M1 Internal Control Frameworks

Question 1

MCQ-06751
The Treadway Commission was established to study factors that lead to fraudulent financial reporting. The Treadway Commission was established by:

Answer 1

Private sponsoring organizations.

Question 2

MCQ-06752
The Committee on Sponsoring Organizations prepared the Internal Control Integrated Framework:

Answer 2

To help businesses assess internal control.

Question 3

MCQ-07141
In a large public corporation, evaluating internal control procedures should be the responsibility of:

Answer 3

Internal audit staff who report to the board of directors.

Question 4

MCQ-06492
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?

Answer 4

Organizational STRUCTURE.

Question 5

MCQ-08542
According to COSO, the proper tone at the top helps a company to do each of the following, EXCEPT:

Answer 5

Adhere to fiscal budgets and goals as outlined by the internal audit committee and board of directors.

Question 6

MCQ-06758
Kamp Sporting Goods seeks to establish a code of conduct that will communicate the “tone at the top” to all employees. The contents of the code will likely include all of the following, except:

Answer 6

Definitions of common sense approaches to software piracy to ensure that the
company is competitive

Question 7

MCQ-07015
Which of the following positions best describes the nature of the Board of Directors of XYZ Co.’s RELATIONSHIP to the company?

Answer 7

Fiduciary.

Question 8

MCQ-06767
As a matter of policy, all correspondence to or from regulatory auditors received by the management of the Barclay Corporation is provided to the Barclay Corporation audit committee and the corporation’s full board as needed. In assessing entity wide controls, management might conclude:

Answer 8

The Board of Directors understands and exercises oversight responsibility related to financial reporting and related internal control.

Question 9

MCQ-07141
In a large public corporation, evaluating internal control procedures should be the responsibility of:

Answer 9

Internal audit staff who report to the board of directors

In a large public corporation, evaluating internal control
procedures should be the responsibility of an organizationally independent internal
audit function that reports to the governing body of the corporation.

Question 10

MCQ-06483
A company that retains a CPA with the appropriate KNOWLEDGE, skills, and abilities to
prepare timely and effective financial reporting is applying the ideas from which principle of
effective internal control over financial reporting

Answer 10

Commitment to COMPETENCE

The commitment to competence principle of the control
environment component of the Internal Control—Integrated Framework suggests
stronger controls and encourages the company to retain qualified personnel to handle
financial reporting.

Question 11

MCQ-06748
The EXTERNAL auditors for the Horace Company assess the achievement of internal control
objectives each year and communicate the assessment to management and the board.
Communication by the external auditor illustrates which principle of the information and
communication component of the Committee of Sponsoring Organizations’ Integrated
Framework?

Answer 11

EXTERNAL Communication

The principle of external communications asserts that matters
affecting the achievement of financial reporting should be communicated with outside
parties.

Question 12

MCQ-06751
The Treadway Commission was established to study factors that lead to fraudulent financial
reporting. The Treadway Commission was established by:

Answer 12

Private sponsoring organizations

Question 13

MCQ-06752
The Committee on Sponsoring Organizations prepared the Internal Control Integrated
Framework:

Answer 13

To help businesses assess internal control.

Question 14

MCQ-06492
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?

Answer 14

Organizational structure.

Question 15

MCQ-08542
According to COSO, the proper tone at the top helps a company to do each of the following,
except:

Answer 15

Adhere to fiscal budgets and goals as outlined by the internal audit committee
and board of directors.

Question 16

MCQ-06758
Kamp Sporting Goods seeks to establish a code of conduct that will communicate the “tone
at the top” to all employees. The contents of the code will likely include all of the following,
except:

Answer 16

Definitions of common sense approaches to software piracy to ensure that the
company is competitive.

Question 17

MCQ-07015
Which of the following positions best describes the nature of the Board of Directors of XYZ
Co.’s relationship to the company?

Answer 17

Fiduciary

Question 18

MCQ-06767
As a matter of policy, all correspondence to or from regulatory auditors received by the
management of the Barclay Corporation is provided to the Barclay Corporation audit
committee and the corporation’s full board as needed. In assessing entity wide controls,
management might conclude:

Answer 18

The BOARD of Directors understands and exercises OVERSIGHT RESPONSIBILITY
related to financial reporting and related internal control.

Question 19

MCQ-06768
Auburndale Corporation has a corporate compliance program that allows employees the
option of anonymously reporting violations of laws, rules, regulations, policies or other
issues of abuse through a hotline. Reported issues are reviewed by the internal auditor and
either immediately forwarded to the CEO or summarized and reported to the CEO each
month. The program also provides opportunities to report through supervisory channels and
includes a biannual training class that all employees must complete. The corporate
compliance program demonstrates that:

Answer 19

Sound INTEGRITY AND ETHICAL values are developed and understood and set the
standard of conduct for financial reporting.

Question 20

MCQ-06769
The Carlton Corporation publishes an Employee Handbook that contains employee
responsibilities for moral behavior including a code of conduct. Each year, employees must
acknowledge their receipt of the handbook, their understanding of the code, and if they
have any awareness of non-compliance within the company. The policies would indicate:

Answer 20

Sound integrity and ethical values are developed and understood and set the
standard of conduct for financial reporting.

Question 21

MCQ-11146
An issuer’s board of directors would ordinarily participate in each of the following activities,
EXCEPT:

Answer 21

Supervising and monitoring the quality-control testing upon the installation of a
new INFORMATION TECHNOLOGY system.

Question 22

MCQ-14815
A company has established and communicated baseline EXPECTATIONS for performance to all
employees. The company’s action demonstrates a focus on which of the following
components of the COSO Internal Control framework?

Answer 22

Control ENVIRONMENT

The control environment component of the Internal Controlframework represents the processes, structures, and standards that provide the
foundation for the establishment of an entity’s internal control system. Baseline
expectations for employee performance are included in the accountability principle
within the control environment.

Question 23

MCQ-05158
According to the COSO, a primary purpose of monitoring internal control is to verify that the
internal control system remains adequate to address changes in:

Answer 23

Risks

Question 23

MCQ-04329
According to COSO, which of the following is included in the assess-and-report phase of an
effective approach to monitoring internal controls?

Answer 23

Prioritize FINDINGS

Findings occur as a result of monitoring internal controls. Once
those findings occur, they must be prioritized in order to help management and the
organization address the most critical issues associated with their internal controls.

Question 24

MCQ-04391
According to the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission, which of the following components of the internal control integrated framework
addresses an entity’s financial reporting objectives?

Answer 24

Risk assessment.

Question 25

MCQ-09002
According to COSO, what is the FIRST ongoing monitoring step in evaluating the effectiveness
of an internal control system?

Answer 25

Establishing a control BASEline.

Question 26

MCQ-08762
An internal audit manager requested information detailing the amount and type of training
that the IT department’s staff received during the last year. According to COSO, the training
records would provide documentation for which of the following principles?

Answer 26

Demonstrating a commitment to retain COMPETENT individuals in alignment with
objectives.

Question 27

MCQ-06747
The Gotham Corporation regularly produces budget vs. actual data for its managers. The
company is particularly sensitive to personnel costs, and division variances of greater than
five percent for any period are promptly investigated to determine if budgeted positions
have not been filled or if there has been extraordinary overtime. Timely exception resolution
of this character illustrates the INFORMATION and communication principles typically
associated with:

Answer 27

Obtain and Use INFORMATION.

Question 28

MCQ-08543
According to COSO, each of the following is an example of an appropriate ongoing
monitoring activity, except:

Answer 28

APPROVAL of high-dollar transactions by supervisors.

Question 29

MCQ-08292
Within the COSO Internal Control—Integrated Framework, which of the following
components is designed to ensure that internal controls continue to operate effectively?

Answer 29

Monitoring.

Question 30

MCQ-08293
According to COSO, an effective approach to MONITORING internal control involves each of
the following steps, except:

Answer 30

Increasing the reliability of financial reporting and compliance with applicable
laws and regulations.

Question 31

MCQ-06772
All of the following management activities of the Falco Insurance Group, Inc. are evidence
of the ongoing monitoring of controls built into the company’s system, except:

Answer 31

The CFO UPDATES THE AUDIT COMMITTEE on status of internal control.

Question 32

MCQ-15780
According to COSO, management should be concerned with the effectiveness of the
monitoring processes of an entity regarding internal controls over financial statement
preparation for each of the following reasons, except:

Answer 32

Effective monitoring ASSIST those charged with governance to ENSURE THAT THE ENTITY meets its operating and financial expectation

Question 33

MCQ-14800
The fraud triangle includes each of the following, except:

Answer 33

Collusion

Question 34

MCQ-09001
Due to 50 percent store growth year after year, monitoring controls at a national retail chain
has come under tremendous pressure. According to COSO, which of the following
responses would be appropriate under the circumstances to help restore effective
monitoring?

Answer 34

Shifting most of the monitoring responsibility to store managers and district
managers.

Question 35

MCQ-14801
According to COSO, which of the following issues should lead to the greatest concern
regarding the effectiveness of an entity’s internal control?

Answer 35

Errors from control failures that were not detected timely by the routine
monitoring procedures.

Question 36

MCQ-07087
Management of a company has a lack of segregation of duties within the application
environment, with programmers having access to development and production. The
programmers have the ability to implement application code changes into production
without monitoring or a quality assurance function. This is considered a deficiency in which
of the following areas?

Answer 36

Change control.

Question 37

MCQ-12442
Which of the following is a VIOLATION of segregation of duties in internal control?

Answer 37

An employee enters AND approves purchase orders.

Question 38

MCQ-08906
According to COSO, which of the following activities provides an example of a top-level
review as a control activity?

Answer 38

A comprehensive marketing plan is implemented, and management reviews
actual performance to determine the extent to which benchmarks were achieved.

Question 39

MCQ-08925
Which of the following sets of duties would not be performed by a single individual in a
company with the most effective segregation of duties in place?

Answer 39

Approving sales returns on customers’ accounts and depositing customers’
checks in the bank.

Question 40

MCQ-12440
According to COSO, establishing, maintaining, and monitoring an effective internal control
system can do each of the following, except:

Answer 40

Ensure an entity’s financial survival

Question 41

MCQ-08748
In a small public company that has few levels of management with wide spans of control,
each of the following mitigates management override of controls, except:

Answer 41

Having TWO OFFICERS who significantly influence management and operations.

Question 42

MCQ-08523
According to COSO, an executive’s deliberate misrepresentation to a banker who is
considering whether to make a loan to an enterprise is an example of which of the following
internal control limitations?

Answer 42

Management override

Question 43

MCQ-08524
Controls are likely to fail for any of the following reasons, except:

Answer 43

They are designed and implemented properly, and their DESIGN CHANGES AS PROCESSES CHANGE

Question 44

MCQ-15777
An entity’s recording and reporting processes are highly automated, and the information
system produces much of the information used for monitoring controls. Which of the
following statements is correct regarding the entity’s monitoring of controls?

Answer 44

Any errors in the information provided by the system could lead management to
incorrect conclusions regarding controls.

Question 45

MCQ-12445
A company’s purchasing department creates purchase orders based on electronic requests
sent by operations. These requests are approved by operations, and no further approvals
are required to place a purchase order. Purchasing clerks key the order information,
including vendor names and prices, into the purchasing system based on the electronic
requests. Which of the following is the best control to ensure that orders are entered
accurately?

Answer 45

The purchasing system compares vendor information and prices entered by the
clerks to master vendor and pricing data and rejects variances.

Question 46

MCQ-12454
An employee obtains a blank check, makes it payable to a fictitious company, and then
cashes it. Each of the following control procedures should prevent this threat to the
expenditure cycle, except:

Answer 46

Bank reconciliations.