Multiple-Choice Questions

1. What is the primary role of internal controls in managing a business?

a. To ensure that no cash is stolen.

b. To ensure that the financial statements are presented in such a manner as to provide relevant and reliable information for financial statement users and the company’s creditors.

c. To encourage theft and to ensure that segregation of duties does not take place.

d. To constrain subordinates’ activities in order to ensure that employees do not deviate from the scope of their responsibilities and that they act in the best interest of the business.

2. Which of the following is not one of the three areas for which internal control systems are intended to provide reasonable assurance?

a. Effectiveness and efficiency of operations

b. Certification that the financial statements are without error

c. Reliability of financial reporting

d. Compliance with applicable laws and regulations

3. Which of the following is not one of the five elements of internal control?

a. Analysis of control procedures

b. Control environment

c. Risk assessment

d. Information and communication

4. Which of the following is not one of the five categories of control activities?

a. Segregation of duties

b. Clearly defined authority and responsibility

c. Defalcation and financial reporting

d. Checks on recorded amounts

5. The internal audit function is part of what element of the internal control system?

a. Control Activities

b. Risk Assessment

c. Control Environment

d. Monitoring

6. Which of the following is not generally an internal control activity?

a. Establishing clear lines of authority to carry out specific tasks

b. Physically counting inventory in a perpetual inventory system

c. Reducing the cost of hiring seasonal employees

d. Limiting access to computerized accounting records

7. Allowing only certain employees to order goods and services for the company is an example of what internal control procedure?

a. Segregation of duties

b. Safeguarding of assets and records

c. Independent verifications

d. Proper authorizations

8. Deposits made by a company but not yet reflected in a bank statement are called

a. Deposits in transit

b. Credit memoranda

c. Debit memoranda

d. None of the above

9. Which one of the following would not appear on a bank statement for a checking account?

a. Service charges

b. Interest earned

c. Outstanding checks

d. Deposits