Internal Control

Which of the following is an example of a preventive control?

• Auditing

• Reconciliations

• Encryption

• Correcting journal entries

Answer explanation

Encryption. Preventive controls aim to prevent errors or fraud from occurring in the first place. Encryption is a preventive control measure that protects data from unauthorized access.

Which of the following is an example of a detective control?

• Physical access controls

• Segregation of duties

• Data analytics

• Employee background checks

Answer explanation

Data analytics. Detective controls aim to detect errors or fraud that have already occurred. Data analytics is a detective control measure that involves analyzing large sets of data to identify patterns or anomalies that could indicate errors or fraudulent activities.

Which of the following is an example of a preventive control for IT security?

• Firewall

• Employee background checks

• Data analytics

• Internal audit

Answer explanation

Firewall. A firewall is a preventive control measure that helps to protect against unauthorized access to computer systems.

What is the purpose of risk assessment in internal control?

• To prevent errors or fraud from occurring

• To detect errors or fraud that have already occurred

• To identify and assess the risks that could impact the achievement of the organization's objectives

• To correct errors or fraud after they have been detected

Answer explanation

To identify and assess the risks that could impact the achievement of the organization's objectives. Risk assessment is a component of internal control that involves identifying and assessing the risks that could impact an organization's objectives. This information is used to design and implement control measures to mitigate those risks.

How can organizations ensure the effectiveness of their internal control system?

• By implementing access controls

• By performing regular audits

• By conducting employee background checks

• By establishing a code of conduct

Answer explanation

By performing regular audits. Regular audits are a monitoring activity that can help to ensure the effectiveness of an organization's internal control system.

What is the purpose of the control environment in internal control?

• To identify and assess the risks that could impact the achievement of the organization's objectives

• To prevent errors or fraud from occurring

• To provide ongoing training and education to employees on internal control and risk management

• To set the tone for the organization's internal control system

Answer explanation

To set the tone for the organization's internal control system. The control environment is a component of internal control that sets the tone for the organization's internal control system and includes factors such as management's commitment to integrity and ethical values.

Which of the following is not one of the five components of internal control according to COSO?

• Control environment

• Risk assessment

• Control procedures

• Information and communication

Answer explanation

Control procedures. The five components of internal control according to COSO are control environment, risk assessment, control activities, information and communication, and monitoring activities.

Which of the following is an example of a corrective control for financial reporting?

• Access controls

• Encryption

• Journal entries

• Physical security measures

Answer explanation

Journal entries. Corrective control measures aim to correct errors or fraud after they have been detected. Correcting journal entries are a corrective control measure used to fix errors found during the reconciliation process.

What is the difference between a preventive control and a detective control?

• Preventive control aims to prevent errors or fraud from occurring, while detective control aims to detect and correct errors or fraud after they have occurred.

• Preventive control aims to detect errors or fraud that have already occurred, while detective control aims to prevent errors or fraud from occurring.

• Preventive control and detective control are the same thing.

• Preventive control and detective control are both types of corrective control.

Answer explanation

Preventive control aims to prevent errors or fraud from occurring, while detective control aims to detect and correct errors or fraud after they have occurred.

Why is internal control important for organizations?

• To prevent errors or fraud from occurring

• To comply with legal and regulatory requirements

• To ensure the achievement of organizational objectives

• All of the above

Answer explanation

All of the above. Internal control is important for organizations because it helps to prevent errors or fraud from occurring, ensure compliance with legal and regulatory requirements, and ensure the achievement of organizational objectives.