Prelim Examination Acctg 20

A reason to establish internal control is to

• Have a basis for planning the audit

• Provide reasonable assurance that the objectives of the organization are achieved

• Encourage compliance with organizational objectives

• Ensure the accuracy, reliability and timeliness of information

The following relates to internal control. Which of the following is incorrect?

• Internal control systems refers to all the policies and procedures adopted by the management of an entity to assist in achieving management's objectives

• A strong environment does not, by itself, ensure the effectiveness of the internal control system

• The internal control system is confined to those matters which relate directly to the functions of the accounting system

• In the audit of financial statements in accordance with the generally accepted accounting framework, the external auditor is only concerned with those policies and procedures within the accounting and internal control system that are relevant to the financial statements.

Which of the following appropriately describes internal audit activity's role in assisting the organization in maintaining effective controls?

• Evaluating reliability and integrity of financial and operational information.

• Evaluating safeguards over assets.

• Evaluating compliance with laws, regulations, and Contracts.

• All of these

When an organization has strong internal control, management can expect various benefits. The benefit least likely to occur is

• Reduced cost of an external audit.

• An elimination of employee fraud.

• The availability of reliable data for decision making purposes and protection of important documents and records.

• An assurance of compliance to applicable laws and regulations.

Which of the following is not an important aspect of good internal control?

• Separation of authorization, recording and custody functions.

• Rotation of controls.

• A system of approvals and authorizations.

• A system of comparisons and reconciliations.

Which of the following best describes the interrelated components of internal control?

• Organizational structure, management philosophy and planning.

• Control environment, risk assessment process, control activities, information system and communication, and monitoring of controls.

• Risk assessment process, backup facilities, responsibility accounting and natural laws.

• Legal environment of the firm, management philosophy, and organizational structure.

Which of the following best describes control environment?

• The entity's process for identifying business risk relevant to financial reporting objectives.

• The system for transferring information from transaction processing systems to the general ledger or the financial reporting system.

• Policies and procedures that help ensure that management directives are carried out.

• This includes the governance and management functions and the attitudes and awareness, and actions of those charged with governance and management concerning the entity's internal control and its importance to the entity.

Which of the following conditions supports strong internal control?

• Strict monitoring by the BIR

• The existence of related parties and related party transactions

• Pressure by the financial community to improve earnings performance

• An economic downturn

Which of the following best describes an inherent limitation of an internal control structure?

• The benefits expected to be derived from effective internal control usually do not exceed the costs of such control.

• The competence and integrity of client personnel provide an environment conducive to control and provide assurance that effective control will be achieved.

• Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against irregularities perpetrated by management.

• Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion.

Proper segregation of duties reduces the opportunities in which a person could both

• Journalize entries and prepare financial statements.

• Record cash receipt and record cash disbursements.

• Establish internal controls and authorize transactions

• Perpetuate errors and irregularities and conceal