Question 1

The process of risk assessment would include all of the following actions, except:
A)Identify sources of risk, both internal and external 
B)Determine the impacts of identified risks
C)Develop and execute an action plan to reduce the impact and probability of identified risks
D)Report the risks to the audit committee

Accepted Answer

The process of risk assessment would involve identifying sources of risk, determining the impacts of identified risks, and developing and executing an action plan to reduce the impact and probability of identified risks. Reporting the risks to the audit committee is an important step in the risk management process, but it is not a part of risk assessment specifically.

Question 2

The types of concepts commonly found in a code of ethics would not include:
A)Obeying applicable laws and regulations that govern business.
B)Avoiding all conflicts of interest.
C)Operating at a profit in all reporting periods.
D)Creating and maintaining a safe work environment.

Accepted Answer

Operating at a profit in all reporting periods is a financial objective, rather than an ethical concept. The other options listed are commonly included in codes of ethics.

Question 3

This type of control is included in the internal control system because it is not always possible to prevent all frauds.They help employees to discover or uncover errors, fraud, or unauthorized events.
A)Investigation
B)Judicial
C)Detection
D)Correction

Accepted Answer

Detection controls are designed to help employees detect errors, fraud, or unauthorized events. These controls are put in place because it is not always possible to prevent all frauds. Detection controls include activities such as regular audits, reconciliations, and monitoring of transactions. These controls help to identify potential issues early so that corrective action can be taken.

Question 4

The COSO report identified a component of internal control as the policies and procedures that help ensure that management directives are carried out and that management directives are achieved The component is:
A)Control activities
B)Risk assessment
C)Monitoring
D)Information and communication

Accepted Answer

Control activities are the policies and procedures implemented by management to achieve specific objectives. This includes the implementation of policies and procedures to ensure that management directives are carried out and achieved. Risk assessment involves the identification and analysis of risks that may impact the achievement of objectives. Monitoring involves ongoing monitoring of the system of internal control to ensure that it is operating effectively. Information and communication involves the communication of information within the organization to support the functioning of internal control.

Question 5

The control environment component of internal control was identified to have a number of different factors.Which of the following is NOT one of those factors?
A)Management's oversight responsibility, including its philosophy and operating style 
B)The identification of sources of risk 
C)The integrity and ethical values of the entity's people
D)The board of directors demonstrates independence from management and exercises oversight of internal controls.

Accepted Answer

The identification of sources of risk is not a factor of the control environment component of internal control. The other options listed (A, C, and D) are all factors of the control environment.

Question 6

One of the components of internal control identified by COSO required that management must be considering threats and the potential for risks, and stand ready to respond should these events occur.This component is referred to as:
A)Control Environment
B)Control Activities
C)Risk Assessment
D)Communication

Accepted Answer

The component that requires management to consider threats and potential risks is called Risk Assessment. The other components of COSO's internal control framework include Control Environment, Control Activities, Information and Communication, and Monitoring Activities.

Question 7

Establishing and maintaining a culture where ethical conduct is recognized, valued, and exemplified by all employees can be accomplished by doing all of the following except:
A)Obeying applicable laws and regulations that govern business
B)Protecting the Environment
C)Avoiding some conflicts of interest 
D)Conducting business in a manner that is honest, fair and trustworthy

Accepted Answer

Avoiding some conflicts of interest is not sufficient for establishing and maintaining a culture of ethical conduct. Ethical conduct involves actively managing and avoiding all conflicts of interest to ensure fairness and integrity in all business dealings.

Question 8

The authors presented their "picture" of internal control as a series of umbrellas which represent different types of controls.Which of the following is not one of those types of controls?
A)Prevention
B)Investigation
C)Detection
D)Correction

Accepted Answer

The authors presented prevention, detection, and correction as three types of internal control. Investigation is not presented as one of the types of control.

Question 9

The objectives of an internal control system include all of the following except:
A)Maintain ongoing education
B)Safeguard assets
C)Maintain accuracy and integrity of accounting data
D)Ensure compliance with management directives

Accepted Answer

While ongoing education is an important aspect of maintaining an effective internal control system, it is not considered one of the core objectives. The core objectives include safeguards for assets, accuracy and integrity of accounting data, and compliance with management directives.

Question 10

Which of the following statements is false, related to the authorization of transactions?
A)Every transaction that occurs must be properly authorized in some manner. 
B)General Authorization is the set of guidelines that allows transactions to be completed as long as they fall within established parameters.
C)It is not possible, nor is it important, to try to ensure that an organization engage only in transactions that are authorized.
D)Specific authorization that explicit approval is needed for that single transaction to be completed.

Accepted Answer

It is false that it is not important to ensure that an organization engages only in authorized transactions. It is critical to prevent fraud, errors, and unauthorized access to sensitive information. The other statements are true.

Question 11

The range of actions that make up the component of internal control referred to as control activities includes each of the following, except:
A)Segregation of duties
B)Risk assessment
C)Independent checks and reconciliations
D)Authorization of transactions

Accepted Answer

The component of internal control referred to as control activities includes segregation of duties, independent checks and reconciliations, and authorization of transactions. Risk assessment is a separate component of internal control that involves identifying and analyzing risks to the organization's objectives.

Question 12

Which of the following statements related to the COSO report is false?
A)The COSO report provided the standard definition of internal control accepted be the accounting industry. 
B)The COSO report is commonly known as the Internal Control Integrated Framework. 
C)The COSO report has not been updated since it was issued in 1992. 
D)The COSO report was the result of a comprehensive study of interest control.

Accepted Answer

The COSO report has been updated since it was issued in 1992. In 2013, the COSO released an updated version of the Internal Control Integrated Framework.

Question 13

The approval or endorsement from a responsible person or department of an organization that has been sanctioned by top management is the process of:
A)Securing assets
B)Segregating duties
C)Authorizing transactions
D)Adequate recording

Accepted Answer

The process described in the question is the authorization of transactions. This involves obtaining approval or endorsement from a responsible person or department within the organization, who has been given the authority to do so by top management. This is an important internal control that helps ensure transactions are conducted in accordance with company policies and procedures. Securing assets, segregating duties, and adequate recording are also important internal controls, but they are not specifically described in the question.

Question 14

The category of control activities referred to as segregation of duties requires that certain activities should be the responsibility of different person or department.The three duties that are to be separated are:
A)Authorizing, recording, and paying
B)Recording, custody, and disposition
C)Authorizing, paying, and custody
D)Authorizing, recording, and custody

Accepted Answer

Segregation of duties requires that the functions of authorizing, recording, and custody should be separated to avoid fraud or errors in financial transactions. Paying can be included with authorization or custody, but it should not be combined with recording to ensure proper accountability. Therefore, option D is the correct choice.

Question 15

This type of control is designed to avoid errors, fraud, or events not authorized by management.
A)Prevention
B)Judicial
C)Detection
D)Correction

Accepted Answer

Prevention controls are put in place to prevent errors or unauthorized events from occurring in the first place, whereas detection controls only identify these issues after they have already occurred. Judicial controls involve legal or regulatory action taken after an event has occurred, and correction controls involve fixing mistakes or issues that have already happened.

Question 16

The COSO report is also known as:
A)Fraud Triangle
B)Internal Control Integrated Framework
C)Code of Ethical Behavior
D)Report to the Nation

Accepted Answer

The COSO report is formally known as the Internal Control Integrated Framework, which provides a comprehensive framework for designing, implementing, and evaluating internal controls within an organization. The Fraud Triangle refers to the three components that are present for fraud to occur, while the Code of Ethical Behavior pertains to ethical standards and guidelines for conduct within an organization. The Report to the Nation is a publication by the Association of Certified Fraud Examiners that provides data and insights on occupational fraud and abuse.

Question 17

According to the COSO report, there are five different interrelated components of internal control.Which of the following is not one of those five components?
A)Code of Ethics
B)Control Environment
C)Information and Communication
D)Monitoring

Accepted Answer

The five components of internal control identified by COSO are Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. Code of Ethics is not included as a separate component, but it is an important part of the overall control environment.

Question 18

The accounting profession has accepted this report as the standard definition and description of internal control.
A)Sarbanes-Oxley Report
B)FCPA Report
C)ERI Report
D)COSO Report

Accepted Answer

The COSO (Committee of Sponsoring Organizations) Report is the standard definition and description of internal control accepted by the accounting profession. The Sarbanes-Oxley Report and FCPA Report have specific focuses (on corporate governance and anti-corruption, respectively) and do not provide a comprehensive definition of internal control. The ERI (Environmental Resource Inventory) Report is not related to internal control or accounting.

Question 19

The component of internal control, identified in the COSO report, that sets the tone of an organization and includes the consciousness of its employees is:
A)Risk Assessment
B)Control Activities
C)Control Environment
D)Information and Communication

Accepted Answer

The component of internal control that sets the tone of an organization and includes the consciousness of its employees is the Control Environment, as stated in the COSO report. This includes the integrity, ethical values, and competence of the organization's employees, as well as the structure of the organization and its commitment to accountability. Risk Assessment, Control Activities, and Information and Communication are other components of internal control identified in the COSO report, but they do not specifically address the consciousness of employees and the overall culture of the organization.

Question 20

All of the following are reasons why it is not possible to eliminate all fraud risks, except
A)Human Error
B)Human Behavior
C)Opportunity
D)May not be cost effective

Accepted Answer

Opportunity is one of the three components of the fraud triangle (along with motivation and rationalization) and refers to the existence or creation of circumstances that allow fraud to occur. While measures can be implemented to minimize opportunity, it may not be possible to eliminate it completely as there will always be some level of vulnerability or weakness in any system or process. Human error and behavior can also contribute to fraud risk, but these factors can be addressed through training, policies, and internal controls. The cost-effectiveness of fraud prevention measures is an important consideration, but it does not preclude the possibility of managing or mitigating fraud risk.

Quiz 3: Fraud, Ethics, and Internal Control

The process of risk assessment would include all of the following actions, except:

The types of concepts commonly found in a code of ethics would not include:

This type of control is included in the internal control system because it is not always possible to prevent all frauds.They help employees to discover or uncover errors, fraud, or unauthorized events.

The COSO report identified a component of internal control as the policies and procedures that help ensure that management directives are carried out and that management directives are achieved The component is:

The control environment component of internal control was identified to have a number of different factors.Which of the following is NOT one of those factors?

One of the components of internal control identified by COSO required that management must be considering threats and the potential for risks, and stand ready to respond should these events occur.This component is referred to as:

Establishing and maintaining a culture where ethical conduct is recognized, valued, and exemplified by all employees can be accomplished by doing all of the following except:

The authors presented their "picture" of internal control as a series of umbrellas which represent different types of controls.Which of the following is not one of those types of controls?

The objectives of an internal control system include all of the following except:

Which of the following statements is false, related to the authorization of transactions?

The range of actions that make up the component of internal control referred to as control activities includes each of the following, except:

Which of the following statements related to the COSO report is false?

The approval or endorsement from a responsible person or department of an organization that has been sanctioned by top management is the process of:

The category of control activities referred to as segregation of duties requires that certain activities should be the responsibility of different person or department.The three duties that are to be separated are:

This type of control is designed to avoid errors, fraud, or events not authorized by management.

The COSO report is also known as:

According to the COSO report, there are five different interrelated components of internal control.Which of the following is not one of those five components?

The accounting profession has accepted this report as the standard definition and description of internal control.

The component of internal control, identified in the COSO report, that sets the tone of an organization and includes the consciousness of its employees is:

All of the following are reasons why it is not possible to eliminate all fraud risks, except