Internal Control

1. Which of the following would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control structure?

• Incompatible duties

• Management override

• Mistakes in judgment

• Collusion among employees

2. Actions, policies, and procedures that reflect the overall attitude of management, directors, and owners of the entity about internal control relate to which of the following internal control components?

• Control environment

• Risk assessment

• Information and communication

• Monitoring

3. Vendor account reconciliations are performed by three clerks in the accounts payable department on Friday of each week. The accounts payable supervisor reviews the completed reconciliations the following Monday to ensure they have been completed. The work performed by the supervisor is an example of which COSO component?

• Control activities

• Information and communication

• Risk assessment

• Monitoring

4. Which of the following correctly describes an internal control component?

• Control activities set the tone of the organization.

• Information and communication systems have to do with management’s analysis of risk.

• Risk assessment relates to assessing the quality of the internal control structure over time.

• Monitoring relates to ongoing assessment by management to determine whethercontrols are operating as intended.

5. Which of the following situations is not an example of an inherent limitation of internal control?

• A programming error in the design of an automated control allows an employeeto give himself an unauthorized pay increase.

• Management’s failure to enforce control policies surrounding access to inventory allows employees to steal assets.

• A lack of physical controls over the safeguarding of assets allows an employee tosteal company assets.

• A fraud scheme whereby an employee orders personal goods and his supervisor,who is in on the scheme, signs the checks to pay for those goods

6. Which of the following factors are included in an entity’s control environment?

a. Participation of those Charged With Governance

b. Integrity and ethical Values

c. Organizational Structure

• a and b

• a, b and c

• b and c

• a and c

7. Choose a type of internal control:

The company’s computer systems track individual transactions and automatically accumulate transactions to create a trial balance.

• Control environment

• Risk assessment

• Control activities

• Information and communication

• Monitoring

8. Choose a type of internal control:

On a monthly basis, department heads compare a budget to actual performance report and investigate unusual differences.

• Control environment

• Risk assessment

• Control activities

• Information and communication

• Monitoring

9. Choose a type of internal control:

The company must receive university transcripts documenting all college degrees earned before an individual can begin his or her first day of employment with the company.

• Control environment

• Risk assessment

• Control activities

• Information and communication

• Monitoring

10. Choose a type of internal control:

Senior management obtains data about external events that might affect the entity and evaluates the impact of that information on its existing accounting processes.

• Control environment

• Risk assessment

• Control activities

• Information and communication

• Monitoring