Question 1

When assessing a company's internal control structure policies and procedures, the primary consideration is whether they
A)Prevent management override
B)Relate to the control environment
C)Reflect management's philosophy and operating style
D)Affect the financial statement assertions

Accepted Answer

The primary consideration when assessing a company's internal control structure policies and procedures is whether they affect the financial statement assertions. This is because the main objective of internal controls is to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP).

Question 2

When management of the sales department has the opportunity to override the system of internal controls of the accounting department, a weakness exists in
A)Risk management
B)Information and communication
C)Monitoring
D)The control environment

Accepted Answer

The control environment is weakened when management can override internal controls, as it undermines the foundation of discipline and structure necessary for effective internal control.

Question 3

Which one of the following types of audits would be most likely to focus on objectives related to the efficient use of resources?
A)Compliance audit
B)Information systems audit
C)Independent audit
D)Operational audit

Accepted Answer

Operational audits specifically focus on the efficiency and effectiveness of an organization's operations, including the use of resources.

Question 4

Which of the following personnel policies would be the most useful in mitigating fraud or embezzlement?
A)Fidelity bonds for key employees
B)Careful hiring procedures for key employees
C)Having a Code of Conduct
D)Required vacations for key employees

Accepted Answer

Required vacations for key employees can help detect fraud or embezzlement, as it allows for an independent review of their work while they are away, potentially uncovering any irregularities.

Question 5

Suppose a company established training programs that teach employees to perform their job functions more efficiently and effectively.This is an example of which type of control?
A)Detective
B)Preventive
C)Corrective
D)none of the above

Accepted Answer

The answer of Suppose a company established training programs that...

Question 6

Segregation of duties is a fundamental concept in an effective system of internal control.Nevertheless, the internal auditor must be aware that this safeguard can be compromised through
A)Lack of training of employees
B)Collusion among employees
C)Irregular employee reviews
D)Absence of internal auditing

Accepted Answer

Collusion among employees can compromise the effectiveness of segregation of duties by allowing them to bypass controls through coordinated efforts, undermining the internal control system.

Question 7

The purpose of ________________ is to identify organizational risks, analyze their potential in terms of costs and likelihood of occurrence, and install those controls whose projected benefits outweigh their costs.
A)Internal controls
B)A control environment
C)Risk assessment
D)Management consultants

Accepted Answer

Risk assessment is the process of identifying, analyzing, and evaluating risks to enable the organization to mitigate or prepare for their potential impact. It involves determining the cost of risks and the benefits of implementing controls to manage those risks.

Question 8

Many organizations have an internal audit function that makes periodic reviews of each department within the organization.The focus of these reviews is to:
A)Conduct an investigation of each department to be sure fraud is not taking place
B)Evaluate the efficiency and effectiveness of the department
C)Evaluate the performance of the manager of the department
D)Report to the organization's top managers and board of directors

Accepted Answer

The primary focus of internal audits is to evaluate the efficiency and effectiveness of departmental operations, ensuring that resources are used optimally and processes are functioning as intended.

Question 9

Which one of the following methods for the distribution of employees' paychecks would provide the best internal control for the organization?
A)Delivery of the paychecks to each department supervisor, who in turn would distribute paychecks directly to the employees in his/her department
B)Direct deposit in each employee's personal bank account
C)Distribution of paychecks directly to each employee by a representative of the Human Resource department
D)Distribution of paychecks directly to each employee by the payroll manager

Accepted Answer

Direct deposit minimizes the risk of theft, loss, or tampering with the paychecks, providing a secure and efficient method of payment that enhances internal control within an organization.

Question 10

The Enterprise Risk Management (ERM)framework in the 2004 COSO Report was based on the 1992 COSO report and adds three additional components for an effective internal control system.Which of the following is not one of those three?
A)Objective setting
B)Event identification
C)Control assessment
D)Risk response

Accepted Answer

The three additional components added in the 2004 COSO ERM framework, beyond what was outlined in the 1992 COSO report, are Objective Setting, Event Identification, and Risk Response. Control Assessment is not listed as one of the three additional components; it is considered part of the broader internal control framework.

Question 11

Which one of the following functions performed in an organization is a violation of internal control?
A)A mail clerk opening the mail compares the check received with the source document accompanying the payment, noting the amount paid, then forwards the checks daily (along with a listing of the cash receipts)to the Cashier for deposit
B)A mail clerk opening the mail compares the check received with the source document accompanying the payment, noting the amount paid, then forwards the source documents that accompany the payments (along with a listing of the cash receipts)to Accounts Receivable, on a daily basis, for posting to the subsidiary ledger
C)At the end of the week the Cashier prepares a deposit slip for all of the cash receipts received during the week
D)The General Ledger clerk compares the summary journal entry, received from the Cashier for cash receipts applicable to outstanding accounts, with the batch total for posting to the Subsidiary Ledger by the Accounts Receivable clerk

Accepted Answer

The correct answer is C because it involves the Cashier preparing a deposit slip for all cash receipts received during the week, which delays the deposit of funds and violates the principle of timely depositing in internal control systems. Internal controls typically require daily deposits to minimize the risk of theft or loss.

Question 12

Which of the following factors best describes the "control environment" of a firm?
A)The integrity, ethical values, and competence of employees
B)Management's philosophy and operating style
C)The way management assigns authority and responsibility
D)The direction and attention provided by the board of directors
E)all of the above

Accepted Answer

The "control environment" of a firm encompasses all aspects mentioned: the integrity, ethical values, and competence of employees; management's philosophy and operating style; the way management assigns authority and responsibility; and the direction and attention provided by the board of directors. These elements collectively form the foundation of a company's internal control system, setting the tone for the organization.

Question 13

Which one of the following would be most effective in deterring the commission of fraud?
A)Policies of strong internal control, segregation of duties, and requiring employees to take vacations
B)Policies of strong internal control and punishments for unethical behavior
C)Employee training, segregation of duties, and punishment for unethical behavior
D)Hiring ethical employees, employee training, and segregation of duties

Accepted Answer

Policies of strong internal control, segregation of duties, and requiring employees to take vacations are effective in deterring fraud by creating barriers to fraudulent activities, ensuring no single individual has control over all aspects of a financial transaction, and potentially exposing fraudulent activities when the employee is away.

Quiz 6: Introduction to Internal Control Systems and Risk Management

When assessing a company's internal control structure policies and procedures, the primary consideration is whether they

When management of the sales department has the opportunity to override the system of internal controls of the accounting department, a weakness exists in

Which one of the following types of audits would be most likely to focus on objectives related to the efficient use of resources?

Which of the following personnel policies would be the most useful in mitigating fraud or embezzlement?

Suppose a company established training programs that teach employees to perform their job functions more efficiently and effectively.This is an example of which type of control?

Segregation of duties is a fundamental concept in an effective system of internal control.Nevertheless, the internal auditor must be aware that this safeguard can be compromised through

The purpose of ________________ is to identify organizational risks, analyze their potential in terms of costs and likelihood of occurrence, and install those controls whose projected benefits outweigh their costs.

Many organizations have an internal audit function that makes periodic reviews of each department within the organization.The focus of these reviews is to:

Which one of the following methods for the distribution of employees' paychecks would provide the best internal control for the organization?

The Enterprise Risk Management (ERM) framework in the 2004 COSO Report was based on the 1992 COSO report and adds three additional components for an effective internal control system.Which of the following is not one of those three?

Which one of the following functions performed in an organization is a violation of internal control?

Which of the following factors best describes the "control environment" of a firm?

Which one of the following would be most effective in deterring the commission of fraud?