Question 1

What type of process is implemented by management to mitigate risks?
A) External controls
B) Internal controls
C) External regulations
D) Internal regulations

Accepted Answer

Internal controls are processes implemented by management to mitigate risks, ensure the accuracy of financial reports, and comply with laws and regulations.

Question 2

A company's process of implementing internal control provides reasonable assurance that
A) financial statements are fairly presented.
B) operations are efficient and effective.
C) laws and regulations are being followed.
D) All of these answer choices are correct.

Accepted Answer

Internal control systems are designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. Thus, all the options (A, B, and C) are aspects that internal control aims to ensure, making D the correct answer.

Question 3

In what ways do companies address risk?
A) Mitigating it
B) Transferring it
C) Avoiding it
D) All of these answer choices are correct.

Accepted Answer

Companies address risk through various strategies including mitigating it, transferring it, and avoiding it, encompassing all the options provided.

Question 4

Which of the following is the most commonly used response to risk by businesses?
A) Accepting it
B) Mitigating it
C) Transferring it
D) Avoiding it

Accepted Answer

Mitigating risk is the most commonly used response by businesses. It involves taking steps to reduce the severity, impact, or likelihood of an unwanted risk occurring, allowing businesses to manage potential negative outcomes more effectively.

Question 5

The first consideration for reliable accounting information includes ensuring the
A) security of the accounting information system.
B) privacy of the accounting information system.
C) integrity of the accounting information system.
D) All of these answer choices are correct.

Accepted Answer

All of these aspects—security, privacy, and integrity—are crucial for ensuring the reliability of an accounting information system. Security measures protect against unauthorized access, privacy ensures that sensitive information is kept confidential, and integrity guarantees that the information is accurate and unaltered.

Question 6

Proper internal controls can
A) safeguard assets from theft and waste.
B) increase operating efficiency.
C) provide investors with reassurance.
D) All of these answer choices are correct.

Accepted Answer

Proper internal controls are designed to safeguard assets from theft and waste, increase operating efficiency by ensuring that resources are used effectively, and provide investors and other stakeholders with reassurance about the accuracy of financial reports and the efficiency of operations.

Question 7

Internal controls
A) are mandated for public companies.
B) may be adopted voluntarily.
C) provide reasonable assurance, not absolute mitigation.
D) All of these answer choices are correct.

Accepted Answer

Internal controls are indeed mandated for public companies to ensure the accuracy of financial reporting and compliance with laws and regulations. They can also be adopted voluntarily by private companies to improve efficiency and effectiveness of operations. Furthermore, internal controls provide reasonable assurance about the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations, but they cannot guarantee absolute assurance due to inherent limitations.

Question 8

Internal controls
A) are defined based on industry specifications.
B) are customized to fit a company's unique risks and risk appetite.
C) are predefined for public companies.
D) All of these answer choices are correct.

Accepted Answer

Internal controls are tailored to a company's specific operational needs, risks, and risk appetite, rather than being universally predefined or strictly based on industry specifications. This customization ensures that the controls are effective in mitigating the unique risks faced by each company.

Question 9

Internal controls for accounting information focus on
A) safeguarding equity from theft.
B) providing quality information to management and stakeholders.
C) lessening the risk of fraudulent investor activity.
D) All of these answer choices are correct.

Accepted Answer

Internal controls in accounting are primarily designed to ensure the accuracy and reliability of financial information, which is crucial for management and stakeholders to make informed decisions.

Question 10

The functions of internal controls are to do which of the following?
A) Process, defend, correct
B) Prevent, detect, control
C) Prevent, detect, correct
D) All of these answer choices are correct.

Accepted Answer

The functions of internal controls are to prevent errors or fraud from occurring, detect errors or fraud if they do occur, and correct any errors or issues that have been detected.

Question 11

Which type of internal control seeks to stop problems from occurring?
A) Preventative controls
B) Detective controls
C) Corrective controls
D) All of these answer choices are correct.

Accepted Answer

Preventative controls are designed to stop problems before they occur, by implementing procedures and policies that prevent errors or fraud.

Question 12

Charles audits the internal controls of Devinshire Corporation and finds that Devinshire lacks a robust firewall to prevent unauthorized access to their computer network. Charles recommends that Devinshire research and implement a more robust firewall as a
A) preventative control.
B) detective controls.
C) corrective control.
D) All of these answer choices are correct.

Accepted Answer

A firewall is a preventative control because it is designed to prevent unauthorized access to a network, thereby stopping potential security breaches before they occur.

Question 13

The American Institute of Certificate Public Accountants describes this as a basic building block of internal control.
A) Preventative controls
B) Ensuring the security, privacy, and integrity of the AIS
C) Management override
D) Separation or segregation of duties

Accepted Answer

Separation or segregation of duties is considered a fundamental element of internal control by the American Institute of Certified Public Accountants (AICPA) because it helps prevent errors and fraud by dividing responsibilities among different individuals.

Question 14

Segregation of duties ensures that
A) one employee authorizes and records data for a transaction to ensure accuracy.
B) the work of one employee acts as a check on the work of another employee.
C) employees have access to input, approve, and receive goods into the AIS.
D) All of these answer choices are correct.

Accepted Answer

Segregation of duties is a key internal control that aims to prevent fraud and errors. This is achieved by ensuring that no single individual has control over all aspects of a financial transaction. By having the work of one employee checked by another, errors or fraudulent activities are more likely to be detected. Choices A and C describe scenarios where duties are not adequately segregated, which could lead to a lack of oversight and potential for fraud or mistakes.

Question 15

Jon works as a purchasing manager. Jon must approve purchase orders input throughout the company before the order is placed. Which duty is Jon performing in his role?
A) Recording
B) Authorizing
C) Custody
D) Segregation

Accepted Answer

Jon is performing the authorizing duty by approving purchase orders, which is a control function to ensure that only valid and necessary purchases are made.

Question 16

Which type of control monitors business processes to identify problems like fraud risk, quality control, or legal compliance?
A) Preventative
B) Detective
C) Corrective
D) All of these answer choices are correct.

Accepted Answer

Detective controls are designed to identify and uncover problems or irregularities in business processes, such as fraud risk, quality control issues, or legal compliance violations.

Question 17

Which of the following is NOT an example of a detective control?
A) A firm performs a physical inventory count monthly and compares the count to totals in the inventory system.
B) Store managers count the cash drawer nightly and reconcile the cash with sales for the day.
C) A manufacturing firm requires that purchases are recorded, approved, and received by different employees.
D) An accounting firm programs the digital dashboard to show abnormal account balances in bold red to draw attention to them.

Accepted Answer

Detective controls are designed to identify and alert the occurrence of an error, irregularity, or deviation after it has occurred. Choices A, B, and D are examples of detective controls as they involve reviewing and verifying transactions or balances after the fact to detect any discrepancies. Choice C, however, describes a segregation of duties, which is a preventive control designed to prevent errors or fraud by requiring more than one person to complete certain tasks.

Question 18

Jose requires that the night manager responsible for closing the restaurant count the cash drawer and reconcile the total with cash sales for the day. Which type of control did Jose implement?
A) Preventative
B) Detective
C) Corrective
D) All of the answer choices are correct.

Accepted Answer

Detective controls are designed to identify and alert the occurrence of an error, omission, or malicious activity. By requiring the night manager to count the cash drawer and reconcile it with the day's sales, Jose is implementing a control that detects discrepancies or errors after they have occurred, hence it is a detective control.

Question 19

Which of the following statements concerning corrective controls is TRUE?
A) Corrective controls change undesirable outcomes.
B) Corrective controls occur after a risk has become a reality.
C) Corrective controls are used as a backup plan when preventative or detective controls fail.
D) All of these answer choices are correct.

Accepted Answer

Corrective controls are designed to address and mitigate the damage of undesirable outcomes after they have occurred, which includes changing undesirable outcomes, acting after a risk has materialized, and serving as a backup when preventative or detective controls fail.

Question 20

Which of the following reasons can lead to the failure of internal controls?
A) Management override
B) Human judgment
C) Collusion
D) All of these answer choices are correct.

Accepted Answer

All of these factors—management override, human judgment, and collusion—can lead to the failure of internal controls. Management override can bypass controls, human judgment can lead to errors or misinterpretations, and collusion can undermine the effectiveness of controls designed to be checks against individual fraud.

Quiz 3: Risk Management and Internal Controls

What type of process is implemented by management to mitigate risks?

A company's process of implementing internal control provides reasonable assurance that

In what ways do companies address risk?

Which of the following is the most commonly used response to risk by businesses?

The first consideration for reliable accounting information includes ensuring the

Proper internal controls can

Internal controls

Internal controls

Internal controls for accounting information focus on

The functions of internal controls are to do which of the following?

Which type of internal control seeks to stop problems from occurring?

Charles audits the internal controls of Devinshire Corporation and finds that Devinshire lacks a robust firewall to prevent unauthorized access to their computer network. Charles recommends that Devinshire research and implement a more robust firewall as a

The American Institute of Certificate Public Accountants describes this as a basic building block of internal control.

Segregation of duties ensures that

Jon works as a purchasing manager. Jon must approve purchase orders input throughout the company before the order is placed. Which duty is Jon performing in his role?

Which type of control monitors business processes to identify problems like fraud risk, quality control, or legal compliance?

Which of the following is NOT an example of a detective control?

Jose requires that the night manager responsible for closing the restaurant count the cash drawer and reconcile the total with cash sales for the day. Which type of control did Jose implement?

Which of the following statements concerning corrective controls is TRUE?

Which of the following reasons can lead to the failure of internal controls?