BEC - Surgent Review 1 Flashcards
A financial transaction control allows a firm to do what?
- Monitor and measure its resources
- Audit its finances
- Hire outside consultants
- Increase process variation
Monitor and measure its resources.
Financial transaction controls are procedures designed to discover and prevent errors, misappropriations, or policy noncompliance in a financial transaction process. It is an internal control, allows for a firm’s resources to be properly used, monitored, and measured.
According to COSO, which of the following components address the need to respond in an organized manner to significant changes resulting from international exposure, acquisitions, or executive transactions?
Risk assessment.
Risk assessment identifies and analyzes significant change. The organization should identify changes that could affect the current control system, such as changes in the external environment, changes in the business model, and changes in leadership
According to COSO, the four categories of entity objectives in the ERM Framework are…?
- Strategic (high-level goals, supporting entity’s mission)
- Operations (effective and efficient use of resources)
- Reporting (reliability of reporting)
- Compliance (compliance with applicable laws and regulations)
COSO of the Treadway Comission has developed a widely accepted and used framework for internal control that was designed to provide reasonable assurance for a company’s objectives such as..?
- Effectiveness and efficiency of operations
- Reliability of financial reporting
- Compliance with laws and regulations
Under COSO, which of the “environments” (components) do the following principles fall under?
- Evaluates and communicates deficiencies
- Establishes structure, authority, and responsibility
- Specifies suitable objectives
- Deploys through policies and procedures
- Monitoring
- Control Environment
- Risk Assessment
- Existing Control Activities
(CRIME) Control Environment Risk Assessment Information and communication Monitoring Existing Control Activities
Why is a well-defined organizational structure important?
- To oversee the internal control structure?
- To define lines of authority?
The structure helps define lines of authority.
Which of the following is not part of SOX Title XI, corporate fraud accountability?
- Certification violations
- Tampering
- Retaliation against informants
- Prohibiting persons from serving as officers
-Certification violations. These are a part of Title IX, not Title XI (WCC Penalty Enhancements). Certification violations result in criminal punishments for corporate officers who fail to certify corporate financial reports filed with the SEC
Who is tasked with the exercise of oversight responsibility?
- Senior management?
- BOD
BOD. Ultimately responsible for the oversight of an enterprise. They oversee management’s role in establishing and maintaining an organization’s internal control system.
Why is “approving sales returns on customers’ accounts and depositing customers’ checks in the bank” improper segregation of duties?
-Segregation of duties divides the duties of:
authorization
custody
record keeping
-In this case, the individual is authorizing and having custody, within the same department.
When entering into a contract with a director’s company, of a director who sits on the board of a corporation, what is required to ensure the validity of the contract?
- Director must disclose their interest to the independent members of the board
- Director must refrain from voting
- Contract must be beneficial to the company
Which of the following steps apply to a top down level approach (TDRA)?
- Identification of important financial reporting elements
- Identification of material risks related to important financial reporting elements
- Identification of entity level controls that would mitigate the risks with adequate precision
- Identification of financial statement level controls that would mitigate the risks in absence of precise ELC’s
-4 is the only one that does not apply. TDRA identifies ELC’s, as well as transaction level controls that would mitigate risks. It does not identify financial statement level controls.. that would be TOO broad.
What is one area that the 2017 update to COSO’s ERM (originally issued in 2004) did not address?
Ensuring compliance with laws, rules, regulations. This was already built into the ERM in 2004, and 2017 did not update it (just enhanced other areas)
