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Chapter 34 – Exercises & Cases

Multiple Choice Questions​

  1. Internal controls aim to: a) Only prevent fraud b) Only ensure accuracy c) Safeguard assets, ensure accuracy, promote efficiency, ensure compliance, prevent fraud d) Only protect cash Answer: c) Internal controls aim to safeguard assets, ensure accuracy, promote efficiency, ensure compliance, and prevent fraud.

  2. Segregation of duties separates: a) Only authorization and recording b) Authorization, recording, custody, and reconciliation c) Only custody and reconciliation d) Only recording and custody Answer: b) Segregation of duties separates authorization, recording, custody, and reconciliation.

  3. Bank reconciliation should be performed: a) Annually b) Quarterly c) Monthly (minimum) d) Weekly Answer: c) Bank reconciliation should be performed monthly (minimum).

  4. Compensating controls are: a) Not needed if segregation exists b) Additional controls compensating for lack of segregation c) Only for large businesses d) Not effective Answer: b) Compensating controls are additional controls that compensate for lack of segregation.

  5. Preventive controls: a) Detect errors after they occur b) Prevent errors from occurring c) Correct errors after detection d) Only monitor operations Answer: b) Preventive controls prevent errors from occurring.

  6. Petty cash should be: a) Unlimited b) A fixed amount c) Not used d) Only for large expenses Answer: b) Petty cash should be a fixed amount.

  7. Inventory counts should be performed: a) Never b) Only when problems occur c) Regularly (monthly, quarterly, annually) d) Only annually Answer: c) Inventory counts should be performed regularly (monthly, quarterly, annually).

  8. Accounts receivable aging analysis helps: a) Only identify total receivables b) Identify overdue accounts and prioritize collection c) Only calculate bad debts d) Only verify invoice accuracy Answer: b) Aging analysis helps identify overdue accounts and prioritize collection.

  9. Purchase orders help: a) Only authorize purchases b) Authorize purchases and prevent unauthorized payments c) Only track inventory d) Only record expenses Answer: b) Purchase orders help authorize purchases and prevent unauthorized payments.

  10. Whistleblower protections: a) Not required in Luxembourg b) Required for companies with 50+ employees c) Only for large companies d) Not important Answer: b) Whistleblower protections are required for companies with 50+ employees (as of 2025).

Questions​

  1. Explain the internal control framework for SMEs. What are the key components?

  2. How can small businesses implement segregation of duties with limited staff? What are compensating controls?

  3. What are the key cash controls? Why are they important?

  4. Explain inventory control procedures. How do they differ for perishable inventory?

  5. What are accounts receivable controls? How do they help with collection?

  6. Explain accounts payable controls. How do they prevent duplicate payments?

  7. What are Luxembourg's legal requirements for internal controls? What are the consequences of non-compliance?

  8. How can businesses detect and prevent fraud? What are common fraud types?

  9. What are whistleblower protections? What are the legal requirements in Luxembourg?

  10. How should businesses respond when fraud is detected? What steps should be taken?

Note: Complete solutions are available in the solutions manual.

End of Chapter 34 Exercises