Lesson: Internal Controls & Information Technology Controls: Design, Testing, & Deficiencies Practice Questions

Instructor: Nick Palazzolo

the payroll department and not be accessible for editing by employees any longer. In this lesson, the focus is on understanding weaknesses in a company's internal control system and identifying different types of deficiencies. To do this, Nick Palazzolo, CPA, explains multiple-choice questions with real-life scenarios. These questions cover various roles and responsibilities within a company, as well as issues in authorization, record keeping, and custody. The lesson also emphasizes the importance of differentiating between procedural, design, and operating deficiencies in a company's control system.

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Recommended Lessons

Internal Controls & Information Technology Controls: Design, Testing, & Deficiencies Overview

Internal Controls & Information Technology Controls: Design, Testing, & Deficiencies Objectives

Introduction to Internal Controls and Information Technology Controls

Examples of Internal Controls

The Internal Control Process

Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Let's dive into your favorite part of the day. We've got some multiple choice questions here on internal controls, IT, the design of those, the testing, and any deficiencies within those controls. First off, what do we see? Well, we see a company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows. We'll read that in a second, but let's read the question first. Which of the following would indicate a weakness in the company's internal control? Awesome. Great. Well, one of these is going to be an issue. And let's first look through the employee and decide, are they responsible for something having to do with authorization, something to do with record keeping, or something to do with custody? Well, first off, we see clerk one. This person is going to review vendor invoices for proper signature approval. Clerk two enters vendor invoices into the accounting system and verifies payment terms. Three, posts entered vendor invoices to the accounts payable ledger for payment and mails checks. And lastly, we have the treasurer who reviews the vendor invoices and signs each check. All right. Interesting point here. So first, it's important. Now, it's not within each department that you particularly need to separate out authorization, record keeping, and custody. Generally, that would be ideal. So generally, that would be ideal, right? If everyone in the AP department just had one responsibility. However, that's not really practical all the time. And as long as each individual person only has just record keeping, authorization, or custody practices, that would be sufficient. That's what we're looking for here. Let's just run through and see each of these possible choices. Well, clerk three mails the checks and remittances after they have been signed. Okay. That could be problematic. Let's talk

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Substantive Testing & Internal Controls

Module: 3 Concepts, 45 Lessons

Internal Controls & Information Technology Controls: Design, Testing, & Deficiencies Overview

0:50

Internal Controls & Information Technology Controls: Design, Testing, & Deficiencies Objectives

1:37

Introduction to Internal Controls and Information Technology Controls

1:49

Examples of Internal Controls