Podcast Beta
Questions and Answers
What is a primary responsibility of the board of directors regarding ethical standards?
Why should the roles of CEO and chairman be separate?
What role does the audit committee play according to best practices?
What is a potential consequence of excessive use of short-term stock options for executive compensation?
Signup and view all the answers
What is a crucial requirement for the nominating committee of the board of directors?
Signup and view all the answers
What should a code of ethics minimally address according to best practices?
Signup and view all the answers
What is the main purpose of executive sessions in a board of directors' meetings?
Signup and view all the answers
How should a compensation committee operate according to established best practices?
Signup and view all the answers
What is the primary purpose of detective controls?
Signup and view all the answers
How do detective controls work?
Signup and view all the answers
Which statement describes corrective controls?
Signup and view all the answers
What would be an example of a detective control in a sales order process?
Signup and view all the answers
What differentiates detective controls from corrective controls?
Signup and view all the answers
Which of the following is NOT a function of detective controls?
Signup and view all the answers
In what scenario would corrective controls be needed?
Signup and view all the answers
What would be a potential drawback of relying solely on preventive controls?
Signup and view all the answers
What is the purpose of embedded computer modules in an information system?
Signup and view all the answers
What do management reports primarily provide for managers?
Signup and view all the answers
Control activities are designed to address which aspect of organizational risk?
Signup and view all the answers
What is the distinction between general controls and application controls in IT?
Signup and view all the answers
What are physical controls in accounting systems primarily concerned with?
Signup and view all the answers
Which type of control ensures the integrity of systems like accounts payable and payroll?
Signup and view all the answers
What is a key characteristic of effective management reports?
Signup and view all the answers
Which factor is NOT typically addressed by general IT controls?
Signup and view all the answers
What is one primary purpose of access controls?
Signup and view all the answers
What type of access is gained through records that manage asset use?
Signup and view all the answers
Which of the following best illustrates an example of indirect access control?
Signup and view all the answers
How does independent verification differ from supervision?
Signup and view all the answers
What can independent verification procedures help management assess?
Signup and view all the answers
What is the primary goal of transaction authorization?
Signup and view all the answers
When can verification procedures happen in relation to transactions?
Signup and view all the answers
Which of the following is NOT an example of independent verification?
Signup and view all the answers
Which type of authorization allows operations personnel to perform daily tasks without additional approvals?
Signup and view all the answers
The timing of verification in an accounting system can vary based on what factor?
Signup and view all the answers
What characterizes programmed procedures in transaction authorization?
Signup and view all the answers
What is an example of specific authorization?
Signup and view all the answers
Which of the following is NOT a category of physical control activities mentioned?
Signup and view all the answers
Why is segregation of duties important in control activities?
Signup and view all the answers
What role does independent verification play in physical control activities?
Signup and view all the answers
How does access control contribute to physical control activities?
Signup and view all the answers
Study Notes
Internal Control Framework
- Control mechanisms are categorized into three types: preventive, detective, and corrective controls.
- Preventive Controls aim to prevent undesirable events before they occur.
- Detective Controls identify errors or irregularities after they have occurred, functioning as the second line of defense.
- Detective controls involve techniques that compare actual occurrences against standards to detect deviations.
Detective Controls
- Designed to identify anomalies that elude preventive measures.
- Activate alarms or alerts when discrepancies arise.
- Example: Recalculating totals on sales orders to reveal data entry errors.
Corrective Controls
- Actions taken to rectify issues identified by detective controls.
- Important distinction: detective controls highlight issues, while corrective controls fix them.
Ethical Standards and Governance
- Boards should separate the roles of CEO and chairman to enhance independence.
- Establish a code of ethics covering conflicts of interest, falsification of data, and confidentiality issues.
- Independent audit committee is crucial for engaging auditors, reviewing reports, and addressing deficiencies.
Compensation Committees
- Must critically evaluate compensation structures to avoid conflicts of interest and ensure long-term health of the organization.
Ongoing Monitoring
- Continuous monitoring can incorporate special computer modules within information systems to facilitate real-time oversight.
- Management reports provide timely data for operational oversight and control.
Control Activities
- Policies and procedures aimed at mitigating identified organizational risks.
- Two main categories: Information Technology (IT) controls and physical controls.
IT Controls
- General Controls relate to entity-wide IT concerns (data security, systems maintenance).
- Application Controls focus on specific systems (e.g., sales order processing, payroll).
Physical Controls
- Involves human activities that trigger transactions or utilize task outcomes.
- Covers security measures surrounding assets, manual processes, and accounting frameworks.
Segregation of Duties
- Ensures that responsibilities are divided to minimize risk of error or fraud.
- Transaction authorization ensures legitimacy of processed transactions.
Authorization Types
- General Authorization allows routine operations without extra approvals (e.g., inventory reorder decisions).
- Specific Authorization requires management approval for nonroutine transactions (e.g., credit limit adjustments).
Access Controls
- Protects against unauthorized asset access, which can lead to theft or data manipulation.
- Physical security and document control help prevent unauthorized access.
Independent Verification
- Involves checks by individuals not directly involved in transactions to ensure accuracy and integrity.
- Helps assess individual performance and reliability of data through reconciliation and review processes.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz explores ethics, fraud, and the significance of internal control within organizations. It covers various aspects such as preventive, detective, and corrective controls aimed at mitigating undesirable events. Test your knowledge on the principles and practices that contribute to effective organizational governance.