Name:
Section:
I.
True or False. Write TRUE if the statement is correct and FALSE if not.
1. Section 209 requires the management of public companies to assess and formally report on
the effectiveness of their organization’s internal controls.
2. While the Sarbanes-Oxley Act prohibits auditors from providing non-accounting services to
their audit clients, they are not prohibited from performing such services for non-audit clients
or privately held companies.
3. A key modifying assumption in internal control is that the internal control system is the
responsibility of management
4. Control activities are the foundation of the other four control components of the internal
control system.
5. SEC is empowered to set auditing, quality control, and ethics standards, to inspect registered
accounting firms, to conduct investigations, and to take disciplinary actions.
6. Collusion among employees in the commission of a fraud is difficult to both prevent and
detect
7. Privacy is one of the issues of concern in computer ethics.
8. Theoretical computer ethics involves popular stories, reports or media.
9. Business ethics is stagnant but may be possible to be different based on a company.
10. There are four areas of ethical issues in business such as rights, equity, honesty, exercise of
employee power.
II. Multiple Choice. Choose the best answer for each item and write the capital letter of your choice
on the space provided before each number.
1. S1: Employees are more loyal and efficient when a company has a high standard of ethics
S2: Business ethics involve a guiding standard for values, behaviors, and decision making.
a. True, False
b. True, True
c. False, True
d. False, False
2. All of the following are not part of the Fraud Triangle except?
a. Environment
b. Opportunity
c. Behavior
d. Employee character
3. S1: Fraud committed by men is 20% higher than women.
S2: People with no education are more likely to commit fraud.
a. True, False
b. True, True
c. False, True
d. False, False
4. It is accomplished by controlling the use of documents and records and by segregating the
duties of those who must access and process their records.
a. Direct Access Control
b. Indirect Access Control
c. Multiple Access Control
d. Restricted Access Control
5. It is a potential source of exposure.
a. Risk
b. Waste
c. Hazard
d. Exposed sources
6. It is used when values that surpass an authorized limit need to be identified or checked.
a. Range Check
b. Limit Check
c. Validity Check
d. Check Check
7. What are the two levels of fraud?
a. Assisted Fraud, Natural Fraud
b. Management Fraud, Employee Fraud
c. Employee Fraud, Assisted Fraud
d. Natural Fraud, Management Fraud
8. Diversity is under what area of ethical issues in business?
a. Exercise of Corporate Power
c. Rights
b. Equity
d. Honesty
9. Determine which of the following are the reasons why fraud is difficult to quantify.
I. Information is not properly distributed.
II. Lack of manpower.
III. Behavior of the employees.
IV. Language Barrier.
V. Business organizations decide to take no civil or criminal action.
VI. Business organizations are more focused on achieving short term goals.
VII. Not all fraud is detected and reported
VIII. Incomplete information is gathered.
a. I, V, III and VII
b. VIII, I, III, and V
c. I, V, VII, and VIII
d. V, VI, VII, and VIII
10. What happens when the opportunity and pressure are higher than ethics?
a. The risk of fraud is not high.
b. The risk of fraud is not low.
c. The risk of fraud is not affected.
d. The risk of fraud is irrelevant.
11. Which of the following is not a limitation of the internal control system?
a. management instructs the bookkeeper to make fraudulent journal entries
b. fraud occurs because of collusion between two employees
c. errors are made due to employee fatigue
d. the industry is inherently risky
12. Which of the following is a preventive control?
a. bank reconciliation
b. comparing the accounts receivable subsidiary ledger to the control account
c. credit check before approving a sale on account
d. physical inventory count
13. Which is not an internal control activity?
a. Authorization
b. Management of operating cycle
c. Segregation of duty
d. Supervision
14. The characteristics of useful information include
a. summarization, relevance, timeliness, accuracy, and completeness
b. relevance, summarization, accuracy, timelessness, and completeness
c. timeliness, relevance, summarization, accuracy, and conciseness
d. disaggregation, relevance, timeliness, accuracy, and completeness
15. Which of the following is not an element of the internal control environment?
a. management philosophy and operating style
b. organizational structure of the firm
c. well-designed documents and records
d. the functioning of the board of directors and the audit committee
16. Statement 1. Exposure is the absence or weakness of a control which increases the firm’s risk
of financial loss or injury.
Statement 2. Risk is the probability of incurring such a loss or injury.
a. True, False.
b. False, True.
c. True, True.
d. False, False.
17. The internal audit department recalculates payroll for several employees each pay period.
This is an example of_________.
a. Independent verification
b. Transaction authorization
c. Segregation of duties
d. Supervision
18. When certain customers made cash payments to reduce their accounts receivable, the
bookkeeper embezzled the cash and wrote off the accounts as uncollectible. Which control
procedure would most likely prevent this irregularity?
a. Independent verification
b. Segregation of duties
c. Accounting records
d. Access controls
19. The decision to extend credit beyond the normal credit limit is an example of
a. Independent verification
b. Authorization
c. Segregation of function
d. Supervision
20. The concept of reasonable assurance suggests that
a. the cost of an internal control should be less than the benefit it provides
b. the effectiveness of internal controls is a function of the industry environment
c. a well-designed system of internal controls will detect all fraudulent activity
d. The objectives achieved by an internal control system vary depending on the data
processing method.
III. Enumeration
A. Internal control components
1.
2.
3.
4.
5.
B. Physical control activities
1.
2.
3.
4.
5.
Answer key
True or false
1. False
2. True
3. True
4. False
5. False
Multiple choice
1. B
2. B
3. D
4. B
5. B
6. B
7. B
8. C
9. C
10. B
Enumeration
A. Internal control components
1. Control environment
2. Risk assessment
3. Information and communication
4. Monitoring
5. Control activities
B. Physical control activities
1. transaction authorization
2. segregation of duties
3. supervision
4. accounting records
5. access control
6. independent verification
6.
7.
8.
9.
10.
True
True
False
False
False
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
D
C
B
A
C
C
A
B
B
A