Understanding Internal Control

Question 1

A process–effected by an entity’s BOD, management, and other personnel–designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

• reliability of financial reporting
• effectiveness and efficiency of operations
• compliance with applicable laws and regulations

Answer 1

Internal control

Question 2

Internal control component that sets the tone of an organization, influencing the control consciousness of its people

Answer 2

Control environment

Question 3

Internal control component whose purpose is its idenfication, analysis, and management of risks relevant to the prepartion of financial statements following GAAP

Answer 3

Risk environment

Question 4

Internal control component composed of the various policies and procedures that help ensure that necessary actiosn are taken to address risks to achieving the entity’s objectives

Answer 4

Control activities

Question 5

Reviews of actual performance against budgets, forecasts, one another, etc.

Answer 5

Performance reviews

Question 6

Controls that check accuracy, completeness, and authorization of transactions

Answer 6

Information processing

Question 7

A law passed by Congress in 1977 with provisions requiring every corp registered under Securites act of 1934 to maintain a system of strong internal accounting control, maintain accurate books and records, and make it illegal for individuals or business entities to make payments to froeign officials to secure business

Answer 7

Foreign Corrupt Practices Act

Question 8

Section of SOX that makes officers responsible for maintainin effective internal control and to disclose all significatn internal control deficiencies tohte company’s auditors/audit committee

Answer 8

Section 302

Question 9

Section of SOX that requires that management acknowledge its responsibility for establishing adequate internal control over financial reporting and provide an assessment in the annual report

Answer 9

Section 404

Question 10

Section of SOX that requires that management certify reports filed with the SECthat the reports comply with relevant securities laws and fairly present the fianical condition of the company

Answer 10

Section 906

Question 11

Graphic methods of of describing the logic of decisions–various combinations of conditions are matched to one of several actions

Answer 11

Decision tables

Question 12

Standard for guidance on integrated audits for public companies

Answer 12

PCAOB Standard 5

Question 13

Standard for guidance on integrated aduits for non-public companies–not required, unless specifically reqeuired to

Answer 13

SSAE 15

Question 14

A specific target against which to evaluate the effectivenss of controls–generally relates to arelevant assertion and states a criterion for evaluating whether the company’s procedures provide reasonable assurance

Answer 14

Control objective

Question 15

A financial statement assertion that has areasonable possibility of containing misstatemetns that could cause the financial statements to be materially misstated

Answer 15

Relevant assertion

Question 16

An accounting method that involves altering the accounts receivable section of the balance sheet when cash that is intended for the payment of a receivable is stolen.

Answer 16

Lapping

Question 17

A form of business insurance that offers an employer protection against losses - either monetary or physical - caused by its employees’ fraudulent or dishonest actions

Answer 17

Fidelity bonds

Question 18

An internal document sent by the department in need of hte supplies to the purchasing department

Answer 18

Purchase requisition

Question 19

An individual whose primary responsibility is to veify that stock is issued in accordance with the authorization of hte BOD andthe articles of incorporation

Answer 19

Stock registrar

Question 20

An individual whose primary responsibiilty is maintinng detailed stockholder recods and carrying out transfers of stock ownership

Answer 20

Stock transfer agent

Question 21

A reporton processing of transactions by service organizations that probides reasonable assurance as of a specific date that managemen’ts description is fairly presented and the controls are suitably designed–does not assure that tehy operate effectively

Answer 21

Type 1 report

Question 22

A report on processing of transactions by service organizations that provide reasonable assurance for a specified time period that management’s description is fairly presented and that hte controls are suitable designed AND operate effectively

Answer 22

Type 2 report