Internal Control

Topics: Internal control, Auditing, Audit Pages: 22 (5007 words) Published: March 2, 2013
Chapter 5: Internal Control over Financial Reporting
1. Internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting, compliance with laws and regulations and ineffective and inefficient operations. FALSE

2. Auditing standards require that the auditor exercise professional judgment and maintain professional skepticism throughout the planning and performance of the audit. TRUE

3. If internal controls are not enforced they are useless and can lead to waste and fraud. TRUE

4. If an organization is too lenient in its treatment of employees who committed fraud, the control environment will be seen as stronger than if the treatment were harsher. FALSE

5. Weakness in the tone at the top have been associated with most financial frauds during the past decade. TRUE

6. Virtually all major financial frauds from the past decade were associated with organizations that had weaknesses in the control environment TRUE

7. Internal control is a process designed to provide reasonable assurance regarding the achievement of the objectives of reliable financial reporting, compliance with laws and regulations and effective and efficient operations, and safeguarding of the assets. TRUE

8. The quality of an organization's internal control will affect both the audit approach and the amount of testing needed for an engagement. TRUE

9. Control activities are the policies and procedures that are established to assist in accomplishing objectives and to mitigate risks. TRUE

10. Computer controls that are pervasive and affect every computerized system are referred as application controls. FALSE

11. Control is considered to be part of corporate governance. TRUE

12. Good control means that risks are identified and dealt with effectively. TRUE

13. Investors do not place much value on the internal control of the companies in which they invest. FALSE

14. The PCAOB, in Auditing Standard No. 5, indicates that auditors should use a “bottom-up approach” that begins at the financial statement level. FALSE

15. Internal control is applied across all activities of the organization. TRUE

16. The more effective the quality of internal control, the lower the control risk. TRUE

17. The five major components of an organization's internal control are: the control environment, risk assessment, control activities, information and communication, and materiality. FALSE

18. A company's internal auditing practices should not be considered when assessing control risk. FALSE

19. An organization's control environment is established and maintained by the internal auditing department. FALSE

20. Authorization Procedures include that all senior members of the accounting department have the authority to record any transaction. FALSE

21. Physical controls are necessary to protect and safeguard assets from accidental or intentional destruction and theft. TRUE

22. Monitoring of the internal controls involves assessment by appropriate personnel of the design and operation of controls on a timely basis and taking necessary actions. TRUE

23. An auditor is not required to obtain evidence about the design and operation of the internal controls to reduce the assessment of control risk below maximum. FALSE

24. Segregation of duties refers to the duties of authorizing a transaction, recording the transaction, and taking physical custody of assets related to the transaction. TRUE

25. In addition to controls being specific, they may be broad, such as policies regarding a code of ethics. TRUE

26. Physical controls to safeguard assets are not intended to include simple controls such as fences and locks. FALSE

27. Self-checking digit algorithms have been developed to test for transposition errors associated with identification numbers. TRUE

28. When control risk is assessed at a maximum level, the auditor assumes...
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