Ch 7 MC

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss with insurance?

$100

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. Based on cost-benefit analysis, what is the most that the business should pay for the insurance?

$750

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss without insurance?

$850

How many principles are there in the 2013 updated COSO - Internal Control Framework?

17

Of the following examples of fraud, which will be the most difficult to prevent and detect? Assume the company enforces adequate segregation of duties.

A credit manager issues credit cards to himself and a staff accountant in the accounting office, and when the credit card balances are just under $1,000, the staff accountant writes off the accounts as bad debt. The credit manager then issues new cards.

Which of the following duties could be performed by the same individual without violating segregation of duties controls?

Approving accounting software change requests and testing production scheduling software changes.

The organization chart for Renata Corporation includes a controller and an information processing manager, both of whom report to the vice president of finance. Which of the following would be a control weakness?

Assigning the programming and operating of the computer system to an independent control group which reports to the controller

Effective segregation of accounting duties is achieved when which of the following functions are separated?

Authorization, recording, and custody.

Which internal control framework is widely accepted as the authority on internal controls?

COSO Integrated Control.

Which of the following system(s) compares actual performance with planned performance?

Diagnostic control system

How is expected loss calculated when performing risk assessment?

Impact x likelihood.

Which of the following is not a key method of monitoring performance? implementing effective supervision. Implementing a benefit incentive plan. Performing internal control evaluation. Implementing a whistleblower hotline.

Implementing a benefit incentive plan.

Melissa is a staff accountant for Quality Paper Company, which has strict corporate policies on appropriate use of corporate resources. The first week of March, Melissa saw Kent, the branch manager putting printer paper and toner into his briefcase on his way out the door. This situation best reflects a weakness in which aspect of internal environment, as discussed in the COSO Enterprise Risk Management Framework?

Integrity and ethical values.

Which type of audit assesses employee compliance with management policies and procedures?

Internal audit.

________ is not a risk response identified in the COSO Enterprise Risk Management Framework.

Monitoring

the principle of identifying and assessing changes that could significantly impact the system of internal control belongs to which of the COSO's Internal Control Model's component?

Risk assessment.

Which of the following is a control related to design and use of documents and records?

Sequentially prenumbering sales invoices.

What is (are) a principle(s) behind enterprise risk management (ERM)?

The ERM framework can help management manage uncertainty, uncertainty results in risk and it can result in opportunity.

Which of the following is an independent check on performance?

The General Manager compares budgeted amounts with expenditure records from all departments.

Congress passed this federal law for the purpose of preventing financial statement fraud, to make financial reports more transparent and to strengthen the internal control of public companies.

The Sarbanes-Oxley Act of 2002

COSO requires that any internal deficiencies identified through monitoring be reported to whom?

The board of directors.

What is an assumption underlying the valuation of internal controls?

The internal control should at least provide reasonable assurance that control problems do not develop.

Distributed computer networks are harder to control than centralized mainframe systems.

True

Upon acquiring a new computer operating system, management at Berryhill worried that computer virus might cripple the company's operation. Despite the concern, management did not think that the risk was high enough to justify the purchase of an anti-virus software. Berryhill chose to ________ the risk of being crippled by computer virus.

accept

The examination of the relationships between different sets of data is called

analytical reviews.

Which type of control prevents, detects, and corrects transaction errors and fraud?

application

Lauren Smith was relaxing after work with a colleague at a local bar. After a few drinks, she began expressing her feelings about her company's new control initiatives. It seems that as a result of controls put in place by the company, she now has to be more creative in solving problems and avoiding actions that might have a negative effect on her company's reputation. The level of control that the company is using in this case is a(n)

boundary system

The principle of selecting and developing controls that might help mitigate risks to an acceptable level belongs to which of the COSO's Internal Control Model's component?

control activities

Independent checks on performance include all the following except supervisor review of journal entries and supporting documentation. preparing a trial balance report. data input validation checks. reconciling hash totals.

data input validation checks.

Duplicate checking of calculations and preparing bank reconciliations and monthly trial balances are examples of what type of control?

detective control

A(n) ________ measures company progress by comparing actual performance to planned performance.

diagnostic control system

Cost considerations have generally not factored into how well companies protect data.

false

The first step of the risk assessment process is generally to

identify the threats that the company currently faces

Petty cash is disbursed by the Manuela Luisina in the Cashier's Office. Manuela also maintains records of disbursements, places requests to the Finance Department to replace expended funds, and periodically reconciles the petty cash balance. This represents a(n) ________ segregation of duties.

ineffective

________ is the risk that exists before management takes any steps to mitigate it.

inherent risk

Helping employees understand entity goals and objectives and then holding them accountable for achieving them are all related to which aspect of internal environment?

methods of assigning authority and responsibility

The definition of the lines of authority and responsibility and the overall framework for planning, directing, and controlling is laid out by the

organizational structure.

A control procedure designed so that the employee that records cash received from customers does not also have access to the cash itself is an example of a(n)

preventive control

Which of the following is the most effective way in uncovering fraud schemes that require ongoing perpetrator's attention?

requiring employees to take mandatory vacations

As a result of an internal risk assessment, Berryhill Insurance decided it was no longer profitable to provide flood insurance in the southern states without a general rate increase. Berryhill apparently chose to ________ the risk of paying flood claims in the southern states by raising its insurance rate.

share

An accounting policy that requires a purchasing manager to sign off on all purchases over $10,000 is an example of

specific authorization.

The purpose of the COSO Enterprise Risk Management framework is

to improve the organization's risk management process

A primary objective of internal controls is to safeguard assets.

true

In a system with effective separation of duties, it is difficult for any single employee to embezzle successfully.

true

Preventive controls are usually superior to detective controls

true

Which of the following is not an example of something monitored by a responsibility accounting system? Quotas. Vendor analysis. Budgets. Quality standards

vendor analysis