Question 6
Which of the following is best described as a detective control rather than a preventive control?
- A) Requiring a manager to approve purchase orders before they are sent
- B) Restricting access to the accounting system by passwords
- C) Preparing a monthly bank reconciliation
- D) Keeping cash in a locked safe
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Answer: C) Preparing a monthly bank reconciliation
A bank reconciliation identifies errors or irregularities after they have occurred, so it is a detective control. Authorisation, access restrictions and physical security are intended to stop errors and fraud happening in the first place.
Question 7
Which of the following is an authorisation control over purchases?
- A) Goods received are checked against the delivery note
- B) A purchase order must be approved by a budget holder before it is sent to the supplier
- C) Supplier statements are reconciled to the payables ledger
- D) Purchase invoices are numbered sequentially when received
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Answer: B) A purchase order must be approved by a budget holder before it is sent to the supplier
Approval of the order before commitment is an authorisation control. Checking goods received, reconciling supplier statements and sequential numbering are controls over accuracy and completeness of recording.
Question 8
Which of the following is an example of an access control in a computerised accounting system?
- A) Batch totals are compared with the total of items processed
- B) The system rejects a date that does not exist
- C) Back-up copies of data are taken each night
- D) Each user has a unique password that limits the functions they can perform
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Answer: D) Each user has a unique password that limits the functions they can perform
Passwords and user permissions restrict who can see or change data, so they are access controls. Batch totals and data validation are input controls, and back-ups protect against loss of data.
Question 9
Who has the primary responsibility for preventing and detecting fraud in a company?
- A) The directors and management of the company
- B) The external auditors
- C) The shareholders
- D) The tax authorities
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Answer: A) The directors and management of the company
The directors are responsible for running the company, including putting in place controls to prevent and detect fraud. The external auditor must consider the risk of material misstatement due to fraud, but this does not transfer the responsibility to them.
Question 10
Which of the following is a limitation of any system of internal control?
- A) Controls make it harder to steal assets
- B) Controls improve the reliability of accounting records
- C) Controls make it easier to produce timely financial statements
- D) Two or more employees may collude to get around segregation of duties
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Answer: D) Two or more employees may collude to get around segregation of duties
Internal controls can only give reasonable assurance. They can be circumvented by collusion or overridden by management, and they are subject to human error and cost constraints. The other statements are benefits of internal control, not limitations.