The component of internal control that identifies internal and external factors that could prevent a company's objectives from being achieved is:

A) Monitoring.

B) Information and communication.

C) Risk assessment.

D) Control activities.

Answer: Risk assessment.

A framework for designing an internal control system is provided by the:

A) Committee of Sponsoring Organizations.

B) Financial Accounting Standards Board.

C) Securities and Exchange Commission.

D) International Accounting Standards Board.

Answer: Committee of Sponsoring Organizations.

The component of internal control that includes the policies and procedures that help ensure that management's directives are being carried out is:

A) Monitoring.

B) Information and communication.

C) Risk assessment.

D) Control activities.

Answer: Control activities.

The Sarbanes-Oxley Act (SOX) mandates which of the following?

A) Increased regulations related to auditor-client relations.

B) Increased regulations related to internal control.

C) Increased regulations related to corporate executive accountability.

D) All of the other answers represent mandates of the Sarbanes-Oxley Act.

Answer: All of the other answers represent mandates of the Sarbanes-Oxley Act.

Which of the following is NOT a design feature of effective internal controls?

A) Allow greater reliance by investors on reported financial statements.

B) Prevent fraudulent or errant financial reporting.

C) Ensure the company's price advantage over competitors.

D) Prevent misuse of company funds by employees.

Answer: Ensure the company's price advantage over competitors.

Which of the following best describes the goal of internal controls?

A) Ensuring the business is profitable.

B) Enhancing the health of employees.

C) Improving the accuracy and the reliability of financial information.

D) Ensuring the compliance with tax regulations.

Answer: Improving the accuracy and the reliability of financial information.

Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the following?

A) Provide nonaudit services for their clients.

B) Audit public companies whose chief executives worked for the audit firm in the preceding year.

C) Be hired by company management.

D) Maintain working papers for at least seven years following an audit.

Answer: Maintain working papers for at least seven years following an audit.

Which of the following does not represent a major provision of the Sarbanes-Oxley Act?

A) Nonaudit services.

B) Quarterly financial statements.

C) Auditor rotation.

D) Corporate executive accountability.

Answer: Quarterly financial statements.

Under the provisions of the Sarbanes-Oxley Act, corporate executives:

A) Have limited responsibility for financial statements.

B) Must personally prepare the company's financial statements.

C) Must personally certify the company's financial statements.

D) Are not allowed to view the company's financial statements.

Answer: Must personally certify the company's financial statements.

What key piece of legislation was passed in response to corporate accounting scandals by Enron, WorldCom, and others?

A) Sarbanes-Oxley Act.

B) 1933 Securities Act.

C) 1934 Securities Exchange Act.

D) Regulation Fair Disclosure.

Answer: Sarbanes-Oxley Act.

Under the Sarbanes-Oxley Act, management is responsible for:

A) Analysts' having positive comments about the company's operations.

B) The reliability of financial statements.

C) Increasing the company's stock price.

D) All of the other answers represent management responsibilities under the Sarbanes-Oxley Act.

Answer: The reliability of financial statements.

The Sarbanes-Oxley Act requires that companies must:

A) Conduct customer surveys each year to ensure satisfaction with products and services.

B) Document internal controls and assess their effectiveness each year.

C) Pay taxes owed to the Internal Revenue Service by the tax filing date.

D) Devise a budget each year to ensure cash outflows are not greater than cash inflows.

Answer: Document internal controls and assess their effectiveness each year.

A company's plans to minimize theft and enhance the accuracy of accounting information are referred to as:

A) Corporate controls.

B) Security controls.

C) Internal controls.

D) General controls.

Answer: Internal controls.

Which element of the fraud triangle do companies have the greatest ability to eliminate?

A) Motivation.

B) Rationalization.

C) Opportunity.

D) Intelligence.

Answer: Opportunity.

Fraudulent reporting by management could include:

A) Fictitious revenues from a fake customer.

B) Improper asset valuation.

C) Mismatching revenues and expenses.

D) All of the other answers could involve fraudulent reporting.

Answer: All of the other answers could involve fraudulent reporting.

The three elements present in every fraud are commonly referred to as the ________.

A) Triple threat

B) Three-way manipulation

C) Fraud triangle

D) Three-alarm fire

Answer: Fraud triangle

The three elements of the fraud triangle are:

A) Motivation.

B) Rationalization.

C) Opportunity.

D) All of the other answers are elements of the fraud triangle.

Answer: All of the other answers are elements of the fraud triangle.

The phrase "cooking the books" is commonly used to refer to:

A) The company's accounting records being thoroughly audited at the end of the year.

B) The company's financial statements being presented in a deceptive form.

C) The company's ability to provide timely financial information under operating pressure.

D) The inclusion of a variety of information in the financial statements.

Answer: The company's financial statements being presented in a deceptive form.

Which of the following accounts is(are) listed in a post-closing trial balance?

A) Prepaid Rent.

B) Accounts Payable.

C) Salaries Expense.

D) Two of these three accounts would be included in a post-closing trial balance.

Answer: D

Which of the following statements is true regarding the post-closing trial balance?

A) The post-closing trial balance will be distributed to investors and other stakeholders along with the financial statements.

B) The post-closing trial balance is a report prepared before the adjustments and the financial statements to prove that debits equal credits.

C) The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

D) The post-closing trial balance proves that all entries have been made correctly and accurately during the accounting period.

Answer: C

Occupational fraud:

A) Is the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources.

B) Occurs in only a few organizations and generally involves minor amounts.

C) Will be prevented when companies employ an auditor.

D) Is committed only by lower-level employees.

Answer: Is the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources.