Question 1

Which of the following statements is true regarding preventive control procedures and detective control procedures?

Accepted Answer

Preventive control procedures are designed to prevent errors or fraud from occurring in the first place, while detective control procedures are designed to identify errors or fraud that has already occurred. Both types of controls should be interrelated to ensure a comprehensive approach to risk management. Preventive controls aim to deter undesirable events before they happen, and detective controls aim to discover them if they do occur, making them complementary rather than mutually exclusive or independent in terms of necessity and cost-effectiveness.

Question 2

Control activities and monitoring are one and the same.

Accepted Answer

Control activities are actions taken to minimize risks and ensure that objectives are met, while monitoring involves reviewing and assessing the effectiveness of those control activities over time.

Question 3

A general rule that should be followed when developing control procedures for a company's assets is:

Accepted Answer

The more liquid an asset is, the greater the risk of its misappropriation. This is because liquid assets, such as cash, are easier to divert without detection compared to less liquid assets.

Question 4

Control procedures that provide feedback to management regarding the achievement of operational efficiency and adherence to prescribed managerial policies are called:

Accepted Answer

Detective controls are designed to identify and provide feedback on any deviations from operational efficiency and adherence to policies, allowing management to take corrective actions.

Question 5

A control procedure that may be established within the sales department of a company's marketing subsystem is the addition of the sales invoice amounts before these invoices are sent to the information processing subsystem.This control total of invoice amounts is called a:

Accepted Answer

A batch control total is a type of control procedure used to ensure that the total amount for a batch of transactions (such as sales invoices) is correct before these transactions are processed further. This helps in verifying that all invoices are accounted for and that the total amount to be processed matches the sum of individual invoices, enhancing the accuracy and integrity of the data.

Question 6

With respect to risk response strategies, which of the following would be a "risk avoidance" approach?

Accepted Answer

Risk avoidance involves changing plans to eliminate the risk or to protect project objectives from its impact. JLW Industries divesting itself of the high-risk oil drilling division is an example of avoiding the risk associated with offshore oil drilling and its potential negative consequences.

Question 7

Assume that a company designs and implements a control procedure whereby the accountant that is responsible for recording cash receipts transactions does not have access to the cash itself.This control procedure is an example of a:

Accepted Answer

This control procedure is an example of a preventive control because it aims to prevent errors or fraud by segregating duties. By not allowing the accountant who records cash receipts to have access to the cash, the company reduces the risk of misappropriation of funds.

Question 8

Which of the following fundamental concepts is stressed by the 2013 COSO Report?

Accepted Answer

The 2013 COSO Framework emphasizes that internal control is a process, integral to achieving an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws and regulations. It recognizes that internal control is not foolproof, but a means to help an organization achieve its objectives.

Question 9

Regarding the cost-benefit concept, which of the following statements is true?

Accepted Answer

A control procedure is deemed cost effective when the expected benefits from implementing the procedure outweigh the anticipated costs associated with it. This principle ensures that resources are allocated efficiently, enhancing the overall value and effectiveness of the control system within an organization.

Question 10

Due to data errors occurring from time to time in processing the Albert Company's payroll, the company's management is considering the addition of a data validation control procedure that is projected to reduce the risk of these data errors from 13% to 2%.The cost of the payroll reprocessing is estimated to be $11,000.If the data validation control procedure is implemented, the cost of this procedure is expected to be $700 per pay period (employees are paid biweekly).Based on the above data, which of the following statements is true?

Accepted Answer

The net estimated benefit is calculated by first determining the expected savings from reducing the error rate from 13% to 2%. Assuming the $11,000 cost for reprocessing is an annual figure and knowing there are 26 pay periods in a year (biweekly payments), the cost of the data validation procedure is $700 * 26 = $18,200 annually. The savings from reducing errors is (13% - 2%) * $11,000 = 11% * $11,000 = $1,210. Subtracting the annual cost of the procedure from the savings gives $1,210 - $18,200 = -$16,990. However, the correct interpretation involves understanding the reduction in error rate leads to fewer instances of incurring the $11,000 reprocessing cost, not direct savings of $1,210. The calculation provided in the choices seems to misinterpret the savings or costs involved, but based on the options given and typical analysis, the expected benefit calculation seems to aim for an understanding of cost savings versus new costs introduced, which isn't directly calculable from the information provided without making assumptions about the frequency and cost of errors beyond the reprocessing fee. Thus, the correct choice is based on the principle that implementing the procedure is beneficial due to reduced error rates, but the exact net benefit calculation provided in the options doesn't align with standard financial analysis based on the given data.

Question 11

Three objectives of a company's internal control system should be safeguarding assets, checking the accuracy and reliability of accounting data, and promoting operational efficiency.A fourth objective of a company's internal control system should be:

Accepted Answer

Encouraging adherence to prescribed managerial policies is a key objective of an internal control system because it ensures that all activities are aligned with the company's goals and policies, thereby supporting the achievement of operational efficiency, reliability of financial reporting, and compliance with laws and regulations.

Question 12

The control environment is a component of a company's internal control system that:

Accepted Answer

The control environment sets the tone of an organization and influences the control awareness of its employees, establishing the foundation for all other components of internal control.

Question 13

With respect to COBIT 5, which of the following is true :

Accepted Answer

COBIT 5 introduces a set of enablers, including processes, organizational structures, and information, among others, that help organizations achieve their objectives by effectively governing and managing enterprise IT. This approach is central to COBIT 5's framework, distinguishing it from merely being a set of guidelines or standards.

Question 14

COBIT 5's principles guide effective management and governance of IT within the enterprise.

Accepted Answer

COBIT 5 provides a comprehensive framework that assists enterprises in achieving their objectives for the governance and management of enterprise IT, emphasizing regulatory compliance, risk management, and aligning IT strategy with organizational goals.

Question 15

Those control procedures that are designed to remedy problems discovered through detective controls are called:

Accepted Answer

Corrective controls are specifically designed to fix issues that are identified by detective controls. They aim to correct any errors or problems that have been discovered.

Question 16

____ is defined as "the culture, capabilities, and practices, integrated with strategy and execution, that organizations rely on to manage risk in creating, preserving and realizing value."

Accepted Answer

Enterprise risk management (ERM) is defined as the culture, capabilities, and practices, integrated with strategy and execution, that organizations rely on to manage risk in creating, preserving, and realizing value. This definition emphasizes the comprehensive approach of ERM to managing risk across an organization.

Question 17

Which of the following statements is true?

Accepted Answer

The 2013 COSO Report indeed emphasized that an internal control system is a tool of management, reinforcing the idea that internal controls are integral to the management process and are designed to help organizations achieve their objectives.

Question 18

The preventative controls within a company's internal control system:

Accepted Answer

Preventative controls are designed to safeguard a company's assets and ensure the accuracy and reliability of its accounting data by preventing errors or fraud before they occur.

Question 19

Which of the following components from the 2017 COSO ERM Report would provide guidance on risk assessment and risk response activities?

Accepted Answer

Risk in Execution provides guidance on risk assessment and risk response activities.

Question 20

The maintenance of backup copies of a company's important transaction and master files is an example of a:

Accepted Answer

Preventive control procedures are designed to prevent errors or irregularities from occurring. In this case, the maintenance of backup copies of a company's important transaction and master files is a preventive control procedure because it helps to prevent the loss of data in the event of a system failure or other disaster.

Quiz 6: Introduction to Internal Control Systems and Risk Management