Question 1

Managers must control the operations of their business. A plan of internal control is designed to help management maintain control of a business and its operations. What are the key elements of a plan of internal control?

Accepted Answer

Internal control is defined as an organizational plan and all related measures that a business adopts to optimize the use of resources, prevent and detect error and fraud, safeguard assets and records, and ensure accurate and reliable accounting records.

Question 2

Business risks are risks that companies will not achieve its objectives.

Accepted Answer

Business risks refer to the uncertainties, challenges, and potential threats that may hinder a company from achieving its goals and objectives.

Question 3

The Canadian Securities Commission developed a strategy incorporating some of the SOX rules for Canadian public companies. Discuss what requirements were incorporated into the Certification of Discloser in Issuers' Annual and Interim filings.

Accepted Answer

These requirements included:
-the CEO and CFO certification that they have evaluated the effectiveness of their internal controls over financial reporting, their conclusions must be included in the annual MD&A section
-required disclosure of each material weakness related to the internal controls over financial reporting
-annual certification of the disclosure controls and procedures, including their effectiveness plus any other conclusions
This list is not exhaustive but does attempt to introduce the key points.

Question 4

Which of the following is a limitation of internal control?

Accepted Answer

Employee collusion is a limitation of internal control because control procedures are only as effective as the employees who implement them. If employees collude to override or circumvent control procedures, the effectiveness of internal control is compromised.

Question 5

Who has the primary responsibility for establishing and maintaining a company's system of internal control?

Accepted Answer

The primary responsibility for establishing and maintaining a company's system of internal control lies with its top management. While internal auditors and external auditors may assist in the design and testing of internal controls, it is ultimately up to management to ensure that a strong system of internal control is in place. Shareholders do not typically have a direct role in establishing internal controls.

Question 6

One way to guard against a hacker reading a message sent from one company to another over the Internet is to use:

Accepted Answer

Encryption is the process of encoding messages or information in a way that only authorized parties can read it. By using encryption, the message sent over the Internet is turned into a code that is unreadable to anyone who does not have the key to unlock it. This helps guard against hackers who might intercept the message and attempt to read it. Firewalls and intrusion protection devices also provide security, but they are primarily used to block unauthorized access to a network or system. Incident response procedures are plans put in place to handle security breaches after they have occurred, but they do not prevent hackers from accessing the message in the first place.

Question 7

The controller is the chief accounting officer in an organization.

Accepted Answer

The controller is responsible for overseeing the accounting department and financial reporting in an organization. They are responsible for managing the organization's financial transactions, ensuring accuracy and compliance with laws and regulations, and providing financial analysis to support decision-making. As such, they can be considered the chief accounting officer in the organization.

Question 8

Identify and briefly describe the two most common types of fraud that impact financial statements.

Accepted Answer

The answer of Identify and briefly describe the two most...

Question 9

For effective internal control in an organization, the treasurer should have custody of the cash, and the controller should account for the cash.

Accepted Answer

This statement is in accordance with the segregation of duties principle, which helps to prevent fraud and errors. The treasurer is responsible for handling cash transactions, while the controller is responsible for record-keeping and financial reporting. This separation of duties enhances the reliability of financial information and reduces the risk of intentional or unintentional mishandling of cash.

Question 10

E-commerce creates risks such as computer viruses and stolen credit card numbers.

Accepted Answer

E-commerce transactions are conducted over the internet which makes them susceptible to cyber threats such as computer viruses and hacking. These threats can result in stolen credit card numbers and other sensitive personal information, causing significant financial and reputational damage.

Question 11

Fraudulent financial reporting is a type of fraud than impacts on financial statements. Why do managers undertake this type of fraudulent activity?

Accepted Answer

The answer of Fraudulent financial reporting is a type of...

Question 12

Define internal control. Who is responsible for establishing an effective system of internal control? What are two major constraints of any system of internal control?

Accepted Answer

The answer of Define internal control. Who is responsible for...

Question 13

Training people thoroughly is an element of which characteristic of internal control?

Accepted Answer

Training people thoroughly is a part of ensuring that personnel are competent, reliable, and ethical, which is one of the characteristics of internal control.

Question 14

Internal control procedures include: proper approvals, unlimited access, adequate records and safeguard controls.

Accepted Answer

Internal control procedures include proper approvals, adequate records, and safeguard controls, but not unlimited access. Instead, they involve restricted access to ensure security and accountability.

Question 15

The fraud triangle includes: motive, opportunity and rationalization.

Accepted Answer

The fraud triangle indeed consists of motive, opportunity, and rationalization, which are the three elements that usually lead to fraudulent behavior.

Question 16

Phishing refers to a program that enters program code into your computer without your consent.

Accepted Answer

Phishing is the attempt to obtain sensitive information or data, such as usernames, passwords, credit card details, by disguising oneself as a trustworthy entity in an email or other forms of electronic communication. It typically involves tricking the recipient into clicking on a link or downloading an attachment that installs malware onto the computer. Therefore, it is not a program that enters program code into the computer without consent.

Question 17

Which characteristic will not be found in an effective system of internal control?

Accepted Answer

A combination of duties means that multiple individuals are involved in a particular process, which reduces the risk of fraud or errors. Therefore, having a combination of duties is actually a characteristic of an effective system of internal control. The correct characteristic that will not be found in an effective system of internal control is a lack of separation of duties, which would increase the risk of fraud or errors.

Question 18

For effective internal control in an organization, who should keep the inventory records?

Accepted Answer

The answer of For effective internal control in an organization,...

Question 19

All of the following are purposes of internal control except:

Accepted Answer

The purpose of internal control is to promote operational efficiency, not inefficiency. The other choices (A, B, and C) are all true purposes of internal control.

Question 20

The most common form of management fraud is earnings management.

Accepted Answer

Earnings management involves manipulations and adjustments in a company's financial statements to achieve or maintain a desired level of earnings. This is one of the most common forms of management fraud. Other forms include misrepresentation of financial information, embezzlement, and bribery.

Quiz 4: Internal Control and Cash