What is the primary benefit of effective internal control in an organization?
Completing a successful audit for the entity.
Achieving certain organizational goals.
Obtaining profitability and financial strength.
Maximizing value for shareholders.
Internal control is a process designed to achieve objectives in which one of the following categories?
Reliability of financial reporting
Compliance with applicable laws
Operational effectiveness
All of the above
Which of the following is considered to be an entity-wide control?
Segregation of duties
Controls over management override
Adequately documented transaction trails
Authorization procedures for purchasing
Which of the following is not included as a component of an organization's internal control structure in the COSO framework?
Control activities
The control environment
Control risk
Risk assessment
Which of the following is considered to be a transaction control?
Controls to monitor other controls
Physical controls to safeguard assets
Centralized processing controls
Policies that address significant business control practices
Which of the following is not part of the control environment of an organization?
Management’s philosophy and operating style.
Organizational structure.
Organization’s commitment to ethical values.
All of the above are part of the control environment.
With whom does the tone of internal control typically originate?
Auditors
Employees
Stockholders
Management
Which of the following COSO components is the foundation for all other components of internal control?
Information and communication
Control risk assessment
Control environment
Monitoring
Which of the following is an example of a control environment deficiency?
A low level of control consciousness within the organization
An audit committee that does not have independent members
An audit committee that is not viewed as the client of the external auditor
A low level of control consciousness within the organization.
An audit committee that does not have independent members.
An audit committee that is not viewed as the client of the external auditor.
All of the above.
Which of the following is not part of the control environment?
Methods of assigning authority and responsibility.
Management philosophy and operating style.
Personnel policies and practices.
Which of the following best describes the purpose of personnel policies and procedures?
Ensure the organization has employees that are properly trained and supervised.
Ensure the organization complies with federal and state laws in its hiring and retention decisions.
Ensure the organization performs all of the above.
Ensure the organization hires the right people.
Which of the following is a major component of an organization's internal control structure?
Major new financing
Telecommunication equipment
The financial environment
Internal controls may be preventive or detective. Which of the following controls is preventive?
Preparing bank reconciliations
Using batch totals
Requiring two persons to open mail containing payments
Reconciling the accounts receivable subsidiary file with the control account.
Which of the following is an inherent limitation of internal controls?
Lack of auditor independence
Employee peer review
Separation of duties
Collusion
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?
Detective
Corrective
Preventive
Directive
Which of the following is an example of a physical control to safeguard assets?
Safety audits on the production line
Hiring only trustworthy cashiers
Locks on warehouse doors
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?
Entity-wide control
Input control
Output control
Processing control
Which one of the following is not a control activity implemented in most accounting systems?
Authorization procedures
All of these activities are normally implemented
Competent, trustworthy employees
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?
An output control
A physical control
A processing control
An input control
Requiring two signatures on any check in excess of $10,000 is an example of which type of control?
Preventive control
Detective control
A bank reconciliation is an example of which type of control?
A detective control
A preventive control
Security management practices that limit access to technologies is a function included in which COSO component of internal control structure?
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?
Which of the following groups is interested in an organization's control structure?
Board members
Lenders
The information and communication component of internal control includes which of the following?
The organization deploys control activities through policies that establish what is expected and in procedures that put policies into action.
The organization obtains or generates and uses relevant, quality information to support the functioning of other components of internal control.
The organization identifies and assesses changes that could significantly impact the system of internal control.
Which of the following activities would be an example of an ongoing evaluation?
Automated review of all payments and transactions
Monthly bank statement reconciliations
Periodic review of employee expense reimbursements
Which of the following is not part of management’s report on internal controls?
The framework used to evaluate internal control.
A statement indicating the extent of tests performed to assess controls.
An assessment of the effectiveness of the company's internal control.
A statement that management is responsible for internal control.
Which of the following best represents a walkthrough?
The auditor walks the production line to find inefficiencies in the inventory process and reports them to management.
The controller takes a sample of recorded write-offs to ensure they have been properly approved.
The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries.
The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding.
Which of the following is the most severe?
Significant deficiencies in internal control.
Operational deficiencies in internal control.
Each is equally severe because it could result in inaccuracies in financial reporting.
Material weaknesses in internal control.
In a financial statement audit, what is the external auditor’s primary concern?
Determining whether the internal controls promote efficiency.
Detecting all errors.
Determining the effectiveness of operations.
Determining whether the internal controls are effective.
