Risk and Procedures for Control MCQs Paper

Which one of the following options would be most effective in deterring the commission of fraud?

Policies of strong internal control, segregation of duties, and requiring employees to take vacations.Detailed Answer
Policies of strong internal control and punishments for unethical behavior.
Employee training, segregation of duties, and punishment for unethical behavior.
Hiring ethical employees, employee training, and segregation of duties.

The COSO model component of Risk Assessment focuses on

Identifying the risks in all areas and establishing the vulnerability of the organization.Detailed Answer
The attitude of management at all levels toward operations and the concept of risk.
The controls such as approvals and documentation that addresses an organization’s risk.
The timely communication of information relative to identified risks to management.

The statement below that best illustrates the importance of personnel policies and procedures is that personnel policies and procedures

Are integral to an efficient control environment.Detailed Answer
Should be implemented where it is cost beneficial.
Should be evaluated for compliance by an external firm.
Should be implemented where risks have been identified.

Which one of the following statements about internal control risk is correct?

The establishment and maintenance of an internal control system within a company can effectively eliminate internal control risk.
The internal audit function is responsible for the establishment and maintenance of a company’s internal control system.
Management has the responsibility to maintain controls that provide reasonable assurance that adequate control exists over the entity’s assets and records. Detailed Answer
Management’s responsibility regarding internal control risk is limited to controls that provide assurance regarding the reliability of financial reporting.

Which one of the following statements is the best example of inherent risk?

The risk that the auditor did not detect a material misstatement in the financial statements.
The risk that a material misstatement could occur and will not be prevented.
The risk that the auditor failed to modify his or her opinion on materially misstated information.
The risk that there will be a material misstatement, assuming no related internal control strategy.Detailed Answer

Which one of the following characteristics related to management’s philosophy and operating style best indicates management’s commitment to strong internal controls?

Decisions are controlled by a small group of top-level executives.
Attitudes toward financial reporting are very aggressive.
Funds are allocated annually to update and improve the entity’s information systems.Detailed Answer
Strong emphasis is placed on meeting earnings projections.

Proper segregation of duties reduces the opportunities for persons to be in positions to both

Journalize entries and prepare financial statements.
Record cash receipts and cash disbursements.
Establish internal control and authorize transactions.
Perpetrate and conceal errors or fraud. Detailed Answer

A proper segregation of duties requires that an individual

Authorizing a transaction records it.
Authorizing a transaction maintain custody of the asset that resulted from the transaction.
Maintaining custody of an asset be entitled to access the accounting records for the asset
Recording a transaction not compare the accounting record of the asset with the asset itself.Detailed Answer

The frequency of the comparison of recorded accountability with assets (for the purpose of safeguarding assets) should be determined by

The amount of assets independent of the cost of the comparison.
The nature and amount of the asset and the cost of making the comparison. Detailed Answer
The cost of the comparison and whether the susceptibility to loss results from errors or fraud.
The auditor in consultation with client management.

Which of the following questions would be inappropriate on an internal control questionnaire concerning purchase transactions?

Are an approved purchase requisition and a signed purchase order required for each purchase?
Are prenumbered purchase orders and receiving reports used and accounted for?
Are all goods received in a centralized receiving department and counted, inspected, and compared with purchase orders on receipt?
Are intact cash receipts deposited daily in the bank?Detailed Answer

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Risk and Procedures for Control Paper 4