CPA Business Environment and Concepts (BEC) : Principle of Internal Control
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Example Questions
Example Question #1 : Principle Of Internal Control
The Committee on Sponsoring Organizations prepared the Internal Control-Integrated Framework:
To respond to the internal control assessment requirements of the SOX Act of 2002
To compliment the overarching concepts of the ERM framework
To help businesses assess internal control
As a part of the Congressional task force known as the Treadway Commission
To help businesses assess internal control
This was the primary focus of the Internal Control-Integrated Framework established in 1992.
Example Question #2 : Principle Of Internal Control
An entity that maintains a strong internal audit function that reports directly to the Board of Directors is applying the ideas from which principle of effective internal control over financial reporting?
Organizational structure
Board of Directors
Authority and responsibility
Human Resources
Organizational structure
The principle of organizational structure states that reporting relationships should not undermine the commitment to effective financial reporting and internal control.
Example Question #1 : Principle Of Internal Control
According to COSO, an executive's deliberate misrepresentation to a banker who is considering whether to make a loan to an enterprise is an example of which of the following internal control limitations?
Collusion
Management override
Costs vs benefits
Breakdown
Management override
In this example, the internal control put in place was overridden by the executive's deliberate behavior.
Example Question #3 : Principle Of Internal Control
Which of the following is a violation of segregation of duties in internal control? An employee:
receives goods from vendors and signs off on the deliveries.
adds vendors and makes changes to a vendor master file.
matches invoices to purchase orders and receiving reports.
enters and approves purchase orders.
enters and approves purchase orders.
Regarding segregation of duties, authority needs to be separated from control. Entering and approving need to be separated for effective internal control.
Example Question #4 : Principle Of Internal Control
Which of the following roles would not be performed by a single individual in a company with the best segregation of duties in place?
Approving sales returns on customer accounts and depositing customer checks in the bank.
Custody of signed checks yet to be mailed and maintaining depreciation schedules.
Posting A/P transactions and entering additions and terminations to payroll.
Preparing monthly customer statements and maintaining the A/P subsidiary ledger.
Approving sales returns on customer accounts and depositing customer checks in the bank.
One individual in charge of approving sales returns and depositing customer checks would create significant risk.
Example Question #5 : Principle Of Internal Control
Issuers are generally prohibited from making personal loans to directors or executive officers:
Except in the ordinary course of business
Without exception
Never
Except when required by law
Except in the ordinary course of business
The only time an issuer can issue a personal loan to a director or key officer is when it is part of the ordinary course of business.
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