QUIZ # 3

NAME:
YEAR AND BLOCK:

Internal control has four basic purposes: safeguarding assets, ensuring financial statement reliability, promoting operational
efficiency, and encouraging compliance with management's directives.
Consider each of the internal control procedures described below.For each procedure, indicate which purpose(s) of internal control it
is designed to address.
A. Conducting surprise cash accounts
B. Creating a policy manual.
C. Creating separate departments for purchasing inventory and receiving inventory.
D. Deleting an employee's computer account when the employee retires or is fired.
E. Employing internal auditors.
F. Installing virus cleaning software on all computers
G. Locking filing cabinets with sensitive documents.
H. Performing background checks on employees
I. Reconciling the bank statement monthly
J. Requiring all management employees to take annual vacations.

Indicate whether each of the following statement is (i) always true, (ii) sometimes true, or (iii) never true.
A. Audits are less time consuming and less expensive in organizations with strong internal control systems.
B. Document matching concepts can be applied to purchases of and payments for office supplies.
C. In companies with strong internal control, only one person has the authority to sign checks.
D. In the COSO Internal Control framework, control activities can be preventive, detective, or corrective.
E. Information technology eliminates the need for internal control systems.
F. Internal controls prevent fraud.
G. Liquidity risk is more important than other types of risk.
H. Preventive controls are more expensive than detective or corrective controls.
I. Properly implemented lockbox systems iliminate the need for bank reconciliations
J. Reported weaknesses in internal control will lead to reduction n stock prices.

Multiple choice
1 Which of the following legally requires management to assess a company's internal controls annually?
A. Foreign Corrupt Practices Act
B. Brown's risk taxonomy
C. COSO Internal Control framework
D. Sarbanes-Oxley Act
2 Which of the following is a type of financial risk according to Brown's taxonomy?
A. Credit risk
B. Systems risk
C. Legal and Regulatory risk
D. Business Strategy Risk
 3 In the COSO Internal Control Framework, the "tone at the top" is most closely related to:
A. Monitoring
B. Control environment
C. Control activities
D. Information and Communication
4 To develop and sustain a strong control environment, managers and others should:
A. Be committed to integrity and ethical behavior
B. Demonstrate a commitment to competence in carrying out their duties and responsibilities.
C. Maintain a consistent, appropriate management philosophy.
D. All of the above
5 All of the following are basic purposes of internal control except:
A. Eliminating Fraud
B. Ensuring reliable financial statement
C. Promoting opeating efficiency
D. Safeguarding assets
6
Which of the following best explains the relationship between "monitoring" and "information and communication" as the terms
are used in the COSO Internal Control framework.
A. Monitoring must be done by an individual, while information and communictaion must be done by a group.
B. Information and communication must be done by an individual, while monitoring must be done by a group.

C. Monitoring involves ongoing changes to an organization's internal control plan; information and communication focuses on
letting stakeholders know about current internal controls.
D. Information and Communication involves ongoing changes to an organization's internal control plan; monitoring focuses on
letting stakeholders know about current internal control.
7 Which of the following best pairs a specific risk exposure with a category from brown's taxonomy?
A. Company sanctions for violation for the Foreign Corrupt Practices Act, legal and Regulatory Risk.
B. Failure to follow proper imprest systems procedures for petty cash, systems risk
C. Failure to give employees proper credit for their accomplishments, credit risk
D. Fundamental flaws in an entity's marketing plan, market risk
8
A quarterly internal contol newsletter published by the CEO's office would most likely be related to which element(s) of the
COSO internal control framework?
A. Risk assessment, monitoring
B. Control environment, information and communication
C. Risk assessment, control environment
D. Monitoring , information and communication
9 Which of the following is most likely to benefit from a lockbox system as a form of internal control?
A. Mortgage lender
B. Convenience store
C. The IRS
D. Home Depot's corporate office
10 All of the following have a responsibility for promoting strong internal control in organization's except:
A. Independent Auditors
B. Internal auidtors
C. Executive management
D. Stockholders