Student Forums CMA Part 1 Section E: Internal Controls E.1. Governance, Risk, and Compliance Question ID: CIA 1192 II.17 (Topic: Safeguarding Controls )

Question ID: CIA 1192 II.17 (Topic: Safeguarding Controls )

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  • #108181
    Igor Sergeev
    Participant

    Question:”The cash receipts function should be separated from the related record keeping in an organization to”

    Correct answer is “C. Physically safeguard the cash receipts” though I think this is incorrect, because SOD in and by itself does not ensure PHYSICAL security of cash. Physical security is due to strongbox, or keeping cash in bank vault, not due to SOD.

    My choice is answer “B. Minimize undetected misappropriations of cash receipts” though it does not seem to be 100% corrrect either, it is much better than the “correct” answer C which seems total nonsence.

    Can you please explain the logic behind the correct answer?

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  • #108185
    Brian Hock
    HOCK international

    Igor,

    Part of the issue is that the goal of this would not be to minimize misappropriations, but to eliminate it completely. There is not an acceptable level of theft within the company. So, if it said to eliminate, then B would be a better choice.

    As for the physically safeguarding, this answer choice is not saying that this control by itself is all that needs to be done to physically safeguard the cash. But, this control is done in order to be part of the process of safeguarding the cash. If the person who receives the cash also records the receipt of the cash, the company’s cash receipts would decrease because this person could receive it, steal it and then not record that it was received.

    Does this help?

    Brian

    #108194
    Igor Sergeev
    Participant

    Hi Brian,
    thank you very much for your quick response. However let me disagree. My logic is the following:
    Internal controls can never give us 100% guarantee against fraud, so in the indefinite future fraud once WILL happen. By implementing SOD we know in advance that we are not eliminating the risk of misappropriation, but minimizing it (perhaps, almost to zero, but never in full).
    Concerning the correct answer, I think it would be correct if it did not include the word “Physically”. It is misleading. The fact that “Safeguarding of Assets” includes both “physical safeguards” and “segregation of duties” does not mean that SOD is done for physical security. With or without SOD cash may still be phisically stolen. However with good SOD the risk that misappropriation will remain undetected is minimized.

    Igor

    #108297
    Brian Hock
    HOCK international

    Igor,

    I understand some of your points on this. However, this is a past exam question and this was the correct answer for that question.

    The term misappropriation is essentially a different word for stealing.

    Some of these internal control questions are difficult like this, and part of the preparation is learning from the questions what has been considered the correct answer in the past on the exam.

    Brian

    #108342
    Igor Sergeev
    Participant

    Hi Brian, understood.
    Thank you
    Igor

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