Question 1

A periodic review by internal auditors that stresses the evaluation of the efficiency and effectiveness of a department's procedures is called a an):

Accepted Answer

A) Operational audit 
B) Financial audit 
C) Management-by-exception audit 
D) Audit by exception

Question 2

Preventive and corrective controls are established solely to discourage fraud and embezzlement by an organization's employees.

Accepted Answer

A) True 
 B)False

Question 3

A good internal control system will contribute towards detecting accidental errors made by employees.

Accepted Answer

A) True 
 B)False

Question 4

Both cash and credit customers are educated to expect a sales ticket.Tickets are serially numbered.All numbers are accounted for daily.

Accepted Answer

A) Customers complain that their monthly bills contain items that have been paid 
B) Some customers have the correct change for the merchandise purchased; they pay and do not wait for a sales ticket 
C) Customers complain that they are billed for goods they did not purchase 
D) Customers complain that goods ordered are not received 
E) Salesclerks destroy duplicate sales tickets for the amount of cash stolen

Question 5

Freije Refrigeration Company has an inventory of raw materials and parts consisting of thousands of different items which are of small dollar value individually but significant in total.A fundamental control requirement of Freije's inventory system is that:

Accepted Answer

A) Perpetual inventory records be maintained for all inventory items 
B) The taking of physical inventories be conducted on a cycle basis rather than at year?end 
C) The storekeeping function not be combined with the production and inventory record?keeping functions 
D) Material requisitions be approved by an officer of the company

Question 6

When assessing a company's internal control structure policies and procedures, the primary consideration is whether they

Accepted Answer

A) Prevent management override 
B) Relate to the control environment 
C) Reflect management's philosophy and operating style 
D) Affect the financial statement assertions

Question 7

Assume that a company designs and implements a control procedure whereby the accountant who is responsible for recording cash receipts transactions does not have access to the cash itself.This control procedure is an example of a:

Accepted Answer

A) Detective control 
B) Preventive control 
C) Corrective control 
D) Feedback control

Question 8

A general rule that should be followed when developing control procedures for a company's assets is:

Accepted Answer

A) The cost of the control procedure will likely exceed the procedure's benefit 
B) The procedure should not be designed and implemented unless an asset's cost exceeds $5,000 
C) The more liquid an asset is, the greater the risk of its misappropriation 
D) The procedure should not be designed and implemented in situations where a risk assessment has been previously performed

Question 9

The introduction of a computer into an organization's data processing system will normally eliminate problems associated with following the organization's audit trail.

Accepted Answer

A) True 
 B)False

Question 10

Control procedures that are designed to remedy problems discovered through detective controls are called:

Accepted Answer

A) Corrective controls 
B) Preventive controls 
C) Before-the-fact controls 
D) Management-by-exception controls

Question 11

The COSO report failed to define internal control.

Accepted Answer

A) True 
 B)False

Question 12

For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order which is:

Accepted Answer

A) Forwarded to the accounting department 
B) Retained in the purchasing department's files 
C) Returned to the requisitioner 
D) Forwarded to the receiving department

Question 13

The duties of cashier and accounts?receivable bookkeeper should be separated.

Accepted Answer

A) There are two cashiers.At the end of a certain day, there is a sizable cash shortage; each cashier blames the other and it is impossible to fix responsibility 
B) A cash shortage is covered by overfooting overadding)cash in transit on the bank reconciliation 
C) A cash shortage is covered by charging it to "Miscellaneous General Expenses" 
D) Customers who paid their accounts in cash complain that they still receive statements of balances due 
E) The accounts?receivable bookkeeper charges off the accounts of friends to "Allowance for Uncollectible Accounts"

Question 14

The control environment is a component of a company's internal control system that:

Accepted Answer

A) Influences the control awareness of a company's employees 
B) Stresses the development of control procedures in a company 
C) Directly affects the accuracy and reliability of a company's accounting data 
D) Can be ignored when establishing a company's internal control system

Question 15

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

Accepted Answer

A) Policies of strong internal control, segregation of duties, and requiring employees to take vacations 
B) Policies of strong internal control and punishments for unethical behaviour 
C) Employee training, segregation of duties, and punishment for unethical behaviour 
D) Hiring ethical employees, employee training, and segregation of duties

Question 16

The 1992 COSO report identifies five components for an effective internal control system.Which of those five establishes the tone of a company and influences the control awareness of the company's employees?

Accepted Answer

A) Control procedures 
B) Control environment 
C) Control activities 
D) Information and communication

Question 17

The maintenance of backup copies of a company's important transaction and master files is an example of a:

Accepted Answer

A) Preventive control procedure 
B) Detective control procedure 
C) Corrective control procedure 
D) Management-by-exception control procedure

Question 18

An approach used by many companies to reduce the risk of loss caused by the theft of assets by employees is to:

Accepted Answer

A) Utilize polygraphs 
B) Acquire arbitrage loss protection 
C) Acquire fidelity bond coverage 
D) Institute punitive management

Question 19

Timely performance reports contribute towards achieving the monitoring component of an internal control system.

Accepted Answer

A) True 
 B)False

Question 20

The personnel subsystem has the important function of matching job qualifications to people qualifications.

Accepted Answer

A) True 
 B)False

Exam 9: Introduction to Internal Control Systems

A periodic review by internal auditors that stresses the evaluation of the efficiency and effectiveness of a department's procedures is called a an) :

Preventive and corrective controls are established solely to discourage fraud and embezzlement by an organization's employees.

A good internal control system will contribute towards detecting accidental errors made by employees.

Both cash and credit customers are educated to expect a sales ticket.Tickets are serially numbered.All numbers are accounted for daily.

Freije Refrigeration Company has an inventory of raw materials and parts consisting of thousands of different items which are of small dollar value individually but significant in total.A fundamental control requirement of Freije's inventory system is that:

When assessing a company's internal control structure policies and procedures, the primary consideration is whether they

Assume that a company designs and implements a control procedure whereby the accountant who is responsible for recording cash receipts transactions does not have access to the cash itself.This control procedure is an example of a:

A general rule that should be followed when developing control procedures for a company's assets is:

The introduction of a computer into an organization's data processing system will normally eliminate problems associated with following the organization's audit trail.

Control procedures that are designed to remedy problems discovered through detective controls are called:

The COSO report failed to define internal control.

For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order which is:

The duties of cashier and accounts?receivable bookkeeper should be separated.

The control environment is a component of a company's internal control system that:

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

The 1992 COSO report identifies five components for an effective internal control system.Which of those five establishes the tone of a company and influences the control awareness of the company's employees?

The maintenance of backup copies of a company's important transaction and master files is an example of a:

An approach used by many companies to reduce the risk of loss caused by the theft of assets by employees is to:

Timely performance reports contribute towards achieving the monitoring component of an internal control system.

The personnel subsystem has the important function of matching job qualifications to people qualifications.