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Chapter 7: Q4RQ (page 411)

Question: What is the difference between an internal auditor and an external auditor?

Short Answer

Expert verified

Answer

The main difference between the internal and external auditor is that the internal auditor is a regular team member of the organization and the external auditor is not.

Step by step solution

01

Definition of the external auditor

An outside accountant, utterly independent of the business, evaluates the controls to ensure that the financial statements are presented relatively by GAAP. The company does not control the external auditor.

02

Difference between the internal auditor and external auditor

An internal auditor is a team member of the company and works according to the company policies. On the other hand, the external auditor is an outside accountantwho works independently of the business.

The internal auditor examines whether or not the company is following the legal requirements related to internal control. On the other hand, an external auditor examines whether financial statementsare prepared by following the GAAP or not.

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Most popular questions from this chapter

What are the controls needed to secure the petty cash fund?

Classifying bank reconciliation items

The following items could appear on a bank reconciliation:

a. Outstanding checks, \(670.

b. Deposits in transit, \)1,500.

c. NSF check from customer, no. 548, for \(175.

d. Bank collection of note receivable of \)800, and interest of \(80.

e. Interest earned on bank balance, \)20.

f. Service charge, \(10.

g. The business credited Cash for \)200. The correct amount was \(2,000.

h. The bank incorrectly decreased the business鈥檚 account by \)350 for a check written

by another business.

Classify each item as (1) an addition to the book balance, (2) a subtraction from the

book balance, (3) an addition to the bank balance, or (4) a subtraction from the bank

balance.

Question: How does the Sarbanes-Oxley Act relate to internal controls?

Computing the cash ratio Smythe Banners reported the following figures in its financial statements:

Cash $ 26,500 Cash Equivalents 5,000 Total Current Liabilities 30,000 Compute the cash ratio for Smythe Banners.

Accounting for petty cash transactions

Suppose that on June 1, Rockin鈥� Gyrations, a disc jockey service, creates a petty cash

fund with an imprest balance of \(300. During June, Michael Martell, fund custodian,

signs the following petty cash tickets:

Petty Cash

Ticket Number Item Amount

1 Postage for package received \) 30

2 Office party 25

3 Two boxes of stationery 20

4 Printer cartridges 15

5 Business dinner 65

On June 30, prior to replenishment, the fund contains these tickets plus cash of \(140.

The accounts affected by petty cash payments are Office Supplies, Entertainment

Expense, and Postage Expense.

Requirements

1. On June 30, how much cash should this petty cash fund hold before it is replenished?

2. Journalize all required entries to (a) create the fund and (b) replenish it. Includeexplanations.

3. Make the entry on July 1 to increase the fund balance to \)325. Include an explanation
See all solutions

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