Chapter 8: INTRODUCTION TO INTERNAL CONTROL AND ICS

What is the main objective of internal control?

• Ensure profitability
• Comply with tax laws
• Achieve reliable financial reporting, compliance, and efficiency
• Limit employee promotions
• Increase salaries

Answer explanation

Internal control aims to ensure operations are effective, reports are reliable, and compliance with laws.

Which framework is most widely used for evaluating internal controls?

• ISO 9001
• COSO Framework
• Six Sigma
• Kaizen Framework
• TQM

Answer explanation

The COSO framework is globally recognized for internal control evaluation.

What is NOT one of the five components of the COSO Internal Control Framework?

• Control Environment
• Strategic Planning
• Monitoring Activities
• Risk Assessment
• Control Activities

Answer explanation

Strategic planning is not part of COSO’s five components.

What component of COSO involves evaluating risks that may affect the achievement of objectives?

• Risk Assessment
• Monitoring
• Control Environment
• Communication
• Organizational Culture

Answer explanation

Risk Assessment is dedicated to identifying and evaluating risks.

Which element sets the tone at the top and influences the control consciousness of employees?

• Control Activities
• Monitoring
• Control Environment
• Compliance Control
• Financial Reports

Answer explanation

Control Environment reflects management's integrity and ethical values.

An internal control that prevents errors before they occur is known as:

• Detective control
• Directive control
• Preventive control
• Reactive control
• Executive control

Answer explanation

Preventive controls are proactive and reduce the likelihood of errors.

What is the purpose of control activities?

• To communicate company goals
• To ensure management is replaced
• To monitor stock performance
• To mitigate risks through policies and procedures
• To evaluate salaries

Answer explanation

Control activities implement measures to manage risk.

Monitoring in internal control involves:

• Ignoring control performance
• Reassessing salary packages
• Evaluating the effectiveness of control systems
• Developing product advertisements
• Reviewing customer satisfaction

Answer explanation

Monitoring involves reviewing and improving control performance over time.

What is one of the limitations of internal control?

• It can prevent all fraud
• It ensures perfect compliance
• It can be overridden by collusion
• It replaces the need for external audits
• It guarantees profit

Answer explanation

Internal control cannot always prevent collusion or management override.

Which of the following best describes a detective control?

• A control that fixes errors
• A control that prevents errors
• A control that identifies errors after occurrence
• A control that ignores issues
• A control that automates payroll

Answer explanation

Detective controls uncover issues post-occurrence (e.g., reconciliation).