Question 1

The component of an internal control system that concerns itself with the way a company's management assigns authority and responsibility is called:
A)Monitoring
B)Control environment
C)Risk assessment
D)Information

Accepted Answer

The control environment is the component of an internal control system that concerns itself with the way a company's management assigns authority and responsibility. The control environment includes the company's overall attitude toward internal controls, the integrity and ethical values of management, and the commitment to competence. Monitoring, risk assessment, and information are other components of an internal control system, but they do not specifically address the assignment of authority and responsibility.

Question 2

The voucher system requires that invoices be compared with receiving reports and express bills before a voucher is prepared and approved for payment.
A)Unrecorded cheques appear in the bank statement
B)The treasurer takes funds by preparing a fictitious voucher charging "Miscellaneous General Expenses"
C)An employee in the purchasing department sends through fictitious invoices and receives payment
D)A cash shortage is covered by underfooting outstanding cheques on the bank reconciliation
E)A cash shortage is covered by omitting some of the outstanding cheques from the bank reconciliation

Accepted Answer

The voucher system is designed to prevent fraudulent payments by ensuring that invoices are verified against receiving reports and express bills before payment is approved. This process would help detect fictitious invoices.

Question 3

Both cash and credit customers are educated to expect a sales ticket.Tickets are serially numbered.All numbers are accounted for daily.
A)Customers complain that their monthly bills contain items that have been paid
B)Some customers have the correct change for the merchandise purchased; they pay and do not wait for a sales ticket
C)Customers complain that they are billed for goods they did not purchase
D)Customers complain that goods ordered are not received
E)Salesclerks destroy duplicate sales tickets for the amount of cash stolen

Accepted Answer

The answer of Both cash and credit customers are educated...

Question 4

The 1992 COSO report identifies five components for an effective internal control system.Which of those five establishes the tone of a company and influences the control awareness of the company's employees?
A)Control procedures
B)Control environment
C)Control activities
D)Information and communication

Accepted Answer

The control environment is the component that establishes the tone of a company and influences the control awareness of its employees. It includes factors such as the integrity and ethical values promoted by management, the organization's commitment to competence, and the management's philosophy and operating style.

Question 5

An approach used by many companies to reduce the risk of loss caused by the theft of assets by employees is to:
A)Utilize polygraphs
B)Acquire arbitrage loss protection
C)Acquire fidelity bond coverage
D)Institute punitive management

Accepted Answer

Acquiring fidelity bond coverage is an insurance policy that protects the company against financial loss caused by the dishonest acts of its employees. It is a commonly used approach to reduce the risk of loss caused by employee theft. The other options, such as utilizing polygraphs or instituting punitive management, may not be legal or effective, while acquiring arbitrage loss protection may not address the specific issue of employee theft.

Question 6

Which of the following control procedures provides physical protection for a company's cash asset?
A)Majority of authorized cash disbursements made by cheque
B)Daily cash receipts deposited intact at bank
C)Voucher system for cash disbursements
D)all of the above

Accepted Answer

All of the control procedures listed provide physical protection for a company's cash asset.

Question 7

At a movie?theater box office, all tickets are prenumbered.At the end of each day, the beginning ticket number is subtracted from the ending number to give the number of tickets sold.Cash is counted and compared with the number of tickets sold.
A)The box office gives too much change
B)The ticket taker admits his friends without a ticket
C)The manager gives theater passes for personal expenses, which is against company policy
D)A test check of customers entering the theater does not reconcile with ticket sales
E)Tickets from a previous day are discovered in the ticket taker's stub box despite the fact that tickets are stamped "Good on Date of Purchase Only"

Accepted Answer

The answer of At a movie?theater box office, all tickets...

Question 8

The COSO report stresses that:
A)Internal control is a process
B)An internal control system, if properly designed, can become a substitute for management
C)People only at high levels of an organization are an important part of an internal control system
D)An internal control system should consist of three interrelated components: the control environment, risk assessment, and control activities

Accepted Answer

The answer of The COSO report stresses that:
A)Internal control is...

Question 9

Which of the following statements is true regarding timely performance reports?
A)In many companies, these reports are the major means of providing information to management concerning the actual operations of the companies' internal control systems
B)These reports should only include monetary data
C)Since these reports fail to provide feedback to management on the operations of previously implemented internal control procedures, other techniques are needed to provide this feedback to managers
D)The complexity that a computer introduces into a company's information system will typically prevent the preparation of timely performance reports for the company's management

Accepted Answer

Timely performance reports are an important means of providing information to management concerning the actual operations of the company's internal control system. These reports should include both monetary and non-monetary data, and are useful in identifying areas where internal control procedures can be improved. Feedback on the operations of previously implemented internal control procedures can also be provided through these reports. While computer systems may introduce some complexity into the preparation of these reports, technology can also be used to streamline the process and automate data collection and analysis.

Question 10

The Enterprise Risk Management ERM)framework is 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 ERM framework are: objective setting, event identification, and risk response. Control assessment is already a part of the original COSO report's internal control framework.

Question 11

The 1992 COSO report identifies five components for an effective internal control system.These are:
A)Control environment, risk assessment, control activities, information and communication, and monitoring
B)Control environment, control procedures, control activities, communication, and monitoring
C)Control procedures, control activities, information, communication, and monitoring
D)Control procedures, risk assessment, control activities, information and communication, and monitoring

Accepted Answer

The 1992 COSO report identifies five components for an effective internal control system which are control environment, risk assessment, control activities, information and communication, and monitoring. Option A correctly lists all these five components. Options B, C, and D either miss or incorrectly include some of these components.

Question 12

For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order which is:
A)Forwarded to the accounting department
B)Retained in the purchasing department's files
C)Returned to the requisitioner
D)Forwarded to the receiving department

Accepted Answer

The receiving department uses the purchase order to verify the quantity of materials received. By omitting the quantities from their copy, it ensures an independent check on the quantity received, as they must count the items themselves rather than relying on the purchase order's stated quantities. This helps prevent fraud and errors.

Question 13

The duties of cashier and accounts?receivable bookkeeper should be separated.
A)There are two cashiers.At the end of a certain day, there is a sizable cash shortage; each cashier blames the other and it is impossible to fix responsibility
B)A cash shortage is covered by overfooting overadding)cash in transit on the bank reconciliation
C)A cash shortage is covered by charging it to "Miscellaneous General Expenses"
D)Customers who paid their accounts in cash complain that they still receive statements of balances due
E)The accounts?receivable bookkeeper charges off the accounts of friends to "Allowance for Uncollectible Accounts"

Accepted Answer

The answer of The duties of cashier and accounts?receivable bookkeeper...

Question 14

If the same employee is responsible for authorizing a business transaction and recording the transaction in the accounting records, this indicates a weakness in which element of a company's internal control system?
A)A good audit trail
B)Separation of duties
C)Internal review of controls
D)Competent employees

Accepted Answer

Separation of duties is a crucial element in a company's internal control system to prevent fraud and errors. It ensures that no single employee has control over a particular transaction from start to finish. When an employee is responsible for authorizing and recording a transaction, there is a lack of separation of duties, which increases the risk of errors and fraud.

Question 15

A responsibility that should be assigned to a specific employee and not shared is that of:
A)Access to the company's safe deposit box
B)Placing orders and maintaining relationships with a prime supplier
C)Attempting to collect a particular delinquent account
D)Custodianship of the petty cash fund

Accepted Answer

The answer of A responsibility that should be assigned to...

Question 16

Regarding COBIT, which of the following statements is true?
A)COBIT means Cost Objectives for Information and Related Technology
B)COBIT rejects the definition of internal control from the COSO report
C)COBIT states that a company's management should play a minor role in establishing an internal control system
D)COBIT classifies people as one of the primary resources managed by various IT processes

Accepted Answer

COBIT classifies people as one of the primary resources managed by various IT processes. Option A is incorrect as COBIT stands for Control Objectives for Information and Related Technology. Option B is incorrect as COBIT incorporates the internal control framework of COSO. Option C is incorrect as COBIT emphasizes the key role of management in establishing and maintaining an effective internal control system.

Question 17

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 18

The 1992 COSO report identifies five components for an effective internal control system.Which of those five includes the methods used to inform employees about their roles and responsibilities pertaining to internal control?
A)Control procedures
B)Control environment
C)Control activities
D)Information and communication

Accepted Answer

Information and communication includes the methods used to inform employees about their roles and responsibilities pertaining to internal control. The other components identified in the COSO report are control environment, risk assessment, control activities, and monitoring.

Question 19

Freije Refrigeration Company has an inventory of raw materials and parts consisting of thousands of different items which are of small dollar value individually but significant in total.A fundamental control requirement of Freije's inventory system is that:
A)Perpetual inventory records be maintained for all inventory items
B)The taking of physical inventories be conducted on a cycle basis rather than at year?end
C)The storekeeping function not be combined with the production and inventory record?keeping functions
D)Material requisitions be approved by an officer of the company

Accepted Answer

The answer of Freije Refrigeration Company has an inventory of...

Question 20

The sales department bookkeeper has been crediting house?account sales to her brother-in?law, an outside salesman.Commissions are paid on outside sales but not on house-account sales.This might have been prevented by requiring that:
A)Sales order forms be prenumbered and accounted for by the sales department bookkeeper
B)Sales commission statements be supported by sales order forms and approved by the sales manager
C)Aggregate sales entries be prepared by the general accounting department
D)Disbursement vouchers for sales commissions be reviewed by the internal audit department and checked to sales commission statements
In each one of the following four questions questions 50?53), you are given a well?recognized procedure of internal control.You are to identify the irregularity that will be discovered or prevented by each procedure.

Accepted Answer

The answer of The sales department bookkeeper has been crediting...

Quiz 9: Introduction to Internal Control Systems

The component of an internal control system that concerns itself with the way a company's management assigns authority and responsibility is called:

The voucher system requires that invoices be compared with receiving reports and express bills before a voucher is prepared and approved for payment.

Both cash and credit customers are educated to expect a sales ticket.Tickets are serially numbered.All numbers are accounted for daily.

The 1992 COSO report identifies five components for an effective internal control system.Which of those five establishes the tone of a company and influences the control awareness of the company's employees?

An approach used by many companies to reduce the risk of loss caused by the theft of assets by employees is to:

Which of the following control procedures provides physical protection for a company's cash asset?

At a movie?theater box office, all tickets are prenumbered.At the end of each day, the beginning ticket number is subtracted from the ending number to give the number of tickets sold.Cash is counted and compared with the number of tickets sold.

The COSO report stresses that:

Which of the following statements is true regarding timely performance reports?

The Enterprise Risk Management ERM) framework is 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?

The 1992 COSO report identifies five components for an effective internal control system.These are:

For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order which is:

The duties of cashier and accounts?receivable bookkeeper should be separated.

If the same employee is responsible for authorizing a business transaction and recording the transaction in the accounting records, this indicates a weakness in which element of a company's internal control system?

A responsibility that should be assigned to a specific employee and not shared is that of:

Regarding COBIT, which of the following statements is true?

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?

The 1992 COSO report identifies five components for an effective internal control system.Which of those five includes the methods used to inform employees about their roles and responsibilities pertaining to internal control?

Freije Refrigeration Company has an inventory of raw materials and parts consisting of thousands of different items which are of small dollar value individually but significant in total.A fundamental control requirement of Freije's inventory system is that:

The sales department bookkeeper has been crediting house?account sales to her brother-in?law, an outside salesman.Commissions are paid on outside sales but not on house-account sales.This might have been prevented by requiring that: