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Internal Controls.1
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Questions in this quiz (42)
1Managerial control can be divided into feedforward, concurrent, and feedback controls. Which of the following is an example of a feedback control?
- AForecasting inventory needs.
- BQuality control training.
- CBudgeting.
- DVariance analysis.
2Inherent limitations in internal control must be considered in evaluating its effectiveness in preventing or detecting errors and fraud. Inherent limitations or the effects of them do not include
- AThe inability to provide more than reasonable assurance.
- BSimple error.
- CFaulty human judgment in decision making.
- DIncompatible functions performed by the same person.
3Which of the following items is an example of an inherent limitation in an internal control system?
- AHuman error in decision making.
- BSegregation of employee duties.
- CIneffective board of directors.
- DUnderstaffed internal audit functions.
4Controls that are designed to provide management with assurance of the realization of specified minimum gross margins on sales are
- AOutput controls.
- BDirective controls.
- CPreventive controls.
- DDetective controls.
5Which of the following is not a type of control?
- ADirective.
- BDetective.
- CPreventive
- DReactive.
6Which of the following is an inherent limitation of internal control?
- AEmployee evaluation.
- BJudgmental sampling.
- CCollusion.
- DSegregation of duties.
7According to The IIA Glossary appended to the Standards, which of the following are most directly designed to ensure that risks are contained?
- AInternal audit activities.
- BRisk management processes.
- CGovernance processes.
- DControl processes.
8Internal controls are designed to provide reasonable assurance that
- AMaterial errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.
- BManagement’s planning, organizing, and directing processes are properly evaluated.
- CManagement’s plans have not been circumvented by worker collusion.
- DThe internal auditing department’s guidance and oversight of management’s performance is accomplished economically and efficiently.
9Internal control can provide only reasonable assurance that the organization’s objectives will be met efficiently and effectively. One factor limiting the likelihood of achieving those objectives is that
- AThe board is active and independent.
- BManagement monitors performance.
- CThe cost of internal control should not exceed its benefits.
- DThe internal auditor’s primary responsibility is the detection of fraud.
10Within the COSO Internal Control – Integrated Framework, which of the following components is designed to ensure that internal controls continue to operate effectively?
- AMonitoring.
- BRisk assessment.
- CControl environment.
- DInformation and communication.
11Which of the following statements is correct regarding internal control?
- AA well-designed internal control environment ensures the achievement of an entity’s control objectives.
- BA well-designed and operated internal control environment should detect collusion.
- CInternal control is a necessary business function and should be designed and operated to detect all fraud and error.
- DAn inherent limitation of internal control is that controls can be circumvented by management override.
12The operations manager of a company notified the chief financial officer of that organization 60 days in advance that a new, expensive piece of machinery was going to be purchased. This notification allowed the chief financial officer to make an orderly liquidation of some of the company’s investment portfolio on favorable terms. What type of control was involved?
- AFeedback.
- BConcurrent.
- CFeedforward.
- DStrategic.
13Which of the following situations represents a limitation, rather than a failure, of internal control?
- AA bank teller embezzles several hundred dollars from the cash drawer.
- BA jewelry store employee steals a small necklace from a display cabinet.
- CA movie theater cashier sells reduced-price tickets to full-paying customers and pockets the difference.
- DA purchasing employee and an outside vendor participate in a kickback scheme.
14The requirement that purchases be made from suppliers on an approved vendor list is an example of a
- APreventive control.
- BMonitoring control.
- CCorrective control.
- DDetective control.
15The actions taken to manage risk and increase the likelihood that established objectives and goals will be achieved are best described as
- ASupervision.
- BControl.
- CCompliance.
- DQuality assurance.
16.
- ANo No
- BNo Yes
- CYes No
- DYes Yes
17The internal audit activity’s duties regarding internal control include
- AAdministering the system of controls.
- BPromoting continuous improvement.
- CEnsuring compliance with the law.
- DSafeguarding assets.
18An internal auditor is examining inventory control in a merchandising division with annual sales of $3,000,000 and a 40% gross profit rate. Tests show that 2% of the monetary amount of purchases do not reach inventory because of breakage and employee theft. Adding certain controls costing $35,000 annually could reduce these losses to .5% of purchases. Should the controls be recommended?
- ANo, because the cost of the added controls exceeds the projected savings.
- BYes, because the ideal system of internal control is the most extensive one.
- CYes, because the projected saving exceeds the cost of the added controls.
- DYes, regardless of cost-benefit considerations, because the situation involves employee theft.
19Which of the following is an example of a detective control?
- AChecks are pre-numbered and kept in a locked cabinet.
- BThe accounting department has a procedure for voiding and issuing replacement checks.
- CThe manager is given a check log reconciliation at the close of each business day.
- DThe staff accountant was warned about printing a check prior to receiving authorization.
20The primary reason to establish internal control is to
- AEncourage compliance with organizational objectives.
- BProvide reasonable assurance that the objectives of the organization are achieved.
- CSafeguard the resources of the organization.
- DEnsure the accuracy, reliability, and timeliness of information.
21An auditor is concerned about management override as a limitation of internal control. Which of the following tests would best assess the validity of the auditor’s concern?
- AVerifying that approved spending limits are not exceeded.
- BReviewing minutes of board meetings.
- CMatching purchase orders to accounts payable.
- DTracing sales orders to the revenue account.
22Which of the following represents an example of an inherent limitation of internal controls?
- ACustomer credit checks are not performed.
- BBank reconciliations are not performed on a timely basis.
- CShipping documents are not matched to sales invoices.
- DThe CEO can override a control and request a check with no purchase order.
23According to COSO, which of the following is a compliance objective?
- ATo maintain accounting principles that conform to GAAP.
- BTo maintain adequate staffing to keep overtime expense within budget.
- CTo maintain material price variances within published guidelines.
- DTo maintain a safe level of carbon dioxide emissions during production.
24The risk that an internal auditor may not detect a material error or fraud during an audit is increased by
- AFundamental differences in the application of accounting standards.
- BManagement override of internal control.
- CReview of the internal audit plan by those charged with governance.
- DAn evaluation-reward system having not been implemented
25Which of the following is the control component that reflects the attitude and actions of the board and management regarding the significance of control within the organization?
- ARisk assessment.
- BControl activities.
- CMonitoring.
- DControl environment.
26Which of the entity objectives address effectiveness and efficiency?
- AOperations objectives.
- BStrategic objectives.
- CCompliance objectives.
- DReporting objectives.
27Which of the following is an inherent limitation in internal control?
- AFaulty human judgment.
- BLack of segregation of duties.
- CIncompatible duties.
- DLack of an audit committee.
28The primary responsibility for establishing and maintaining internal control rests with
- AThe external auditors.
- BThe internal auditors.
- CThe controller or the treasurer.
- DManagement.
29One accountant is responsible for collecting cash receipts from the cashier, recording cash in the accounting system, and depositing cash in the organization’s bank account. At which level is control lacking?
- AEntity-level management oversight controls
- BEntity-level governance controls.
- CTransaction-level controls.
- DProcess-level controls.
30Which of the following would be a preventive control?
- AApproving customer credit prior to shipping merchandise.
- BScanning the general ledger for accounts with unusually high or low balances.
- CReviewing the sequence of prenumbered documents.
- DComparing a bank deposit slip with the total cash received as noted on a prelisting sheet prepared in the mail room.
31Which of the following are included in the control environment described in the COSO internal control framework?
- AOrganizational structure, management philosophy, and planning.
- BRisk assessment, assignment of responsibility, and human resource practices.
- CIntegrity and ethical values, assignment of authority, and human resource policies
- DCompetence of personnel, backup facilities, laws, and regulations.
32Internal control cannot be designed to provide reasonable assurance regarding the achievement of objectives concerning
- AElimination of all fraud.
- BMitigation of risk.
- CAvailability of reliable data for decision-making purposes and protection of important documents and records.
- DReducing the cost of an internal audit.
33Internal auditors need to determine the extent to which management has established adequate control criteria. For this purpose, which of the following actions may be appropriate?
1- Determining whether objectives have been accomplished
2 - Using management’s adequate control criteria in their evaluation
3 - Working with management to develop appropriate control evaluation criteria- A1 and 2 only.
- B2 only.
- C1, 2, and 3.
- D1 only.
34Effective internal control
- AAssists with the safeguarding of assets.
- BCannot be circumvented by management.
- CIs unaffected by changing circumstances and conditions encountered by the organization.
- DEliminates risk and potential loss to the organization.
35Controls should be designed to ensure that
- AOperations are performed efficiently.
- BManagement’s plans have not been circumvented by worker collusion.
- CManagement’s planning, organizing, and directing processes are properly evaluated.
- DThe internal audit activity’s guidance and oversight of management’s performance is accomplished economically and efficiently.
36Which of the following best defines control?
- AControl accomplishes objectives and goals in an accurate, timely, and economical fashion.
- BControl is the result of proper planning, organizing, and directing by management.
- CControl is provided when cost-effective measures are taken to restrict deviations to a tolerable level.
- DControls are statements of what the organization chooses to accomplish.
37The use of financial statement analysis, quality control procedures, and employee performance evaluations are all examples of
- AFeedforward controls.
- BConcurrent controls.
- CFeedback controls.
- DPreliminary controls.
38Which of the following statements about internal control is true?
- AThe establishment and maintenance of internal control are important responsibilities of the internal auditor.
- BA limitation of internal control is that management makes judgments about the extent of controls it implements.
- CExceptionally effective internal control is enough for the organization to achieve objectives.
- DProperly maintained internal control reasonably ensures that collusion among employees cannot occur.
39The likelihood of achieving control objectives is affected by which limitation inherent to internal control?
- AManagement monitors internal control.
- BManagement assesses controls.
- CThe internal auditor’s primary responsibility is the detection of fraud.
- DThe cost of internal control should not exceed its benefits.
40Controls provide assurance to management that desired actions will be accomplished when objectives are established in writing and
- AAre communicated to employees in writing and are updated by operating personnel as conditions change.
- BInternal reviews as to the propriety and effectiveness of the objectives are undertaken on a periodic basis by the internal audit activity.
- CStandards are adopted, results are compared with the standards, and corrective actions are undertaken.
- DPolicies and procedures for activities are set out in manuals for use by properly trained personnel.
41Internal auditors regularly evaluate controls. Which of the following best describes the concept of control as recognized by internal auditors?
- AControl represents specific procedures that accountants and internal auditors design to ensure the correctness of processing.
- BManagement takes action to enhance the likelihood that established goals and objectives will be achieved.
- CControl procedures should be designed from the “bottom up” to ensure attention to detail.
- DManagement regularly discharges personnel who do not perform up to expectations.
42Which of the following factors would most likely be considered an inherent limitation to an entity’s internal control?
- AThe ineffectiveness of the board of directors.
- BThe lack of management incentives to improve the control environment.
- CThe complexity of the information processing system.
- DHuman judgment in the decision making process.
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- Quiz on Internal Controls.1, created by Orfa Cartagena on 15/03/2023.
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- Orfa Cartagena
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