Internal Control Midterm

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FINAL

1. Misappropriation of assets is normally perpetrated by:


a. Members of the board of directors.
b. Senior management of the company.
c. Internal auditors.
d. Employees at lower levels of the organization.

2. The basic concept of internal controls that recognizes that the cost of internal control should
not exceed the benefits expected to be derived is known as:

a. management responsibility
b. positive assurance
c. reasonable assurance
d. corporate responsibility

3. A component of COSO’s internal control system concerns the process that provides
feedback on the quality of the other components of internal control. This component is
called:
a. control activities.
b. monitoring.
c. information and communication.
d. risk assessment

4. What is the primary factor that distinguishes fraud from error in financial statement
reporting?
a. The intent to deceive.
b. The level of management involved.
c. The materiality of the misstatement,
d. The type of transaction effected.

5. Which of the following is a control that helps ensure the accuracy of purchases?
a. Segregation of duties between purchasing and accounting
b. Use of pre-numbered purchase orders
c. Reconciliation of purchase orders to the general ledger
d. Reconciliation of vendor invoices to purchase orders and shipping documents

6. An entity's internal control structure consists of all of the following components EXCEPT
a. Control environment
b. Control activities
c. Risk assessment
d. Control risk

7. What is the aim of COSO's enterprise risk management (ERM) framework?


a. all are correct
b. prevent and detect all frauds and errors
c. help organizations understand and prioritize risks and create a strong link
between risk, strategy and how a business performs
d. maximize organizations’ profit

8. Which of the following statements about internal control is incorrect, based on the COSO
framework?
a. Internal control applies across all levels of the organization.
b. Design and implementation of internal control is to help to achieve the organization’s
objectives.
c. The six components of internal control are logically and operationally
intertwined.
d. All statements are correct

9. If one risk has a high likelihood of occurring, and will also cause significant financial
harm. The best way to respond to that risk is:
a. Avoidance
b. Reduce
c. Transfer
d. Acceptance

10. Which of the following is an example of opportunity in the Fraud Triangle Model?
a. An employee is able to access the company's financial records and can
manipulate them without being detected
b. An employee is under financial pressure to pay off a large debt
c. An employee has a gambling addiction
d. An employee feels that they are being unfairly treated by the company

11. An effective internal control system requires:


a. The five components are operating together in an integrated manner.
b. All are required
c. Each of the five components of internal control and relevant principles is functioning.
d. Each of the five components of internal control and relevant principles is present.

12. Which of the following is NOT an example of pressure in the Fraud Triangle Model?
a. An employee feels that they are being unfairly treated by the company.
b. An employee is under financial pressure to pay off a large debt
c. An employee has a close relationship with a supplier
d. An employee has a gambling addiction

13. Internal control framework best applied in information technology environment is:
a. Basel framework
b. CoBIT framework
c. ERM framework
d. COSO framework

14. For good internal control, which of the following functions should not be also the
responsibility of the cashier?
a. Custody of securities
b. Receiving of cash
c. Banking of cash
d. Data processing

15. The key elements of the fraud triangle include all of the following EXCEPT:
a. Rationalization
b. Opportunity
c. Pressure
d. Capability

16. For effective internal control, the credit approval should be performed by the:
a. accounting department
b. credit department
c. sales department
d. shipping department

18. Which of the following best represents an example of a fraud scheme of lapping?
a. An employee transfers cash on the last day of the year in order to double record it in
the bank accounts.
b. An employee creates a fictional vendor and requests payment to a personal account.
c. An employee covers up the stealing of receipts by posting to the wrong customer
accounts.
d. An employee opens the mail to cover up payroll fraud received on a fictional person.

19, The control environment includes all of the following EXCEPT


a. Personnel policies and practices.
b. Segregation of duties.
c. Establishing and communicating of code of conduct
d. Assigning authority and responsibility.

20. COSO's enterprise risk management (ERM) framework identifies an objective category
which is different from the category objectives of its internal control framework. What it is?
a. Compliance
b. Operations
c. Reporting
d. Strategy

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