1. Internal accounting controls are not designed to provide reasonable assurance that
a. Transactions are executed in accordance with management’s authorization.
b. Irregularities will be eliminated.
c. Access to assets is permitted only in accordance with management’s authorization.
d. The recorded accountability for assets is compared with the existing assets at reasonable intervals.
2. Internal control is a function of management, and effective control is based on the concept of charge and discharge of responsibility and duty. Which of the following is one of the overriding principles of internal control?
a. Responsibility for accounting and financial duties should be assigned to one responsible officer.
b. Responsibility for the performance of each duty must be fixed.
c. Responsibility for the accounting duties must be borne by the audit committee of the company.
d. Responsibility for accounting activities and duties must be assigned only to employees who are bonded.
3. Effective internal control requires organizational independence of departments. Organizational independence would be impaired in which of the following situations?
a. The internal auditors report to the audit committee of the Board of Directors.
b. The controller reports to the vice- president of production.
c. The payroll accounting department reports to the chief accountant.
d. The cashier reports to the treasurer.
4. Transaction authorization within an organization may be either specific or general. An example of specific transaction authorization is the
a. Setting of automatic reorder points for material or merchandise.
b. Approval of a detailed construction budget for a warehouse.
c. Establishment of requirements to be met in determining a customer’s credit limits.
d. Establishment of sales prices for products to be sold to any customer.
5. A system of internal accounting control normally would include procedures that are designed to provide reasonable assurance that
a. Employees act with integrity when performing their assigned tasks.
b. Transactions are executed in accordance with management’s general or specific authorization. c. Decision processes leading to management’s authorization of transactions are sound.
d. collusive activities would be detected by segregation of employee duties.
6. When considering internal control, an auditor must be aware of the concept of reasonable assurance that recognizes that
a. The employment of competent personnel provides assurance that the objectives of internal control will be achieved.
b. The establishment and maintenance of a system of internal control is an important responsibility of management, not of the auditor
c. The cost of internal control should not exceed the benefits expected to be derived from internal control
d. The segregation of incompatible functions is necessary to obtain assurance that the internal control is effective.
7. Which of the following elements of an entity’s internal control structure includes the development of personnel manuals documenting employee promotion and training policies?
a. Control procedures.
b. Control environment.
c. Information and communication.
d. Quality control system
8. Which of the following statements about internal control structure is correct?
a. A properly maintained internal control process reason-ably ensures that collusion among employees cannot occur.
b. The establishment and maintenance of the internal control structure is an important responsibility of the internal auditor.
c. An exceptionally strong internal control structure is enough for the auditor to eliminate substantive tests on a significant account balance.
d. The cost– benefit relationship is a primary criterion that should be considered in designing an internal control structure
9. Which of the following is not an element of an entity’s internal control process?
a. Control risk.
b. Control activities
c. Information and communication
d. The control environment.