Question 1

________ protect(s)  the security of electronic communication when information is transmitted and when it is stored.

Accepted Answer

A)   Firewalls
B)   Digital signatures
C)   Encryption
D)   A databaseE) A) and D)
F) B) and C)

Question 2

An example of a specific authorization is management setting a policy authorizing the ordering of inventory when less than a one-week supply is on hand.

Accepted Answer

A) True 
 B)False

Question 3

As a result of the Dodd-Frank federal financial reform legislation passed by Congress in 2010, only larger public companies (accelerated filers) are now required to obtain an audit report from their auditors on internal control over financial reporting.

Accepted Answer

A) True 
 B)False

Question 4

Management is not as concerned about internal controls when they decide to outsource some or all of their IT needs to cloud computing environments and suppliers.

Accepted Answer

A) True 
 B)False

Question 5

Controls specific to IT include all of the following except for

Accepted Answer

A)   adequately designed input screens.
B)   pull-down menu lists.
C)   validation tests of input accuracy.
D)   separation of duties.E) A) and B)
F) C) and D)

Question 6

Name five of the specific responsibilities specifically directed by the SEC under the Sarbanes-Oxley Act requiring companies listed on the national stock exchanges to strengthen their audit committee requirements.

Accepted Answer

1. The audit committee must not be comprised solely of independent directors
2. The audit committee must not be solely responsible for hiring and firing the
company's auditors
3. The audit committee must establish policies and procedures for complaints regarding
accounting, internal controls, or other auditing matters
4. The audit committee must have the ability to engage its own legal counsel and advisors
5. The audit committee must be adequately funded

Question 7

Processing controls are a category of application controls.

Accepted Answer

A) True 
 B)False

Question 8

One of management's broad objectives in designing an effective internal control system is to help ensure that the organization follows laws and regulations impacting the organization.

Accepted Answer

A) True 
 B)False

Question 9

Cost-benefit considerations should always be part of the consideration of most types of outsourcing-related decisions made by management.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following describes the process of implementing a new system in one part of the organization, while other locations continue to use the current system?

Accepted Answer

A)   parallel testing
B)   online testing
C)   pilot testing
D)   control testingE) A) and B)
F) A) and C)

Question 11

The chart of accounts is helpful in preventing classification errors if it accurately describes which type of transaction should be in each account.

Accepted Answer

A) True 
 B)False

Question 12

Hanlon Corp. maintains a large internal audit staff that reports directly to the accounting department. Audit reports prepared by the internal auditors indicate that the system is functioning as it should and that the accounting records are reliable. An independent auditor will probably

Accepted Answer

A)   eliminate tests of controls.
B)   increase the depth of the study and evaluation of administrative controls.
C)   avoid duplicating the work performed by the internal audit staff.
D)   place limited reliance on the work performed by the internal audit staff.E) B) and D)
F) None of the above

Question 13

If required under special circumstances, an auditor must step in at an audit client and establish and maintain the audit client's system of internal controls to ensure reliable financial reporting.

Accepted Answer

A) True 
 B)False

Question 14

Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the

Accepted Answer

A)   adequacy of the computer system.
B)   proper implementation by management.
C)   ability of the internal audit staff to maintain it.
D)   competency and dependability of the people using it.E) A) and B)
F) A) and C)

Question 15

In performing the audit of internal control over financial reporting, the auditor emphasizes internal control over classes of transactions because

Accepted Answer

A)   the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing.
B)   the class of transaction is where most fraud schemes occur.
C)   account balances are less important to the auditor then the changes in the account balances.
D)   classes of transactions tests are the most efficient manner to compensate for inherent risk.E) A) and D)
F) A) and B)

Question 16

Enterprise resource planning (ERP) systems integrate limited aspects of an organization's business activities and transactions into one accounting information system.

Accepted Answer

A) True 
 B)False

Question 17

Firewalls are used to protect from

Accepted Answer

A)   erroneous internal handling of data.
B)   insufficient documentation of transactions.
C)   illogical programming commands.
D)   unauthorized external users.E) B) and C)
F) All of the above D

Question 18

When considering internal controls,

Accepted Answer

A)   auditors can ignore controls affecting internal management information.
B)   auditors are concerned with the client's internal controls over the safeguarding of assets if they affect the financial statements.
C)   management is responsible for understanding and testing internal control over financial reporting.
D)   companies must use the COSO framework to establish internal controls.E) All of the above
F) A) and D)

Question 19

Separation of duties is essential in preventing errors and intentional misstatements on the financial statements. List below the four general guidelines.

Accepted Answer

1. separation of custody of the assets f...

Question 20

The internal control framework developed by COSO includes five so-called "components" of internal control. Discuss each of these five components.

Accepted Answer

Five components of internal control are:
• The control environment. The control environment consists of the actions, policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about internal control and its importance to the company.
• Risk assessment. This is management's identification and analysis of risks relevant to the preparation of financial statements in accordance with appropriate accounting frameworks such as GAAP or IFRS.
• Information and communication. These are the methods used to initiate, record, process, and report the entity's transactions and to maintain accountability for the related assets.
• Control activities. These are the policies and procedures that management has established to meet its objectives for financial reporting.
• Monitoring. This is management's ongoing and periodic assessment of the quality of internal control performance to determine whether controls are operating as intended and are modified when needed.

Exam 11: Internal Control and Coso Framework

________ protect(s) the security of electronic communication when information is transmitted and when it is stored.

Correct Answer
verified

An example of a specific authorization is management setting a policy authorizing the ordering of inventory when less than a one-week supply is on hand.

Correct Answer
verified

As a result of the Dodd-Frank federal financial reform legislation passed by Congress in 2010, only larger public companies (accelerated filers) are now required to obtain an audit report from their auditors on internal control over financial reporting.

Correct Answer
verified

Management is not as concerned about internal controls when they decide to outsource some or all of their IT needs to cloud computing environments and suppliers.

Correct Answer
verified

Controls specific to IT include all of the following except for

Correct Answer
verified

Name five of the specific responsibilities specifically directed by the SEC under the Sarbanes-Oxley Act requiring companies listed on the national stock exchanges to strengthen their audit committee requirements.

Processing controls are a category of application controls.

Correct Answer
verified

One of management's broad objectives in designing an effective internal control system is to help ensure that the organization follows laws and regulations impacting the organization.

Correct Answer
verified

Cost-benefit considerations should always be part of the consideration of most types of outsourcing-related decisions made by management.

Correct Answer
verified

Which of the following describes the process of implementing a new system in one part of the organization, while other locations continue to use the current system?

Correct Answer
verified

The chart of accounts is helpful in preventing classification errors if it accurately describes which type of transaction should be in each account.

Correct Answer
verified

Hanlon Corp. maintains a large internal audit staff that reports directly to the accounting department. Audit reports prepared by the internal auditors indicate that the system is functioning as it should and that the accounting records are reliable. An independent auditor will probably

Correct Answer
verified

If required under special circumstances, an auditor must step in at an audit client and establish and maintain the audit client's system of internal controls to ensure reliable financial reporting.

Correct Answer
verified

Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the

Correct Answer
verified

In performing the audit of internal control over financial reporting, the auditor emphasizes internal control over classes of transactions because

Correct Answer
verified

Enterprise resource planning (ERP) systems integrate limited aspects of an organization's business activities and transactions into one accounting information system.

Correct Answer
verified

Firewalls are used to protect from

Correct Answer
verified
D

When considering internal controls,

Correct Answer
verified

Separation of duties is essential in preventing errors and intentional misstatements on the financial statements. List below the four general guidelines.

Correct Answer
verified
1. separation of custody of the assets f...
View Answer

The internal control framework developed by COSO includes five so-called "components" of internal control. Discuss each of these five components.

Exam 11: Internal Control and Coso Framework

________ protect(s) the security of electronic communication when information is transmitted and when it is stored.

Correct AnswerverifiedShow Answer

An example of a specific authorization is management setting a policy authorizing the ordering of inventory when less than a one-week supply is on hand.

Correct AnswerverifiedShow Answer

As a result of the Dodd-Frank federal financial reform legislation passed by Congress in 2010, only larger public companies (accelerated filers) are now required to obtain an audit report from their auditors on internal control over financial reporting.

Correct AnswerverifiedShow Answer

Management is not as concerned about internal controls when they decide to outsource some or all of their IT needs to cloud computing environments and suppliers.

Correct AnswerverifiedShow Answer

Controls specific to IT include all of the following except for

Correct AnswerverifiedShow Answer

Name five of the specific responsibilities specifically directed by the SEC under the Sarbanes-Oxley Act requiring companies listed on the national stock exchanges to strengthen their audit committee requirements.

Processing controls are a category of application controls.

Correct AnswerverifiedShow Answer

One of management's broad objectives in designing an effective internal control system is to help ensure that the organization follows laws and regulations impacting the organization.

Correct AnswerverifiedShow Answer

Cost-benefit considerations should always be part of the consideration of most types of outsourcing-related decisions made by management.

Correct AnswerverifiedShow Answer

Which of the following describes the process of implementing a new system in one part of the organization, while other locations continue to use the current system?

Correct AnswerverifiedShow Answer

The chart of accounts is helpful in preventing classification errors if it accurately describes which type of transaction should be in each account.

Correct AnswerverifiedShow Answer

Hanlon Corp. maintains a large internal audit staff that reports directly to the accounting department. Audit reports prepared by the internal auditors indicate that the system is functioning as it should and that the accounting records are reliable. An independent auditor will probably

Correct AnswerverifiedShow Answer

If required under special circumstances, an auditor must step in at an audit client and establish and maintain the audit client's system of internal controls to ensure reliable financial reporting.

Correct AnswerverifiedShow Answer

Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the

Correct AnswerverifiedShow Answer

In performing the audit of internal control over financial reporting, the auditor emphasizes internal control over classes of transactions because

Correct AnswerverifiedShow Answer

Enterprise resource planning (ERP) systems integrate limited aspects of an organization's business activities and transactions into one accounting information system.

Correct AnswerverifiedShow Answer

Firewalls are used to protect from

Correct AnswerverifiedD

When considering internal controls,

Correct AnswerverifiedShow Answer

Separation of duties is essential in preventing errors and intentional misstatements on the financial statements. List below the four general guidelines.

Correct Answerverified1. separation of custody of the assets f...View AnswerShow Answer

The internal control framework developed by COSO includes five so-called "components" of internal control. Discuss each of these five components.

Correct Answer
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D

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1. separation of custody of the assets f...
View Answer