Chapter 1 Flashcards
Form 10-K
A Form 10-K is an annual report required by the U.S. Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company’s financial performance. Although similarly named, the annual report on Form 10-K is distinct from the often glossy “annual report to shareholders,” which a company must send to its shareholders when it holds an annual meeting to elect directors (though some companies combine the annual report and the 10-K into one document). The 10-K includes information such as company history, organizational structure, executive compensation, equity, subsidiaries, and audited financial statements, among other information.
According to the 17 COSO control principles, change management primarily relates to which fundamental component of internal control: A. Control activities. B. Control environment. C. Risk assessment. D. Monitoring.
C. Risk assessment.
According to the COSO principles, risk assessment primarily relates to organizational objectives, risk assessment, fraud, and change management.
This fundamental component of internal control is the core or foundation of any system of internal control.
A. Control activities.
B. Control environment.
C. Information and communication.
D. Risk assessment.
B. Control environment.
The control environment is, “…the core or foundation of any system of internal control.”
This component of internal control concerns testing the system and its data. A. Control activities. B. Control environment C. Monitoring. D. Risk assessment.
C. Monitoring.
Monitoring ensures the ongoing reliability of information by monitoring and testing the system and its data.
According to the 17 COSO control principles, risk reduction primarily relates to which fundamental component of internal control:
A.Control activities.
B.Control environment.
C.Risk assessment.
D.Monitoring.
A.Control activities.
According to the COSO principles, control activities primarily relate to risk reduction, technology controls, and policies.
Strategic, operations, reporting, and compliance objectives are a part of which of the following models of internal control? A. COBIT. B. COSO. C. COSO ERM. D. All of the above.
C. COSO ERM.
This answer is correct because strategic, operations, reporting, and compliance objectives are part of this model.
Which component of the COSO ERM framework is concerned with management's decision to avoid, accept, reduce, or share risk and to develop a set of actions to align risk with the entity's risk preferences? A. Control activities. B. Event identification. C. Risk assessment. D. Risk response.
D. Risk response.
Risk response does include management’s decision to avoid, accept, reduce, or share risk and to develop a set of actions to align risk with the entity’s risk preferences.
Within the COSO Internal Control—Integrated Framework, which of the following components is designed to ensure that internal controls continue to operate effectively? A. Control environment. B. Risk assessment. C. Information and communication. D. Monitoring.
D. Monitoring.
Monitoring is the core, underlying control component in the COSO ERM model. Its position at the foundation is not accidental and reflects the importance of monitoring to achieving strong internal control and effective risk management. Ensuring that internal controls continue to operate effectively is the primary purpose of monitoring.
Which of the following is not a major step in the COSO model of control monitoring?
A. Establish a foundation for monitoring.
B. Establish a baseline of an internal control known to be effective.
C. Design and execute monitoring procedures.
D. Assess and report control evaluation results.
B. Establish a baseline of an internal control known to be effective.
Establishing a baseline of known control effectiveness is part of the process of establishing a foundation for monitoring. Hence, it is a sub-activity, rather than a major step, in the COSO model of control monitoring.
According to COSO, the use of ongoing and separate evaluations to identify and address changes in internal control effectiveness can best be accomplished in which of the following stages of the monitoring-for-change continuum?
A. Control baseline.
B. Change identification.
C. Change management.
D. Control revalidation/update.
B. Change identification.
Change Identification is the monitoring for change process that would include ongoing and separate evaluations intended to identify and address changes in internal control effectiveness.
Which of the following is not a major step in the COSO model of control monitoring?
A. Establish a foundation for monitoring.
B. Establish a baseline of an internal control known to be effective.
C. Design and execute monitoring procedures.
D. Assess and report control evaluation results.
B. Establish a baseline of an internal control known to be effective.
Establishing a baseline of known control effectiveness is part of the process of establishing a foundation for monitoring. Hence, it is a sub-activity, rather than a major step, in the COSO model of control monitoring.
What term identifies the guidance in the International Standards for the Professional Practice of Internal Auditing that distinguishes between requirements for “assurance” services and “consulting” services?
A. Implementation standards.
B. Attribute Standards.
C. Performance Standards.
D. Interpretations of the International Standards.
A. Implementation standards.
Implementation Standards differentiate the requirements applicable to “assurance” activities from those applicable to “consulting” activities within the Attribute and Performance Standards.
The Performance Standards focus on seven primary themes around which the remaining Performance Standards are organized. Each of the following key words or phrases is associated with these seven primary themes except
A. Purpose, authority, and responsibility.
B. Managing the internal audit activity.
C. Nature of Work.
D. Engagement Planning.
A. Purpose, authority, and responsibility.
“Purpose, Authority, and Responsibility” is associated with the Attribute Standards, specifically Standard 1000.
What term is used in the IIA's International Standards to identify the person responsible for managing an organization's internal audit activity? A. Director of internal auditing. B. Vice President, Internal Auditing. C. Certified Internal Auditor. D. Chief Audit Executive.
D. Chief Audit Executive.
Attribute Standard 1000 makes the first of numerous references in the Attribute Standards to the “chief audit executive.”
The IIA's Definition of Internal Auditing specifically mentions each of the following terms among the organizational objectives to be improved by internal auditing except A. cost of capital. B. risk management. C. control. D. governance.
A. cost of capital.
The Definition of Internal Auditing includes the following sentence: “It (Internal Auditing) helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” There is no reference to “cost of capital,” which is normally associated with financial reporting and external auditing.
