ExpertHard1 markMultiple Choice
CPA · Question 15 · Area II: Risk Assessment
An auditor is evaluating the design of an entity's internal controls over cash disbursements. Which of the following segregation of duties would BEST reduce the risk of misappropriation of assets?
An auditor is evaluating the design of an entity's internal controls over cash disbursements. Which of the following segregation of duties would BEST reduce the risk of misappropriation of assets?
Answer options:
A.
The accounts payable clerk prepares the voucher package and signs the checks.
B.
The treasurer signs the checks and reconciles the bank statement.
C.
The accounts payable clerk prepares the voucher package, and the treasurer signs the checks.
D.
The purchasing manager approves the purchase and receives the goods.
How to approach this question
Apply the ARC rule: Segregate Authorization, Record keeping, and Custody.
Full Answer
C.The accounts payable clerk prepares the voucher package, and the treasurer signs the checks.✓ Correct
The accounts payable clerk prepares the voucher package, and the treasurer signs the checks.
Effective segregation of duties separates Authorization, Record keeping, and Custody. In Option C, the AP clerk (Record keeping/Authorization of voucher) is separated from the Treasurer (Custody of assets/signing checks). This prevents one person from creating a fake liability and paying it to themselves.
Common mistakes
Thinking the Treasurer should reconcile the bank account (Reconciliation should be separate from Custody).
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