Question 1

Which statement is true concerning the documentation of internal control?
A) Documentation should be sufficient to support the design and operating effectiveness of internal controls.
B) Documentation requirements are standardized by the PCAOB.
C) Documentation of disbursements require paper and electronic documentation.
D) Documentation of all transaction controls should be tested on an annual basis.

Accepted Answer

Documentation of internal control should be sufficient enough to support the design and operating effectiveness of internal controls. This means that the documentation should provide evidence of the design of the control activities and how they are being applied in practice. However, there is no requirement for annual testing of documentation or standardization by the PCAOB, and not all disbursements require both paper and electronic documentation.

Question 2

Security management practices which limit access to technologies is a function included in which COSO component of internal control structure?
A) Control Environment.
B) Risk Assessment.
C) Control Activities.
D) Monitoring.

Accepted Answer

Security management practices which limit access to technologies are control activities, which are a part of the COSO component of internal control structure. The other options - control environment, risk assessment, and monitoring - are also important components of internal control structure, but they don't directly relate to limiting access to technologies.

Question 3

Internal control.
Define the term "internal control" and identify the major components of an internal control system.

Accepted Answer

The answer of Internal control.
Define the term "internal control" and...

Question 4

Which of the following is not true of internal control as defined by COSO?
A) It is narrower than internal control over financial reporting.
B) It is a process that includes all elements of internal control working together.
C) It includes all the people in the organization.
D) It starts at the top of the organization in setting a tone.

Accepted Answer

This statement is not true. Internal control as defined by COSO is broader than just internal control over financial reporting. It encompasses all aspects of an organization's operations, including financial reporting, compliance with laws and regulations, and the effectiveness and efficiency of operations.

Question 5

COSO: A Framework for Internal Control.
What is internal control as defined by COSO? Also explain, the other elements of the definition that are important to internal control

Accepted Answer

The answer of COSO: A Framework for Internal Control.
What is...

Question 6

Control environment.
One of the elements of an organization's control system is the "control environment." Identify at least four factors that the auditor should consider when reviewing the control environment and discuss how the auditor would relate this review to the assessment of control risk.

Accepted Answer

The answer of Control environment.
One of the elements of an...

Question 7

Which of the following is not true of the concepts that are embodied in the COSO framework of internal controls?
A) Internal controls relate to the organization's objectives.
B) The six components of internal control are logically and operationally intertwined.
C) Internal controls apply across all activities of the organization.
D) All of the above are true.

Accepted Answer

The COSO framework of internal controls actually identifies five, not six, components of internal control: control environment, risk assessment, control activities, information and communication, and monitoring activities.

Question 8

Which of the following is an example of a detective control in an information system?
A) Automated reports to management that specifically identify delinquent receivables.
B) A requirement that salaried employees submit written requests to work overtime.
C) Assurance from top management that computer centers are kept locked.
D) The employment of trustworthy people to enter data into the information system.

Accepted Answer

Automated reports that specifically identify delinquent receivables are an example of detective controls because they detect and report on past events or activities. Detective controls are designed to identify and uncover problems or issues that have already occurred.

Question 9

Internal Control Principles.
Identify and briefly describe the two principles that should govern the monitoring function.

Accepted Answer

The answer of Internal Control Principles.
Identify and briefly describe the...

Question 10

In a large company, who usually monitors the internal control?
A) Internal auditors.
B) PCAOB.
C) CFO.
D) External auditors.

Accepted Answer

Internal auditors are typically responsible for monitoring internal controls within a company. They are independent from management and report directly to the Audit Committee or Board of Directors. CFOs may also have input on internal controls, but it is not typically their primary responsibility. External auditors and the PCAOB may review internal controls as part of their audit, but they do not have day-to-day responsibility for monitoring them.

Question 11

Which of the following is not a major component of an organization's internal controls?
A) Risk assessment.
B) Control environment.
C) Control activities.
D) Control risk.

Accepted Answer

Control risk is not a major component of an organization's internal controls. The major components of internal controls are the control environment, risk assessment, control activities, information and communication, and monitoring. Control risk is a concept used in the auditing process to assess the risk of material misstatement in the financial statements.

Question 12

Which component of COSO's internal control system concerns the process that provides feedback on the effectiveness of the other four components of internal control?
A) Information and communication.
B) Monitoring.
C) Control activities.
D) Risk assessment.

Accepted Answer

Monitoring is the component of COSO's internal control system that concerns the process of providing feedback on the effectiveness of the other four components of internal control. It involves ongoing monitoring activities, separate evaluations, or a combination of the two to assess whether internal control is operating as intended and whether it is effective in addressing risks to the achievement of objectives.

Question 13

Internal control components and principles.
For each of the five components of internal control, list at least two related principles of internal control.n gathering the information and briefly describe each one.

Accepted Answer

The answer of Internal control components and principles.
For each of...

Question 14

A bank reconciliation is an example of which type of control?
A) An input control.
B) An output control.
C) A preventive control.
D) A detective control.

Accepted Answer

A bank reconciliation is a detective control as it is used to identify and correct discrepancies between the bank statement and the company's books after a transaction has already occurred. It does not prevent errors or fraud from occurring, but rather helps to detect them after the fact.

Question 15

Which of the following is not part of the control environment of an organization?
A) Management's philosophy and operating style.
B) Organizational structure.
C) Human resources.
D) Both A and B.
E) All of the above are part of the control environment.

Accepted Answer

All of the options listed (A, B, and C) are part of the control environment. Management's philosophy and operating style set the tone for the rest of the organization, the organizational structure provides the framework for the internal control system, and human resources are essential for enforcing control policies and procedures.

Question 16

Integrated audit.
Explain the application of an integrated audit as it relates to regulation. Discuss the reasons that this integrated approach may occur.

Accepted Answer

The answer of Integrated audit.
Explain the application of an integrated...

Question 17

Which of the following is the most severe?
A) Material weaknesses in internal control.
B) Significant deficiencies in internal control.
C) Operational deficiencies in internal control.
D) Each is equally severe because it could result in inaccuracies in financial reporting.

Accepted Answer

Material weaknesses in internal control are the most severe because they represent a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement of the company's financial statements. This means that there is a high risk of errors or fraud that could result in inaccurate financial reporting. Significant deficiencies and operational deficiencies are less severe, as they represent deficiencies that are not as significant as material weaknesses and may not result in a material misstatement of the financial statements.

Question 18

Which of the following is an example of a control environment deficiency.
A) A low level of control consciousness within the organization.
B) An audit committee that does not have independent members.
C) An audit committee that is not viewed as the client of the external auditor.
D) All of the above.

Accepted Answer

All of the options listed are examples of control environment deficiencies. A low level of control consciousness can lead to a lack of emphasis on internal controls, an audit committee without independent members may lack objectivity, and an audit committee not viewed as the client of the external auditor can lead to a misunderstanding of roles and responsibilities, all of which are critical components of a strong control environment.

Question 19

Requiring two signatures on any check in excess of $10,000 is an example of which type of control?
A) Input control.
B) Preventive control.
C) Detective control.
D) Processing control.

Accepted Answer

Requiring two signatures on any check in excess of $10,000 is a preventive control as it is implemented before the transaction is made to prevent any potential fraud or errors from occurring. It ensures that there is an additional review and approval before a large amount of money is disbursed.

Question 20

Internal Control Principles.
One of the COSO principles of internal control requires organizations to demonstrate a commitment to attract, develop, and retain competent individuals in alignment with objectives. Discuss how this can be done.

Accepted Answer

The answer of Internal Control Principles.
One of the COSO principles...

Quiz 3: Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Which statement is true concerning the documentation of internal control?

Security management practices which limit access to technologies is a function included in which COSO component of internal control structure?

Internal control. Define the term "internal control" and identify the major components of an internal control system.

Which of the following is not true of internal control as defined by COSO?

COSO: A Framework for Internal Control. What is internal control as defined by COSO? Also explain, the other elements of the definition that are important to internal control

Control environment. One of the elements of an organization's control system is the "control environment." Identify at least four factors that the auditor should consider when reviewing the control environment and discuss how the auditor would relate this review to the assessment of control risk.

Which of the following is not true of the concepts that are embodied in the COSO framework of internal controls?

Which of the following is an example of a detective control in an information system?

Internal Control Principles. Identify and briefly describe the two principles that should govern the monitoring function.

In a large company, who usually monitors the internal control?

Which of the following is not a major component of an organization's internal controls?

Which component of COSO's internal control system concerns the process that provides feedback on the effectiveness of the other four components of internal control?

Internal control components and principles. For each of the five components of internal control, list at least two related principles of internal control.n gathering the information and briefly describe each one.

A bank reconciliation is an example of which type of control?

Which of the following is not part of the control environment of an organization?

Integrated audit. Explain the application of an integrated audit as it relates to regulation. Discuss the reasons that this integrated approach may occur.

Which of the following is the most severe?

Which of the following is an example of a control environment deficiency.

Requiring two signatures on any check in excess of $10,000 is an example of which type of control?

Internal Control Principles. One of the COSO principles of internal control requires organizations to demonstrate a commitment to attract, develop, and retain competent individuals in alignment with objectives. Discuss how this can be done.