MULTIPLE CHOICE QUESTIONS 1 The quality of an organization s internal controls
1. The quality of an organization's internal controls affects which of the following?
a. Reliability of financial data.
b. Ability of management to make good decisions.
c. Ability of the organization to remain in business.
d. Approach used by the auditor in auditing the financial statements.
e. All of the above.
2. Which of the following creates an opportunity for committing fraudulent financial reporting in an organization?
a. Management demands financial success.
b. Poor internal control.
c. Commitments tied to debt covenants.
d. Management is aggressive in its application of accounting rules.
3. What are the components of internal control per COSO's updated Internal Control-Integrated Framework?
a. Organizational structure, management philosophy, planning, risk assessment, and control activities.
b. Control environment, risk assessment, control activities, information and communication, and monitoring.
c. Risk assessment, control structure, backup facilities, responsibility accounting, and natural laws.
d. Legal environment of the firm, management philosophy, organizational structure, control activities, and control assessment.
4. Which of the following statements regarding internal control is false?
a. Internal control is a process consisting of ongoing tasks and activities.
b. Internal control is primarily about policy manuals, forms, and procedures.
c. Internal control is geared toward the achievement of multiple objectives.
d. A limitation of internal control is faulty human judgment.
e. All of the above statements are true.
5. Which of the following would not be considered a principle of an organization's control environment?
a. Independence and competence of the board.
b. Competence of accounting personnel.
c. Structures, reporting lines, and authorities and responsibilities.
d. Commitment to integrity and ethical values.
e. They would all be considered principles of the control environment.
6. Which one of the following components of internal control over financial reporting sets the tone for the organization?
a. Control risk assessment.
b. Control environment.
c. Information and communication.
d. Monitoring.
7. Which of the following statements is false regarding the risk assessment component of internal control?
a. Risk assessment includes assessing fraud risk.
b. Risk assessment includes assessing internal and external sources of risk.
c. Risk assessment includes the identification and analysis of significant changes.
d. Economic changes would not be considered a risk that needed to be analyzed as part of the risk assessment process.
8. Which of the following is not part of management's fraud risk assessment process?
a. The assessment considers ways the fraud could occur.
b. The assessment considers the role of the external auditor in preventing fraud.
c. Fraud risk assessments serve as an important basis for determining the control activities needed to mitigate fraud risks.
d. The assessment considers pressures that might lead to fraud in the financial statements.

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