Question 1

Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Folding Squid Technologies
A)asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process.
B)hired the head of the external audit team as company CFO six months after completion of the previous audit.
C)selected the company's Chief Financial Officer to chair the audit committee.
D)did not mention to auditors that the company had experienced significant losses due to fraud during the past year.

Accepted Answer

The answer of Which of the following is not a...

Question 2

The stock exchange or FASB is best described as external influences that directly affect an organization's
A)hiring practices
B)philosophy and operating style
C)internal environment
D)methods of assigning authority

Accepted Answer

The stock exchange and FASB (Financial Accounting Standards Board) are both external factors that directly affect an organization's internal environment. The stock exchange can impact the prices of a company's stocks, which affects the organization's financial position and decision-making processes. FASB sets accounting standards for financial reporting, which affects how businesses present their financial statements, impacting their business practices and internal control systems. Therefore, the correct choice is C - Internal environment.

Question 3

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits unless there is evidence of criminal negligence.What is the expected loss without insurance?
A)$50,000
B)$650,000
C)$650
D)$50

Accepted Answer

The expected loss without insurance is calculated by multiplying the probability of an injury or death (1/1000) by the cost of a resulting lawsuit ($650,000), which equals $650. Therefore, the best choice is to not purchase insurance and accept the expected loss of $650 over the much larger cost of insurance with a $50,000 deductible.

Question 4

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits unless there is evidence of criminal negligence.What is the impact of this risk without insurance?
A)$50,000
B)$650,000
C)$650
D)$50

Accepted Answer

Without insurance, the impact of the risk would be the average cost of settlements, which is $650,000.

Question 5

When undertaking risk assessment,the expected loss is calculated like this.
A)Impact times expected loss
B)Impact times likelihood
C)Inherent risk times likelihood
D)Residual risk times likelihood

Accepted Answer

The expected loss is calculated by multiplying the impact of a potential risk by its likelihood. Therefore, option B, "Impact times likelihood," is the correct choice. Option A is not correct because it uses "expected loss" in the calculation, which is what is being solved for. Option C is not correct because it uses "inherent risk," which is a separate factor that is often assessed prior to calculating likelihood. Option D is not correct because it uses "residual risk," which refers to the remaining risk after efforts have been made to mitigate it, and is not used in the calculation of expected loss.

Question 6

Regarding project development and acquisition controls,this is developed to show all projects that must be completed to achieve long-range company goals.
A)Performance evaluation
B)Project development plan
C)Steering committee
D)Strategic master plan

Accepted Answer

The Strategic Master Plan is typically the document that outlines how a company plans to achieve its long-term goals. It will identify all the projects that are required to meet those goals and is an important aspect of project development and acquisition controls.

Question 7

Generally in a risk assessment process,the first step is to
A)identify the threats that the company currently faces.
B)estimate the risk probability of negative events occurring.
C)estimate the exposure from negative events.
D)identify controls to reduce all risk to zero.

Accepted Answer

The first step in a risk assessment process is to identify the potential threats that the company currently faces. This allows for a comprehensive understanding of the risks that need to be addressed and managed. Once the threats have been identified, the risk probability and exposure can be estimated and controls can be put in place to reduce the overall risk. Choosing option B or C as the first step would require some understanding of the threats beforehand. Option D is not a realistic goal as it is impossible to reduce all risk to zero.

Question 8

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinions about his work environment.It seems that,as a result of "feminazi" interference,the suggestive banter that had been prevalent in the workplace during his youth was no longer acceptable.He even had to sit through a sexual harassment workshop! The lever of control that the company is using in this case is a
A)boundary system.
B)belief system.
C)interactive control system.
D)diagnostic control system.

Accepted Answer

Boundary systems are used to set limits and define acceptable behavior within an organization, such as implementing policies against sexual harassment.

Question 9

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinions about his company's budgeting practices.It seems that,as a result of "budget handcuffs" that require managers to explain material deviations from budgeted expenditures,his ability to creatively manage his department's activities have been curtailed.The lever of control that the company is using in this case is a
A)boundary system.
B)belief system.
C)interactive control system.
D)diagnostic control system.

Accepted Answer

The lever of control used by the company, i.e., requiring managers to explain material deviations from budgeted expenditures, indicates a diagnostic control system. Diagnostic control systems are designed to detect significant deviations from planned performance and take corrective action as needed. They focus on critical performance variables and aim to detect deviations from critical performance targets. Therefore, option D is the correct answer. Option A (boundary system) is incorrect as boundary systems are designed to identify unacceptable behavior and activities and prevent them from occurring. Option B (belief system) is incorrect as belief systems relate to the shared values and beliefs of an organization. Option C (interactive control system) is incorrect as interactive control systems are designed to shape employee behavior by providing real-time feedback and fostering communication among employees.

Question 10

Good internal control demands that no single employee be given too much responsibility.The segregation of duties is key to fulfilling this demand.Which two functions,when not performed by different employees,will cause a potential internal control problem due to the lack of separation of duties?
A)digital signature,specific authorization
B)custody,recording
C)digital signature,general authorization
D)custody,digital signature

Accepted Answer

When one employee has custody of an asset and is also responsible for recording its transactions, it creates a potential for fraud or errors to go undetected. This is why these two functions should ideally be performed by different employees to ensure proper segregation of duties. The other options do not involve functions that are typically separated in internal controls.

Question 11

The third component of COSO's internal control model is risk assessment.Part of risk assessment is to identify threats to companies.If a company does the right things in the wrong way,this is known as
A)a strategic threat.
B)an operating threat.
C)a financial threat.
D)an information threat.

Accepted Answer

When a company does the right things in the wrong way, it creates operating threats. Operating threats arise due to internal control weaknesses or ineffective implementation of policies and procedures. This can result in inefficiencies, errors, and fraud within the company. Therefore, the best choice is B.

Question 12

The risk that remains after management implements internal controls is
A)Inherent risk
B)Residual risk
C)Risk appetite
D)Risk assessment

Accepted Answer

Residual risk is defined as the risk that remains after management implements internal controls. Inherent risk is the risk that exists in the absence of controls. Risk appetite is the level of risk that an organization is willing to accept. Risk assessment is the process of identifying, analyzing, and evaluating risks. Therefore, the correct answer is B, residual risk.

Question 13

Management can authorize employees to handle routine transactions without special approval.This is known as
A)Authorization
B)General authorization
C)Special authorization
D)Specific authorization

Accepted Answer

Authorization is the process of granting an employee the authority to perform a specific task or set of tasks. General authorization is a type of authorization that allows an employee to handle routine transactions without special approval.

Question 14

Regarding project development and acquisition controls,a ________ shows how a project will be completed,including tasks and who will perform them as well as a timeline and cost estimates.
A)Performance evaluation
B)Project development plan
C)Steering committee
D)Strategic master plan

Accepted Answer

The answer of Regarding project development and acquisition controls,a ________...

Question 15

The amount of risk a company is willing to accept in order to achieve its goals and objectives is
A)Inherent risk
B)Residual risk
C)Risk appetite
D)Risk assessment

Accepted Answer

Risk appetite refers to the level of risk a company is willing to take on in pursuit of its goals and objectives. Inherent risk refers to the level of risk present in a given activity or investment before any measures have been taken to mitigate it. Residual risk refers to the level of risk that remains after risk mitigation measures have been taken. Risk assessment refers to the process of evaluating and analyzing potential risks to a business or organization.

Question 16

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinion about government regulation.It seems that,as a result of "government interference" the company's longstanding policy of making low-interest loans to top management was being terminated.The regulation that Chuck is referring to is the
A)Foreign Corrupt Practices Act
B)McCain-Feingold Act
C)Truth in Lending Act
D)Sarbanes-Oxley Act

Accepted Answer

The Sarbanes-Oxley Act includes provisions to prevent conflicts of interest and requires greater transparency in financial dealings, which could affect company policies like making low-interest loans to top management.

Question 17

Regarding project development and acquisition controls,a ________ is created to guide and oversee systems development and acquisition.
A)Performance evaluation
B)Project development plan
C)Steering committee
D)Strategic master plan

Accepted Answer

A steering committee is typically created to guide and oversee systems development and acquisition. The committee is responsible for establishing project goals, providing direction and guidance, monitoring progress and ensuring that the project is aligned with organizational objectives. Option A (Performance evaluation) is a measurement tool and not related to guiding and overseeing project development. Option B (Project development plan) is a detailed roadmap for achieving project objectives and may be created by the steering committee or the project team, but it is not the primary control mechanism. Option D (Strategic master plan) is a long-term plan that outlines an organization's vision, mission, values, and goals, which may include project development and acquisition, but it is not specific to those controls.

Question 18

The Sarbanes-Oxley Act (SOX)applies to
A)all companies with gross annual revenues exceeding $500 million.
B)only publicly held companies.
C)only privately held companies.
D)corporations and partnerships but not sole proprietorships.

Accepted Answer

The Sarbanes-Oxley Act (SOX) applies only to publicly held companies, which are companies that have issued securities registered with the U.S. Securities and Exchange Commission (SEC) and are traded on a public exchange.

Question 19

The risk that exists before management takes any steps to control the likelihood or impact of a risk is
A)Inherent risk
B)Residual risk
C)Risk appetite
D)Risk assessment

Accepted Answer

Inherent risk is the risk that exists before management takes any steps to control the likelihood or impact of a risk. This type of risk is inherent to the nature of the activity, process, or system being assessed.

Question 20

The internal control model developed by COSO is comprised of five interrelated components.Among these components is the internal environment.Which attribute below is not part of the internal environment?
A)the competence of an organization's people
B)the integrity of an organization's people
C)monitoring activities within the organization itself
D)the ethical values of an organization's people

Accepted Answer

Monitoring activities within the organization itself is not part of the internal environment component of the COSO internal control model. The internal environment includes factors such as the tone at the top, the organizational structure, the organizational culture, the competence and integrity of people, and the ethical values of people. Monitoring activities are part of the monitoring component of the COSO internal control model.

Quiz 6: Control and Accounting Information Systems

Which of the following is not a violation of the Sarbanes-Oxley Act (SOX) ? The management at Folding Squid Technologies

The stock exchange or FASB is best described as external influences that directly affect an organization's

When undertaking risk assessment,the expected loss is calculated like this.

Regarding project development and acquisition controls,this is developed to show all projects that must be completed to achieve long-range company goals.

Generally in a risk assessment process,the first step is to

Good internal control demands that no single employee be given too much responsibility.The segregation of duties is key to fulfilling this demand.Which two functions,when not performed by different employees,will cause a potential internal control problem due to the lack of separation of duties?

The third component of COSO's internal control model is risk assessment.Part of risk assessment is to identify threats to companies.If a company does the right things in the wrong way,this is known as

The risk that remains after management implements internal controls is

Management can authorize employees to handle routine transactions without special approval.This is known as

Regarding project development and acquisition controls,a ________ shows how a project will be completed,including tasks and who will perform them as well as a timeline and cost estimates.

The amount of risk a company is willing to accept in order to achieve its goals and objectives is

Regarding project development and acquisition controls,a ________ is created to guide and oversee systems development and acquisition.

The Sarbanes-Oxley Act (SOX) applies to

The risk that exists before management takes any steps to control the likelihood or impact of a risk is

The internal control model developed by COSO is comprised of five interrelated components.Among these components is the internal environment.Which attribute below is not part of the internal environment?