Risk and Procedures for Control MCQs Paper

Mike Smith is the CFO at TechEquip Inc., a manufacturer of computer equipment. Smith learned last week that the accounting department has not completed any bank reconciliations for the last six months due to the implementation of a new accounting software package. What type of risk has Smith identified?

Financial risk
Hazard risk
Operational riskDetailed Answer
Strategic risk

Riverfront Propertiesâ€™ new apartment building was almost complete. There were a few inspections left to pass, and they did not have a certificate of occupancy. However, the owner felt that they were close enough that he allowed new tenants to begin moving in. The risk that the owner has created in this situation is best described as

operational risk, because the owner was not in compliance with laws and regulations. Detailed Answer
strategic risk, because the owner was not in compliance with laws and regulations.
strategic risk, because the remaining inspections could determine that the building is uninhabitable.
operational risk, because the remaining inspections could determine that the building is uninhabitable.

The measure that provides a quantitative measure of the accuracy of the potential financial loss is:

Residual risk.
Inherent risk.
Risk Ranking.
Value at risk.Detailed Answer

Buckeye Conferencing leases meeting rooms to outside parties to use. The lease specifies that the outside party, not Buckeye Conferencing, will be liable for any damages resulting from the use of the meeting room, and that Buckeye Conferencing would be â€œheld harmlessâ€ for these damages caused by the outside party. Buckeye Conferencingâ€™s actions demonstrate

Risk retention.
Self-insurance.
Insurance risk transfer.
Noninsurance risk transfer.Detailed Answer

When the likelihood of loss is high and the amount at risk is high, the most appropriate risk response would probably be:

Avoiding the risk in whatever manner is available.Detailed Answer
Reducing the risk by trying to minimize the loss that might occur.
Transferring the risk to another party through hedging, or similar action.
Accepting the risk as the cost of reducing the risk will outweigh the potential benefits.

Ron Bagley is contemplating whether to investigate a labor efficiency variance in the Assembly Department. It will cost $6,000 to undertake the investigation and another $18,000 to correct operations if the department is found to be operating improperly. If the department is operating improperly and Bagley failed to make the investigation, operating costs from the various inefficiencies are expected to amount to $33,000. Bagley would be indifferent between investigating and not investigating the variance if the probability of improper operation is:

0.29
0.40Detailed Answer
0.60
0.71

Ryerson Company has three sales departments, each contributing the following percentages of total sales: clothing, SO percent; hardware, 30 percent; and household sundries, 20 percent. Each department has had the following average annual damaged goods rates: clothing, 2 percent; hardware, 5 percent; and household sundries, 2.5 percent. A random corporate audit has found a weekly damaged goods rate of sufficient magnitude to alarm Ryersonâ€™s management. The probability (rounded) that this rate occurred in the clothing department is:

SO percent
1 percent
25 percent
33 1/3 percentDetailed Answer

Monitoring is an important component of internal control. Which of the following items would not be an example of monitoring?

Management has asked internal auditing to perform regular audits of the controls over cash processing.
Data processing personnel regularly reconcile batch control totals for items processed with batch controls for items submitted.Detailed Answer
Data processing management regularly generates exception reports for unusual transactions or volumes of transactions and follows up with investigation as to causes.
Management regularly compares divisional performance with budgets for the division.

The proper segregation of duties requires that:

The individual who records a transaction does not compare the accounting records with the asset itself.Detailed Answer
The individual who records a transaction must maintain custody of the asset resulting from the transaction.
The individual who authorizes a transaction also records it.
The individual who maintains custody of an asset must have access to the accounting records for the asset.

In a well designed internal control system, two tasks that should be performed by different people are:

Posting of amounts from both the cash receipts journal and cash payments journal to the general ledger.
Distribution of payroll checks and approval of sales returns for credit.
Approval of bad debt write-offs, and reconciliation of the accounts payable subsidiary ledger and controlling account.
Reconciliation of bank account and recording of cash receipts.Detailed Answer

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