Question 1

The Public Company Oversight Board oversees the work of auditors of public companies.

Accepted Answer

The Public Company Oversight Board (PCAOB) was established by the Sarbanes-Oxley Act of 2002 to oversee the audits of public companies in order to protect the interests of investors and the public.

Question 2

Under the Sarbanes-Oxley Act,the outside auditor must issue an internal control report.

Accepted Answer

False

Question 3

Under the Sarbanes-Oxley Act,accounting firms are prohibited from both auditing a client and providing certain consulting services for the same client.

Accepted Answer

This is known as the "audit independence rule" and is a key provision of the Sarbanes-Oxley Act aimed at ensuring that auditors maintain their objectivity and impartiality when auditing a client's financial statements. The prohibited consulting services include bookkeeping, design and implementation of financial information systems, and legal services.

Question 4

Internal auditors evaluate company controls to ensure the accuracy of financial statements.

Accepted Answer

The answer of Internal auditors evaluate company controls to ensure...

Question 5

Separation of duties limits fraud and promotes the accuracy of the account records.

Accepted Answer

Separation of duties involves assigning different tasks to different individuals to prevent any one person from having too much control over a process. This reduces the likelihood of fraud and error because multiple people are involved in completing a task, and each person can act as a check on the others. For example, separating the tasks of recording transactions, authorizing transactions, and reconciling accounts ensures that no one person has the ability to create and cover up fraudulent transactions. By promoting accountability and transparency, separation of duties helps to maintain the accuracy and integrity of account records.

Question 6

The control environment is one of the five components by which a company can achieve its internal control objectives.

Accepted Answer

The control environment is indeed one of the five components of internal control, according to the COSO framework. The other components are risk assessment, control activities, information and communication, and monitoring activities.

Question 7

Risk assessment is the "tone at the top" of a business,starting with the owner and the top managers.

Accepted Answer

Risk assessment is a process for identifying and evaluating potential risks that could impact an organization, not the "tone at the top," which refers to the ethical climate and culture set by an organization's leadership.

Question 8

Under the Sarbanes-Oxley Act,violators may be sentenced to prison for securities fraud.

Accepted Answer

The Sarbanes-Oxley Act provides for criminal penalties, including imprisonment, for individuals convicted of securities fraud.

Question 9

Which of the following statements about internal control is FALSE?

Accepted Answer

External auditors are not employees of the company, but rather independent professionals hired by the company to review its financial statements and internal control processes.

Question 10

Sarbanes-Oxley was passed in response to which of the following?

Accepted Answer

The Sarbanes-Oxley Act was passed in response to the accounting scandals of Enron and WorldCom in the early 2000s. The act aimed to improve corporate governance, financial transparency, and accountability to prevent such scandals from happening in the future.

Question 11

Which of the following is TRUE of internal control?

Accepted Answer

One of the major purposes of internal control is to ensure accurate, reliable accounting records. Internal control helps to prevent errors and fraud, and ensures that financial information is complete and accurate. The company's outside auditor is responsible for assessing the effectiveness of the internal control system, but the responsibility for establishing and maintaining the system lies with management. Internal control procedures should not diminish operational efficiency, but rather should enhance it by promoting effective and efficient operations. Internal controls are necessary for businesses of all sizes, not just large ones.

Question 12

Keeping office supplies under lock and key is representative of:

Accepted Answer

Keeping office supplies under lock and key is intended to safeguard the assets of the company, which includes preventing theft or misuse of supplies.

Question 13

External auditors monitor company controls to safeguard assets and ensure that employees are following company policies.

Accepted Answer

The answer of External auditors monitor company controls to safeguard...

Question 14

Reducing expense to increase operating profit is representative of:

Accepted Answer

Reducing expenses is directly related to promoting operational efficiency, as it requires identifying and eliminating waste or inefficiencies in processes and systems, ultimately increasing profitability. Safeguarding assets, following company policies, and ensuring accurate accounting records may indirectly influence profitability, but they are not directly related to reducing expenses.

Question 15

Which is NOT a provision of Sarbanes-Oxley?

Accepted Answer

The provision that accounting firms are allowed to provide both auditing services and a full range of consulting services to their public company clients is not a provision of Sarbanes-Oxley. In fact, Sarbanes-Oxley created restrictions on the types of non-audit services that accounting firms can provide to their audit clients.

Question 16

Internal control is the organizational plan and all the related measures adopted by an entity to safeguard assets,encourage employees to follow company policy,promote operational efficiency,and ensure accurate and reliable accounting records.

Accepted Answer

Internal control is defined as an organizational plan and related measures taken to safeguard assets, encourage adherence to company policies, promote operational efficiency, and ensure the accuracy and reliability of accounting records.

Question 17

Mandatory vacations and job rotation improve internal control.

Accepted Answer

Mandatory vacations and job rotation ensure that different employees are responsible for different tasks at different times, reducing the risk of fraud or errors going undetected for long periods of time. This increases the effectiveness of internal control.

Question 18

Which of the following is NOT one of the purposes of internal control?

Accepted Answer

Internal control is not designed to guarantee that a business makes a profit. Its purpose is to protect the company's assets, promote the accuracy of financial information, and ensure that employees follow company policies and procedures. While internal control can help a business operate more efficiently and effectively, it cannot change fundamental economic factors that determine whether a business is profitable.

Question 19

Which of the following is NOT one of the benefits provided by internal control?

Accepted Answer

While internal control can certainly help a business make better decisions, it is not necessarily one of the primary benefits. The key benefits of internal control include reducing waste, protecting against theft, and reducing inefficiency.

Question 20

Which of the following is a requirement of the Sarbanes-Oxley Act?

Accepted Answer

The answer of Which of the following is a requirement...

Quiz 7: Internal Control and Cash