ACCT480Chap3

Which of the following is not included as a component of an organization's internal control structure in the COSO framework? a. Control activities. b. The control environment. c. Control risk. d. Risk assessment

. Control risk

Which statement is true concerning the documentation of internal control? a. Documentation should be sufficient to support the design and operating effectiveness of internal controls. b. Documentation of disbursements requires paper and electronic documentation. c. Documentation of all transaction controls should be tested on an annual basis d. Documentation requirements are standardized by the PCAOB.

Documentation should be sufficient to support the design and operating effectiveness of internal controls

Which of the following is an example of a physical control to safeguard assets? a. Separation of duties. b. Hiring only trustworthy cashiers. c. Safety audits on the production line. d. Locks on the warehouse doors.

Locks on the warehouse doors.

A control designed to ensure that the number of sales transactions recorded in the accounting records matches the number of sales invoices entered during processing is known as which type of control? a. Edit control. b. Input control. c. Output control. d. Processing control.

Output control

Which of the following is considered to be a transaction control? a. Policies that address significant business control practices. b. Controls to monitor other controls. c. Physical controls to safeguard assets. d. Centralized processing controls.

Physical controls to safeguard assets.

Internal controls may be preventive or detective. Which of the following controls is preventive? a. Reconciling the accounts receivable subsidiary file with the control account. b. Preparing bank reconciliations. c. Using batch totals. d. Requiring two persons to open mail containing payments.

Requiring two persons to open mail containing payments.

Which of the following is not one of the underlying principles of an effective control environment as developed by COSO? a. Management establishes, with board oversight, structures, reporting lines, and appropriate authorities and responsibilities in pursuit of objectives. b. The board of directors demonstrates independence from management and exercises oversight for the development and performance of internal control. c. The organization considers the potential for fraud in assessing risks to the achievement of objectives. d. The organization demonstrates a commitment to integrity and ethical values.

The organization considers the potential for fraud in assessing risks to the achievement of objectives.

Which of the following is not one of the underlying principles of an effective control environment as developed by COSO? a. Management establishes, with board oversight, structures, reporting lines, and appropriate authorities and responsibilities in pursuit of objectives. b. The board of directors demonstrates independence from management and exercises oversight for the development and performance of internal control. c. The organization considers the potential for fraud in assessing risks to the achievement of objectives. d.The organization demonstrates a commitment to integrity and ethical values.

The organization considers the potential for fraud in assessing risks to the achievement of objectives.

Security management practices that limit access to technologies is a function included in which COSO component of internal control structure? a. Risk assessment. b. Monitoring. c. Control activities.

c. Control activities.

Requiring two signatures on any check in excess of $10,000 is an example of which type of control? a. Detective control. b. Input control. c. Preventive control. d. Processing control.

c. Preventive control.

What is the primary benefit of effective internal control in an organization? a. Achieving certain organizational goals. b. Obtaining profitability and financial strength. c. Maximizing value for shareholders. d. Completing a successful audit for the entity.

a. Achieving certain organizational goals.

Which of the following is another name for transaction controls? a. Application controls. b. Entity-wide controls. c. Detail controls. d. Supporting controls

a. Application controls.

Which of the following activities would be an example of an ongoing evaluation? a. Automated review of all payment transactions. b. Monthly bank statement reconciliations. c. Periodic review of employee expense reimbursements. d. All of the above.

a. Automated review of all payment transactions.

Which one of the following represents a control deficiency? a. A control that operates as designed. b. A control that ensures the reliability of financial reporting. c. A missing control that is required for achievement of objectives. d. A control that does not prevent immaterial errors.

c. A missing control that is required for achievement of objectives.

In a financial statement audit, what is the external auditor's primary concern? a. Determining whether the internal controls are effective. b. Determining the effectiveness of operations. c. Determining whether the internal controls promote efficiency.

a. Determining whether the internal controls are effective

Which statement is true concerning the documentation of internal control? a. Documentation should be sufficient to support the design and operating effectiveness of internal controls. b. Documentation of disbursements requires paper and electronic documentation. c. Documentation of all transaction controls should be tested on an annual basis. d. Documentation requirements are standardized by the PCAOB.

a. Documentation should be sufficient to support the design and operating effectiveness of internal controls.

Which of the following best describes the purpose of personnel policies and procedures? a. Ensure the organization performs all of the above. b. Ensure the organization has employees that are properly trained and supervised. c. Ensure the organization complies with federal and state laws in its hiring and retention decisions. d. Ensure the organization hires the right people.

a. Ensure the organization performs all of the above

Which COSO component of internal control concerns the process of identifying, capturing, and exchanging information in a timely fashion to enable accomplishment of the organization's objectives? a. Information and communication. b. Monitoring. c. Control environment. d. Control activities.

a. Information and communication.

With whom does the tone of internal control typically originate? a. Management. b. Auditors. c. Stockholders.

a. Management.

Which of the following is a major component of an organization's internal control structure? a. Risk assessment. b. The financial environment. c. Telecommunication equipment. d. Major new financing.

a. Risk assessment.

A bank reconciliation is an example of which type of control? a. An input control. b. A detective control. c. A preventive control.

b. A detective control.

An edit test is considered to be which type of control? a. A processing control. b. An input control. c. An output control. d. A supporting control.

b. An input control.

A control designed to ensure that sales transactions are generated using the company's most current prices would be considered to be which type of control? a. An output control. b. A processing control. c. A physical control. d. An input control

c. A physical control.

Which of the following is an example of a detective control in an information system? a. Assurance from top management that computer centers are kept locked. b. Automated reports to management that specifically identify delinquent receivables. c. The employment of trustworthy people to enter data into the information system. d. A requirement that salaried employees submit written requests to work overtime.

b. Automated reports to management that specifically identify delinquent receivables.

Which one of the following is an example of an internal risk for an organization? a. Increases in substitute services or products. b. Changes in internal information technology. c. Changes in regulation that make the business model unsustainable. d. Changes in the reliability of source goods.

b. Changes in internal information technology.

Which of the following is an inherent limitation of internal controls? a. Separation of duties. b. Collusion. c. Lack of auditor independence. d. Employee peer review.

b. Collusion.

Which of the following is not part of the control environment? a. Personnel policies and practices. b. Control activities. c. Management philosophy and operating style. d. Methods of assigning authority and responsibility.

b. Control activities.

Which of the following COSO components is the foundation for all other components of internal control? a. Control risk assessment. b. Control environment. c. Monitoring. d. Information and communication.

b. Control environment.

A control designed to ensure that no employee is paid for more than 80 hours of sick pay is an example of which type of control? a. Output control. b. Input control. c. Entity-wide control. d. Processing control.

b. Input control.

Which of the following is not a way management obtains evidence regarding the effectiveness of internal control over the accounting system? a. Performing a walkthrough of the accounting system. b. Making inquiries of banks and attorneys. c. Reviewing system flowcharts. d. Taking plant and operational tours

b. Making inquiries of banks and attorneys.

Which of the following is the most severe? a. Operational deficiencies in internal control. b. Material weaknesses in internal control. c. Each is equally severe because it could result in inaccuracies in financial reporting d. Significant deficiencies in internal control.

b. Material weaknesses in internal control

Which of the following is the most severe? a. Operational deficiencies in internal control. b. Material weaknesses in internal control. c. Each is equally severe because it could result in inaccuracies in financial reporting. d. Significant deficiencies in internal control.

b. Material weaknesses in internal control.

The COSO principle that an organization should identify and assess changes that significantly impact the system of internal control is related to which COSO component? a. Control environment b. Risk assessment c. Control activities d. Monitoring

b. Risk assessment

Which of the following best represents a walkthrough? a. The controller takes a sample of recorded write-offs to ensure they have been properly approved. b. The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding. c. The auditor walks the production line to find inefficiencies in the inventory process and reports them to management. d. The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries.

b. The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding.

The information and communication component of internal control includes which of the following? a. The organization deploys control activities through policies that establish what is expected and in procedures that put policies into action. b. The organization obtains or generates and uses relevant, quality information to support the functioning of other components of internal control. c. The organization identifies and assesses changes that could significantly impact the system of internal control. d. All of the above.

b. The organization obtains or generates and uses relevant, quality information to support the functioning of other components of internal control.

Which of the following is not true of the concepts that are embodied in the COSO framework of internal controls? a. Internal controls relate to the organization's objectives. b. The six components of internal control are logically and operationally intertwined. c. Internal controls apply across all activities of the organization. d. All of the above are true

b. The six components of internal control are logically and operationally intertwined

Which of the following services does the PCAOB require auditors of public companies to perform? a. A financial statement audit and an assurance audit. b. A financial statement audit and agreed upon procedures. c. A financial statement audit and an examination of the effectiveness of internal controls. d. A financial statement audit and an attest audit.

c. A financial statement audit and an examination of the effectiveness of internal controls.

Which of the following services does the PCAOB require auditors of public companies to perform? a. A financial statement audit and an assurance audit. b. A financial statement audit and agreed upon procedures. c. A financial statement audit and an examination of the effectiveness of internal controls. d. A financial statement audit and an attest audit.

c. A financial statement audit and an examination of the effectiveness of internal controls.

Which one of the following represents a control deficiency? a. A control that operates as designed. b. A control that ensures the reliability of financial reporting. c. A missing control that is required for achievement of objectives. d. A control that does not prevent immaterial errors.

c. A missing control that is required for achievement of objectives

Which of the following is not part of the control environment of an organization? a. Management's philosophy and operating style. b. Organizational structure. c. Organization's commitment to ethical values. d. All the above are part of the control environment.

d. All of the above are part of the control environment.

Internal control is a process designed to achieve objectives in which one of the following categories? a. Reliability of financial reporting. b. Compliance with applicable laws. c. Operational effectiveness. d. All of the above.

d. All of the above.

The quality of an organization's internal control affects which of the following? a. The reliability of financial data. b. The ability of management to make good decisions. c. The ability to remain in business. d. All of the above.

d. All of the above.

Which of the following groups is interested in an organization's control structure? a. Board members. b. Lenders. c. Auditors. d. All of the above.

d. All of the above.

Which of the following is an example of a control environment deficiency? a. A low level of control consciousness within the organization. b. An audit committee that does not have independent members. c. An audit committee that is not viewed as the client of the external auditor. d. All of the above.

d. All of the above.

Which of the following is considered to be an entity-wide control? a. Authorization procedures for purchasing. b. Segregation of duties. c. Adequately documented transaction trails. d. Controls over management override.

d. Controls over management override

Requiring the mail clerk to prepare a listing of all checks received, with copies of the list going to the cashier and to accounting, is an example of which type of control? a. Corrective. b. Detective. d. Preventive

d. Preventive

A company's internal auditing function should not be considered when assessing the effectiveness of internal controls.

false

Effective internal control requires an organization to establish an appropriate structure and clearly defined lines of responsibility and authority where everyone in the organization has equal responsibility for the effective operation of internal control.

false

A material weakness in internal control is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

true