BEC - B1 (MC Practice Results) Flashcards
Coso internal control - integrated framework:
What are the five integrated components of internal control?
-CRIME Control environment Risk ASSESSMENT Information and communication Monitoring Existing control activities (17 relevant principles within these)
Company retains a CPA. What principle of effective internal control over FR are they applying?
Financial reporting competencies. This principle suggests stronger controls and encourages the company to retain qualified personnel to handle financial reporting.
Company maintains a strong IA function, reports directly to their BOD. Which principle of effective internal controls is this?
Organizational structure.
External auditors assess the achievement of internal control, and then communicate their assessment to management and the board. Which principle of info and communication is this?
External communication
don’t overthink these
Who established the treadway commission?
Private sponsoring organizations in the 80’s. The COSO was an independent private sector initiative. COSO is sometimes referred to as the Treadway Commission.
One of these is not an appropriate ongoing monitoring activity:
- Approval of high-dollar transactions by supervisors
- Follow-up of customer complaints regarding amounts due
- Comparisons of information from various sources within the company
- Periodic analysis of variances between expectations and results
Approval of high-dollar transactions (not ongoing, this is an internal control)
COSO prepared the internal control integrated framework:
1) to help businesses assess internal control?
or
2) As part of Treadway Commission, which was a congressional task force
1) Correct
2) Incorrect. Treadway was a private initiative, not congressional.
What is the nature of the relationship between a board of directors and a company?
Fiduciary. Act on behalf of, and in the best interest of, the corporation.
NOT executive.
Who has responsibility to evaluate internal control in a large public corporation?
Internal audit. They should report to BOD.
think NYT
Which component of internal control framework addresses an entity/s financial reporting objectives?
Risk assessment. Includes principles such as financial reporting objectives, risks, fraud risk
Which component of ERM addresses an entity’s commitment to core values?
Governance and culture
ERM Framework: Organization must identify “events” as part of its risk management program. When are “events” identified?
- Simultaneously with development of objectives
- After developing objectives
- Before developing objectives
-After development of objectives.
Events can only be identified after the organizational objectives have been identified. “Events” will then either favorably or unfavorably affect the achievement of objectives.
What are the different categories of risk response?
- Avoidance (sell a business / move operations elsewhere)
- Sharing (buy insurance)
- Acceptance (do nothing)
- Reduction (balance your portfolio / diversify your product offerings)
Company estimates that a 3% change in exchange rate can cause $10M impact. The impact is only $4M if they purchase a hedge instrument. What is the residual risk of change in foreign currency exchange rate?
$4M. Residual risk is the risk that remains after management responds to the risk.
The mission and vision of a company most closely correlate with its culture or strattegy?
Strategy.
Culture = core values.
A successful and profitable launch of a new product line represents:
value creation? or value realization?
Value creation. Value is created when benefits of value EXCEED THE COST OF RESOURCES USED.
Value realization = when benefits created by the organization are RECEIVED BY STAKEHOLDERS.
A corporation evaluates their employees in charge of financial reporting for fulfillment of their responsibilities, for purposes of compensation and promotions. The companies’ policies support the idea that:
- Management’s philosophy supports achieving effective ICFR
- The company’s organizational structure supports effective ICFR
- Human resources practices are designed to facilitate effective ICFR
- Management and employees are assigned appropriate levels of authority in order to facilitate effective ICFR
-Choice (c) is correct. - Human resources pracices are designed to facilitate ICFR
Regular evaluation of employees is the key - this evaluation of their competence (fulfillment of their responsibilities) is an important link between human resources practices and the achievement of ICFR.
Organization commits to attracting, developing, and retaining capable individuals. Which component of COSO’s ERM is this in support of?
-Governance and culture.
Hiring capable employees is one of the principles of this Component of ERM.
Performance component includes which of the following supporting principles?
- Establishes operating structure
- Defines risk appetite
- Analyzes business context
- Identifies risks
(d) identifies risks. Supports the performance component of COSO’s ERM framework.
Performance = VAPIR. Vape performs on the biggest of stages - that’s why he was D3
portfolio View Assess severity of risks Prioritizes risks Identifies risks implements risk Responses
The ability of an entity to withstand the impact of large-scale events refers to:
Organizational stability.
- Risk inventory is all risk that could impact an entity
- Risk capacity is the maximum amount of risk that an entity can absorb in pursuit of strategy and business objectives
- Risk profile is a composite view of the risk assumed at certain levels of an entity
