Question 1

ANF Corporation's company procedures manual is available to all employees on the corporate network, while RSP Corporation distributes a hard copy of its company procedures manual to all new employees. Which of the following statements is most true?
A)Because the procedures manual would be reported as an asset on the balance sheet, RSP is doing a better job safeguarding its assets.
B)Because the procedures manual would be reported as an asset on the balance sheet, ANF is doing a better job safeguarding its assets.
C)ANF employees are more likely to comply with management directives than RSP employees.
D)The method of distributing the procedures manual is unlikely to be related to ensuring financial statement reliability.

Accepted Answer

The distribution method of the procedures manual is not related to ensuring financial statement reliability, so neither company is doing a better job safeguarding its assets. The compliance of employees is also not related to the distribution method.

Question 2

Violating the provisions of the Foreign Corrupt Practices Act most directly subjects an organization to what kind of risk from Brown's taxonomy?
A)Financial
B)Operational
C)Strategic
D)Inherent

Accepted Answer

C

Question 3

According to COSO, internal control is a:
A)Process.
B)Set of rules.
C)Responsibility of employees only.
D)Requirement only for publicly-traded firms.

Accepted Answer

According to COSO, internal control is a process designed and implemented by an entity's management, board of directors, and other personnel to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. Internal control is not a set of rules that must be followed or a responsibility of employees only. While publicly-traded firms may be subject to additional internal control requirements, internal control is not solely a requirement for these types of companies.

Question 4

Internal control is designed to provide:
A)Certainty.
B)Freedom from fraud.
C)Reasonable assurance.
D)Truth.

Accepted Answer

Internal control is designed to provide reasonable assurance that the objectives of an organization will be achieved. While it may help prevent or detect fraud, its primary purpose is not to provide freedom from fraud or certainty. Additionally, internal control is not necessarily designed to provide truth, as its focus is on ensuring accurate and reliable financial reporting.

Question 5

Shawn is an accountant at LNT Corporation. He maintains the company's accounting data on his computer's local hard drive, but does not back it up on any regular schedule. LNT Corporation's risk is most related to which purpose of internal control?
A)Safeguarding assets
B)Ensuring financial statement reliability
C)Encouraging compliance with management directives
D)Properly backing up data every day

Accepted Answer

The answer of Shawn is an accountant at LNT Corporation....

Question 6

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following best pairs one of the categories with a specific example?
A)Reliability of financial reporting, reconciling the bank statement at least monthly
B)Reliability of financial reporting, following the COSO internal control framework
C)Compliance with all known laws and regulations, following the COSO internal control framework
D)Compliance with all known laws and regulations, fulfilling the requirements of the Foreign Corrupt Practices Act

Accepted Answer

Reliability of financial reporting is one of the major categories of internal control and reconciling the bank statement at least monthly is a specific example of achieving this objective.

Question 7

Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) requiring supervisory review of how complex transactions are recorded in the journal, (ii) using general ledger software such as Peachtree.
A)I only.
B)II only.
C)Both I and II.
D)Neither I nor II.

Accepted Answer

Requiring supervisory review of how complex transactions are recorded in the journal and using general ledger software are both ways to achieve at least one of the four major purposes of internal control, which are to ensure the reliability and accuracy of financial information, ensure compliance with laws and regulations, safeguard assets, and promote efficient and effective operations. Therefore, both options I and II are correct.

Question 8

Bumble Beasley was making a presentation on internal control to a group of prospective clients. Which of the following statements is the least appropriate for Bumble to make?
A)Responsibility for internal control should be shared throughout the organization.
B)All companies must use the COSO definition of internal control as a guide.
C)Internal controls are not designed specifically to prevent fraud.
D)Part of internal control is ensuring that a company is making the best possible use of its resources.

Accepted Answer

While the COSO framework is widely used and accepted as a guide for internal control, it is not a requirement for all companies to use it. There may be other frameworks or guidelines that may suit a company's specific needs and circumstances. Bumble should not make a statement that implies a one-size-fits-all approach to internal control.

Question 9

Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) keeping cash in a bank, (ii) conducting a new employee orientation.
A)I only.
B)II only.
C)Both I and II.
D)Neither I nor II.

Accepted Answer

Option (i) keeping cash in a bank helps in maintaining control over cash, as banks have their own internal controls in place to keep cash secure. This also reduces the risk of theft and embezzlement. 
Option (ii) conducting a new employee orientation helps in providing an understanding of the organization's policies, procedures, and code of conduct, which helps in promoting ethical behavior and reducing the risk of fraud. Both of these options contribute to achieving one or more of the four major purposes of internal control, which include safeguarding assets, ensuring reliable financial reporting, promoting compliance with laws and regulations, and promoting efficient and effective operations.

Question 10

CPY Corporation replaces one third of its computers every year; SLP Corporation replaces its computers when employees submit a request, but no more frequently than once every four years. Which of the following statements is most true?
A)CPY's replacement policy does a better job safeguarding assets.
B)SLP's replacement policy does a better job safeguarding assets.
C)Neither replacement schedule helps achieve the internal control purpose of safeguarding assets, but replacing a computer may help promote operating efficiency.
D)Neither replacement schedule helps achieve the internal control purpose of safeguarding assets because information is not an asset reported on the balance sheet.

Accepted Answer

C) is the most accurate because both policies focus more on operational efficiency rather than directly on safeguarding assets. Safeguarding assets in the context of internal controls typically involves measures to prevent theft, misuse, or damage to assets. Replacing computers, whether on a fixed schedule or based on employee requests, primarily aims to ensure operational efficiency by maintaining up-to-date technology, rather than directly protecting the assets from loss or misuse.

Question 11

According to the COSO definition, internal control should address objectives in all of the following categories except:
A)Company operations.
B)Legal matters.
C)External reporting.
D)Fraud.

Accepted Answer

Fraud is not a separate category of objectives in the COSO framework; it is considered a risk that internal controls should mitigate within the categories of operations, reporting, and compliance.

Question 12

According to the COSO definition, internal control should promote ___ in financial reporting.
A)Truth
B)Accuracy
C)Both A and B
D)Neither A nor B

Accepted Answer

The answer of According to the COSO definition, internal control...

Question 13

A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?
A)Restrictive endorsements and bank reconciliations
B)Restrictive endorsements and pre-numbered documents (such as checks)
C)Bank reconciliations and background checks
D)Pre-numbered documents and background checks

Accepted Answer

Restrictive endorsements and bank reconciliations both relate to safeguarding assets, specifically cash, by ensuring that funds are properly deposited and accounted for.

Question 14

Omar is a general manager at FRD Corporation. He recently attempted to reorganize FRD from three departments of ten people each to six departments of five people each. Which purpose of internal control is most likely to be impacted by the change?
A)Safeguarding assets
B)Ensuring financial statement reliability
C)Promoting operational efficiency
D)Uncovering fraud

Accepted Answer

The reorganization of FRD from three departments of ten people each to six departments of five people each is most likely to impact the purpose of promoting operational efficiency. The change may help to streamline processes and improve communication among smaller teams, leading to increased efficiency in the organization. However, it is not likely to have a significant impact on safeguarding assets, ensuring financial statement reliability, or uncovering fraud.

Question 15

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following pairs gives an example of two controls that fulfill a single category?
A)Fulfilling the requirements of the Foreign Corrupt Practices Act, developing a clear job description for each position in the company
B)Developing a clear job description for each position in the company, calculating profits on the accrual basis
C)Fulfilling the requirements of the Foreign Corrupt Practices Act, calculating profits on the accrual basis
D)Ensuring that plant assets are listed on the balance sheet at their net book value, listing appropriate assets at their current market value

Accepted Answer

The answer of Internal control relates to an organization's achievement...

Question 16

In Brown's taxonomy, systems risk is a form of:
A)Financial risk
B)Operational risk
C)Strategic risk
D)Hazard risk

Accepted Answer

Brown categorizes risk into three main types: operational, financial, and strategic. Systems risk falls under operational risk, which covers risks related to the function and reliability of an organization's systems, processes, and infrastructure. Financial risk relates to the potential financial loss, while strategic risk encompasses risks that may arise from the organization's strategic decisions or external factors. Hazard risk refers to risks from physical hazards such as natural disasters, security breaches, hardware failure, and software issues that cause service interruptions, data loss or corruption. Therefore, option B is the correct answer.

Question 17

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following best pairs one of the categories with a specific example?
A)Effectiveness & efficiency of operations, fulfilling the requirements of the Foreign Corrupt Practices Act
B)Effectiveness & efficiency of operations, listing appropriate assets at their current market value
C)Reliability of financial reporting, fulfilling the requirements of the Foreign Corrupt Practices Act
D)Reliability of financial reporting, listing appropriate assets at their current market value

Accepted Answer

Reliability of financial reporting involves ensuring that financial statements are accurate and complete, which includes listing appropriate assets at their current market value.

Question 18

Purposes of internal control include:
A)Safeguarding assets.
B)Ensuring financial statement reliability.
C)Promoting operational efficiency.
D)All of the above.

Accepted Answer

All of the options listed are purposes of internal control. Safeguarding assets ensures the protection of company resources, ensuring financial statement reliability assures accuracy in financial reporting, and promoting operational efficiency helps a company to operate more effectively and efficiently.

Question 19

Internal control relates to an organization's achievement of objectives in three major categories. All of the following are examples of at least one category except:
A)Promoting compliance with the Sarbanes-Oxley Act.
B)Ensuring that plant assets are listed on the balance sheet at their net book value.
C)Developing a clear job description for each position in the company.
D)Providing conclusive proof that fraud has occurred.

Accepted Answer

Internal control systems are designed to help an organization achieve its objectives in the areas of operational efficiency, financial reporting reliability, and compliance with laws and regulations. While promoting compliance with laws (like the Sarbanes-Oxley Act), ensuring accurate financial reporting (such as correct asset valuation on the balance sheet), and developing clear job descriptions to ensure operational effectiveness and compliance are all objectives of internal control systems, providing conclusive proof that fraud has occurred is more of an outcome of investigating a suspected control failure or fraud, rather than an objective of internal control itself. Internal controls aim to prevent, detect, and correct errors or fraud, but they do not inherently provide conclusive proof of fraud; that is the role of investigations and audits.

Question 20

A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?
A)Adequate documentation and user training
B)Adequate documentation and bank reconciliations
C)User training and bank reconciliations
D)Firewalls and employee bonding

Accepted Answer

Adequate documentation and user training both relate to the purpose of ensuring accurate financial reporting. Proper documentation ensures that all transactions are recorded and can be traced, while user training ensures that those responsible for recording transactions understand the proper procedures and are less likely to make errors.

Quiz 3: Internal Controls

ANF Corporation's company procedures manual is available to all employees on the corporate network, while RSP Corporation distributes a hard copy of its company procedures manual to all new employees. Which of the following statements is most true?

Violating the provisions of the Foreign Corrupt Practices Act most directly subjects an organization to what kind of risk from Brown's taxonomy?

According to COSO, internal control is a:

Internal control is designed to provide:

Shawn is an accountant at LNT Corporation. He maintains the company's accounting data on his computer's local hard drive, but does not back it up on any regular schedule. LNT Corporation's risk is most related to which purpose of internal control?

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following best pairs one of the categories with a specific example?

Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) requiring supervisory review of how complex transactions are recorded in the journal, (ii) using general ledger software such as Peachtree.

Bumble Beasley was making a presentation on internal control to a group of prospective clients. Which of the following statements is the least appropriate for Bumble to make?

Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) keeping cash in a bank, (ii) conducting a new employee orientation.

CPY Corporation replaces one third of its computers every year; SLP Corporation replaces its computers when employees submit a request, but no more frequently than once every four years. Which of the following statements is most true?

According to the COSO definition, internal control should address objectives in all of the following categories except:

According to the COSO definition, internal control should promote ___ in financial reporting.

A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?

Omar is a general manager at FRD Corporation. He recently attempted to reorganize FRD from three departments of ten people each to six departments of five people each. Which purpose of internal control is most likely to be impacted by the change?

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following pairs gives an example of two controls that fulfill a single category?

In Brown's taxonomy, systems risk is a form of:

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following best pairs one of the categories with a specific example?

Purposes of internal control include:

Internal control relates to an organization's achievement of objectives in three major categories. All of the following are examples of at least one category except:

A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?