Ateneo de Davao University

School of Business and Governance

ACAUD 2348
Formative Assessment 3
Professor: Dan Michael M. Dela Serna CPA, MBA, REB, REA
Name:
Score:
Section and Class Schedule:

I- TRUE OR FALSE –Write TRUE if the statement is correct and FALSE if it is wrong on the space provided
for.
22
1. TRUE 11. FALSE 21. FALSE
2. FALSE 12. TRUE 22. TRUE
3. TRUE 13. TRUE 23. TRUE
4. TRUE 14. FALSE 24. TRUE
5. TRUE 15. FALSE 25. FALSE
6. TRUE 16. TRUE 26. TRUE
7. TRUE 17. FALSE 27. TRUE
8. FALSE 18. TRUE 28. FALSE
9. FALSE 19. TRUE 29. TRUE
10. FALSE 20. FALSE 30. FALSE

1. Control is the employment of all the means devised in an enterprise to promote, direct, restrain, govern,
and check upon its various activities for the purpose of seeing that enterprise objectives are met.

2. Control is any action taken by the management to enhance the likelihood that established objectives and
goals will not be achieved.

3. A control may be preventive to deter undesirable events from occurring.

4. COSO is a voluntary organization dedicated to improving the quality of financial reporting through business
ethics, effective internal controls, and corporate governance.

5. Internal control is not limited to accounting controls and is not narrowly restricted to financial reporting.

6. The choices of control points and standards will affect behavior.

7. Some control situations require little evaluation and lead to immediate corrective action.

8. Internal and external auditors provide varying degrees of assurance about the state of effectiveness of the
risk management and control processes in selected activities and functions of the organization.

9. Internal control, no matter how well designed and operated can provide absolute assurance that control
objectives are met due to its inherent limitations.

10. Absolute assurance is a level of assurance that is supported by generally accepted audit procedures and
judgments.

11. Control may not fail if the errors and mistakes are just simple.

12. When controls are absent or are too costly relative to their benefits, mitigating or compensating controls
should be in place.

13. Operation objectives relate to the reliability of an entity’s operations.

14. The most recognized internal control framework is the Turnbull Framework.

15. There is a great and substantial difference between COSO and CoCo.

16. Management must base its evaluation or opinion of the effectiveness of the company’s internal control
system over financial reporting on a suitable, recognized control framework that is established by a body or
group that has followed due process procedures, including the broad distribution of framework for public
comment.

17. Each manager assesses control in his/her area.

18. Internal auditors must relate operational arrangements to operational deficiencies.

19. Reportable conditions are those significant operational deficiencies in the internal control system.

20. The temporary existence of reportable conditions does not necessarily lead to a judgment that is pervasive
and poses an unacceptable residual risk.

21. It is important to indicate in the communication the only weaknesses which have come to the auditor’s
attention as a result of the audit have been reported and that the examination has not been designed to
determine the adequacy of internal control for management purposes.

22. Control environment is the foundation of all other components of internal control providing discipline and
structure.

23. Risk management is the identification and analysis of relevant risks to achievement of objectives, forming
a basis for determining how risks should be managed.

24. Risk response is an element of risk assessment.

25. A policy is promulgated to effect the procedures.

26. An information system may perform a routine monitoring function or be used for special tasks.

27. Monitoring involves separate evaluations or periodic monitoring.

28. Preventive control is a type of control as to nature.

29. Detective controls may also be thought of as monitoring controls in the sense that they operate above or
outside of routine processes or activities and their preventive control.

30. Administrative control is applicable to support activities like production.

II- MULTIPLE CHOICE QUESTION – Write your answers in capital letters on the table provided below.

15
1. B 11. A
2. D 12. B
3. B 13. C
4. B 14. A
5. D 15. D
6. B 16. D
7. A 17. C
8. B 18. A
9. D 19. B
10. B 20. B

1. A reason to establish internal control is to:

a. Have a basis for planning the audit

b. provide reasonable assurance that the objectives of the organization are achieved
c. encourage compliance with organizational objectives
d. ensure the accuracy, reliability and timeliness of information

2. Which of the following appropriately describes internal audit activity’s role in assisting the organization in
maintaining effective controls?
a. evaluating reliability and integrity of financial and operational information
b. evaluating safeguards over assets
c. evaluating compliance with laws, regulations, and contracts
d. all of these

3. An effective internal control structure

a. reduces the need for management to review exception reports on a day- to- day basis
b. eliminates risk and potential loss to the organization
c. cannot be circumvented by management
d. is unaffected by changing circumstances and conditions

4. Internal 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 interval

5. Directors, management, external auditors, and internal auditors all play important roles in creating proper
processes. Senior management is primarily responsible for:

a. establishing and maintaining an organizational culture

b. reviewing the reliability and integrity of financial and operational information
c. ensuring that external and internal auditors oversee the administration of the system of risk management
and control processes
d. implementing and monitoring controls designed by the board of directors

6. Which of the following is not an important aspect of good internal control?

a. separation of authorization, recording, and custody functions

b. rotation of controls
c. a system of approvals and authorizations
d. a system of comparisons and reconciliations

7. Which of the following conditions supports strong internal control?

a. strict monitoring by the BIR

b. the existence of related parties and related party transactions
c. pressure by the financial community to improve earnings performance
d. an economic downturn

8. When considering internal control, an auditor should be aware of the concept of reasonable assurance,
which recognizes that the

a. segregation of incompatible functions is necessary to ascertain that internal control is effective

b. employment of competent personnel provides assurance that the objectives of internal control will be
achieved
c. establishment an maintenance of an ICS is an important responsibility of the management and not of the
auditor
d. cost of internal control should not exceed the benefits expected to be derived from internal auditor

9. An internal control structure can never be regarded as completely effective. Even if systems personnel could
design an ideal system, its effectiveness depends on the

a. adequacy of computer system

b. proper implementation by management
c. ability of the internal audit staff to maintain it
d. competency and dependability of the people using it

10. Which of the following is least likely considered an inherent limitation of the potential effectiveness of an
entity’s internal control?
a. incompatible duties
b. management override
c. mistakes in judgment
d. collusion among employees

11. Which of the following computer documentation would an auditor most likely utilize in obtaining an
understanding of internal control?

a. System flowchart
b. Record counts
c. Program listing
d. Record layouts

12. For certain controls, such as segregation of duties, documentary evidence may not exist. An auditor would
most likely test the procedures by

a. Reperformance and corroboration

b. Observation and inquiry
c. Inspection and vouching
d. Confirmation and recomputation

13. Which of the following is not a typical question asked during a walk-through?

a. Have you ever been asked to override the process or controls?

b. What do you do when you find an error?
c. What is the largest fraudulent transaction you ever processed?
d. What kind of errors have you found?

14. You are performing an audit of an accounts payable process. You notice that one person requests, issues
and signs checks. This is an example of:

a. Poor supervision.
b. Incompatible duties.
c. Excellent delegation.
d. A future profit center for auditing.

15. Operating control over the check signature plate normally should be the responsibility of the

a. Secretary
b. Chief accountant
c. Vice-president of Finance
d. Treasurer

16. Who of the following is the one responsible for the authorization of write-off of accounts receivable?

a. Credit manager
b. Controller
c. Accounts payable clerk
d. Treasurer

17. To minimize the opportunities for fraud, unclaimed cash payroll should be

a. Deposited in a safe deposit box

b. Held by the payroll custodian
c. Deposited in a special bank account
d. Held by the controller

18. the requirement that purchases be made from suppliers on an approved vendor list is an example of a

a. Preventive control
b. Detective control.
c. Corrective control.
d. Monitoring control.
19. The cross-referencing of individual payroll time cards to personnel department records and reports allows
an auditor to conclude that

a. Individuals were paid only for time worked.

b. Individuals are bona fide employees.
c. Individuals were paid at the proper rate.
d. Personnel department records agree with payroll accounting records.

20. The BOD can best execute its governance responsibilities by, except

a. Establishing a government committee

b. Articulating requirements for reporting to the board
c. identifying the processes and activities within the organization that are integral to executing the governance
direction
d. Re-evaluating governance expectations on a periodic basis