Question 1

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

Internal control is indeed a process, as emphasized by the COSO report, which involves ongoing tasks and activities.

Question 2

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 identified five components for an effective internal control system, which are control environment, risk assessment, control activities, information and communication, and monitoring. Option A is the correct choice as it contains all five components listed in the report. Option B is incorrect as it replaces risk assessment with control procedures. Options C and D are also incorrect as they either omit or replace one or more of the five components listed in the report.

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

Regarding a company's audit trail,which of the following statements is true?
A)Because of the complexities involved in establishing an audit trail,a good audit trail normally makes it more difficult for an individual to follow the flow of a company's business transactions through the company's information system
B)In actuality,the audit trail established within a company's information system is an unimportant element of the company's internal control system
C)When a company's audit trail becomes more difficult to follow,this causes an increase in the risk of errors or irregularities taking place in the processing of accounting transactions and not being detected
D)A company's policies and procedures manual should not be part of its audit trail since confidential information is included within this manual

Accepted Answer

A clear and easily understandable audit trail reduces the risk of errors or irregularities going undetected. A complex or confusing audit trail can increase the risk of such issues occurring. Additionally, a company's policies and procedures manual should be included in its audit trail as it is an important document outlining the company's internal control procedures.

Question 5

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

The weakness is in the separation of duties element of a company's internal control system. It is important for different employees to be responsible for authorizing and recording transactions to minimize the risk of errors, fraud or other malicious activities.

Question 6

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 7

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 component of internal control specifically deals with how management assigns authority and responsibility within the organization. A focuses on ongoing review and evaluation, C on identifying and managing risks, and D on ensuring accurate and timely information is available.

Question 8

_________________ describes the policies,plans,and procedures implemented by a firm to protect its assets.
A)Internal control
B)SAS No.94
C)SOX,Section 404
D)Enterprise risk management

Accepted Answer

Internal control refers to the policies, procedures, and plans established by a company to protect its assets, ensure accurate financial reporting, and promote compliance with laws and regulations.

Question 9

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 10

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 are...

Question 11

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 checks 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 checks on the bank reconciliation
E)A cash shortage is covered by omitting some of the outstanding checks from the bank reconciliation

Accepted Answer

The answer of The voucher system requires that invoices be...

Question 12

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 a major means of providing information to management concerning the actual operations of the companies' internal control systems. These reports may include both monetary and non-monetary data. While other techniques may be needed to provide feedback on previously implemented internal control procedures, timely performance reports remain an important tool for management. The complexity of a computerized information system may actually improve the timeliness and accuracy of performance reporting.

Question 13

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

Accepted Answer

Requiring that sales commission statements be supported by sales order forms and approved by the sales manager would provide a system of checks and balances to prevent the bookkeeper from fraudulently crediting sales to her brother-in-law. It would also ensure that commissions are only paid on legitimate outside sales, as opposed to house account sales. The other options may also help to prevent fraud and errors, but they may not directly address the specific problem of crediting sales to the bookkeeper's brother-in-law.

Question 14

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 because COBIT stands for Control Objectives for Information and Related Technology. Option B is incorrect because COBIT integrates internal control concepts from various sources, including the COSO framework. Option C is incorrect because COBIT emphasizes the importance of management's role in establishing and maintaining effective internal control.

Question 15

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 component that establishes the tone of a company and influences the control awareness of the company's employees is the Control environment. This includes the organization's culture, management philosophy, and operating style. It sets the tone for the company's internal control system, and it is the foundation for all other components of internal control.

Question 16

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

Accepted Answer

All the options listed are control procedures that help in providing physical protection for a company's cash assets. Making authorized cash disbursements by check, depositing daily cash receipts intact at the bank, and using a voucher system for cash disbursements are all practices that safeguard cash from theft, loss, or misuse.

Question 17

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 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

The component that includes the methods used to inform employees about their roles and responsibilities pertaining to internal control is "Information and communication," which is one of the five components identified in the 1992 COSO report. This component involves the dissemination of information both internally and externally to enable effective internal control throughout the organization.

Question 19

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 a common approach used by companies to reduce the risk of loss caused by the theft of assets by employees. This type of insurance protects the company from financial losses due to fraudulent or dishonest acts committed by employees. Utilizing polygraphs may not be legally acceptable in some jurisdictions, while arbitrage loss protection and punitive management may not provide adequate protection against employee theft.

Question 20

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...

Quiz 9: Introduction to Internal Control Systems

The COSO report stresses that:

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

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

Regarding a company's audit trail,which of the following statements is true?

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:

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

_________________ describes the policies,plans,and procedures implemented by a firm to protect its assets.

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

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

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

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:

Regarding COBIT,which of the following statements is true?

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?

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

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

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?

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

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: