Having management periodically determine whether the amount of physical assets of the company match the accounting records is an example of which detective control?

A) Separation of duties.

B) Reconciliations.

C) Performance reviews.

D) Employee management.

Answer: Reconciliations.

Which employees have an impact on the operation and effectiveness of internal controls?

A) Upper management.

B) Mid-level managers.

C) Lower-level employees.

D) All employees.

Answer: All employees.

Allowing only certain individuals to have passwords to conduct online purchases is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) E-commerce controls.

D) Employee management.

Answer: E-commerce controls.

Providing employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Employee management.

Answer: Employee management.

Giving only management the right to make purchases over a certain amount is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Employee management.

Answer: Proper authorization.

Keeping supplies in a locked room with access allowed only to authorized personnel is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Employee management.

Answer: Physical controls.

What is the concept behind separation of duties in establishing internal controls?

A) The company's financial accountant should not share information with the company's tax accountant.

B) Duties of middle-level managers should be clearly separated from those of top executives.

C) Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

D) The external auditors of the company should have no contact with managers while the audit is taking place.

Answer: Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

Which of the following is not an example of preventive controls?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Reconciliations.

Answer: Reconciliations.

Which of the following is an example of detective controls?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Reconciliations.

Answer: Reconciliations.

The component of internal control that includes the formal procedures for reporting control deficiencies is:

A) Monitoring.

B) Information and communication.

C) Risk assessment.

D) Control activities.

Answer: Monitoring.

The components of internal control do not directly include:

A) Risk assessment.

B) Inflation adjustment.

C) Monitoring.

D) Control activities.

Answer: Inflation adjustment.

Separation of duties refers to:

A) Making each manager personally responsible for his/her department.

B) Keeping functions across different departments separate.

C) Preventing top management and lower-level employees from interacting.

D) Individuals who have physical responsibility for assets should not also have access to accounting records.

Answer: Individuals who have physical responsibility for assets should not also have access to accounting records.

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.