Archive for November 2017

An internal auditor is considering a client's organizational structure as it affects the ethical climate established by company management. Each of the following considerations is valid in this regard, except:

An internal auditor is considering a client's organizational structure as it affects the ethical climate established by company management. Each of the following considerations is valid in this regard, except:



a. The appropriateness of an entity's organizational structure depends in part on the nature of its activities.

b. A company that is highly centralized will have a more diverse ethical culture than a company that is decentralized.

c. A highly structured organization with formal reporting lines may be appropriate regardless of entity size.

d. A decentralized environment may increase the risk that unethical decisions could be made by unit managers.




Answer: B

According to COSO, each of the following is an example of an appropriate ongoing monitoring activity, except:

According to COSO, each of the following is an example of an appropriate ongoing monitoring activity, except:



a. Periodic analysis of variances between expectations and actual results.

b. Approval of high-dollar transactions by supervisors.

c. Follow-up of customer and vendor complaints regarding amounts due and owed.

d. Comparisons of information from various sources within the company.



Answer: B

According to COSO, the four categories of entity objectives in the enterprise risk management framework include each of the following, except:

According to COSO, the four categories of entity objectives in the enterprise risk management framework include each of the following, except:



a. Compliance with applicable laws and regulations.

b. Implementation of internal controls.

c. Effective and efficient use of the entity's resources.

d. Reliability of reporting.




Answer: B

The Enterprise Risk Management-Integrated Framework of the committee of sponsoring organizations (COSO) is best defined as a:

The Enterprise Risk Management-Integrated Framework of the committee of sponsoring organizations (COSO) is best defined as a:



a. Process that replaces the COSO internal control framework.

b. Process that takes a control-based approach to an organization.

c. Serial process in which one component affects only the next component.

d. Process effected by an entity's board of directors, management, and other personnel.





Answer: D

Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management's response to the risk. According to COSO, which of the following types of risk does this situation represent?

Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management's response to the risk. According to COSO, which of the following types of risk does this situation represent?



a. Inherent risk.

b. Detection risk.

c. Event risk.

d. Residual risk.




Answer: D

According to COSO, which of the following is a compliance objective?

According to COSO, which of the following is a compliance objective?



a. To maintain a safe level of carbon dioxide emissions during production.

b. To maintain accounting principles that conform to GAAP.

c. To maintain adequate staffing to keep overtime expense within budget.

d. To maintain material price variances within published guidelines.




Answer: A

A company that routinely performs background checks on its employees to ensure that there is no criminal history is applying the ideas from which principle of effective internal control over financial reporting?

A company that routinely performs background checks on its employees to ensure that there is no criminal history is applying the ideas from which principle of effective internal control over financial reporting?



a. Financial reporting competencies.

b. Human resources.

c. Integrity and ethical values.

d. Management's philosophy and operating style.



Answer: B

A company that maintains a strong internal audit function that reports directly to the Board of Directors is applying the ideas from which principle of effective internal control over financial reporting?

A company that maintains a strong internal audit function that reports directly to the Board of Directors is applying the ideas from which principle of effective internal control over financial reporting?



a. Board of Directors.

b. Human resources.

c. Organizational structure.

d. Authority and responsibility.



Answer: C

The Enterprise Risk Management Integrated Framework states that an organization must identify events, both positive and negative, as part of its risk management program. Which of the following is true with regard to events?

The Enterprise Risk Management Integrated Framework states that an organization must identify events, both positive and negative, as part of its risk management program. Which of the following is true with regard to events?



a. Enterprise risk management is entirely focused on risks and ignores opportunities.

b. Event identification occurs after the development of objectives.

c. Event identification occurs prior to development of objectives.

d. Events serve as the basis for establishing objectives and thus occur simultaneously with development of objectives.




Answer: B

Which of the following is not a goal of an Enterprise Risk Management Framework (ERM)?

Which of the following is not a goal of an Enterprise Risk Management Framework (ERM)?



a. Achieve financial and performance targets.

b. Assess risks continuously and identify the steps to take and resources to allocate to overcome or mitigate risk.

c. Provide reasonable assurance that company objectives and goals are achieved and problems and surprises are minimized.

d. Avoid adverse publicity and damage to the entity's reputation.



Answer: D

Knox, president of Quick Corp., contracted with Tine Office Supplies, Inc. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is:

Knox, president of Quick Corp., contracted with Tine Office Supplies, Inc. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is:



a. Void because the disclosure was made after execution of the contract.

b. Valid because the contract is fair to Quick.

c. Valid because of Knox's full disclosure.

d. Void because of Knox's self-dealing.



Answer: B

Davis, a director of Active Corp., is entitled to:

Davis, a director of Active Corp., is entitled to:



a. Unilaterally grant a corporate loan to one of Active's shareholders.

b. Take sole advantage of a business opportunity that would benefit Active.

c. Serve on the board of a competing business.

d. Rely on information provided by a corporate officer.



Answer: D

The Knight Corporation completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes an objective that the Knight Corporation will rank in the top quartile of quality for its industry. That objective would most likely be a:

The Knight Corporation completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes an objective that the Knight Corporation will rank in the top quartile of quality for its industry. That objective would most likely be a:



a. Related reporting objective.

b. Strategic objective.

c. Related compliance objective.

d. Related operations objective.




Answer: B

The Justco Corporation completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes a commitment to conduct focus groups with customers and suppliers to determine the responsiveness of Justco to the needs of various parties. That commitment would most likely be a:

The Justco Corporation completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes a commitment to conduct focus groups with customers and suppliers to determine the responsiveness of Justco to the needs of various parties. That commitment would most likely be a:



a. Strategic objective.

b. Related operations objective.

c. Related reporting objective.

d. Related compliance objective.




Answer: B

The Hartman Conglomerate completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes a commitment to develop a uniform chart of accounts for all divisions of the conglomerate. That commitment would most likely be a:

The Hartman Conglomerate completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes a commitment to develop a uniform chart of accounts for all divisions of the conglomerate. That commitment would most likely be a:



a. Related reporting objective.

b. Related compliance objective.

c. Strategic objective.

d. Related operations objective.



Answer: A

Generally, an organization will not operate beyond the limits of their risk appetite. Risk appetite has generally been exceeded when:

Generally, an organization will not operate beyond the limits of their risk appetite. Risk appetite has generally been exceeded when:



a. The likelihood and impact of negative events significantly exceeds residual risks.

b. The likelihood and impact of positive events is within the residual risk.

c. The likelihood and impact of negative events exceed residual risks.

d. The likelihood and impact of positive events is significantly below residual risk.



Answer: A

A not-for-profit organization periodically conducts focus groups of employees, service beneficiaries and governance board members to reevaluate its mission vision and values to determine the accuracy of the strategic statements to refine them where necessary. This activity relates to which component of internal control?

A not-for-profit organization periodically conducts focus groups of employees, service beneficiaries and governance board members to reevaluate its mission vision and values to determine the accuracy of the strategic statements to refine them where necessary. This activity relates to which component of internal control?



a. Risk assessment.

b. Monitoring.

c. Control activities.

d. Information and communication.



Answer: B
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