Internal Control Limitations and Reasonable Assurance Quiz
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Questions and Answers

What is not considered an inherent limitation of the potential effectiveness of an entity’s internal control?

  • Collusion among employees
  • Mistakes in judgment (correct)
  • Incompatible duties
  • Management override

    • What is the concept of reasonable assurance in internal control based on?

  • Cost of internal control should not exceed benefits (correct)
  • Internal control being ineffective due to mistakes in judgment
  • Adequate safeguards over access to assets and records
  • Responsibility of management in establishing internal control

    • What does proper segregation of functional responsibilities call for?

  • Authorization, recording, and custody (correct)
  • Custody, execution, and reporting
  • Authorization, payment, and recording
  • Authorization, execution, and payment

    • What is commonly included in an entity’s ongoing monitoring activities?

    <p>Reviewing the purchasing function</p> Signup and view all the answers

    The overall attitude of an entity’s board of directors towards internal control is usually reflected in what aspect?

    <p>Documentation of internal controls</p> Signup and view all the answers

    Which activity is considered a major component of internal control according to the text?

    <p>Control risk assessment in conjunction with quarterly reviews</p> Signup and view all the answers

    What factor would most likely have a significant influence on an entity's control environment?

    <p>Management is dominated by one individual</p> Signup and view all the answers

    Which factors are included in an entity's control environment?

    <p>Audit committee: No, Integrity and ethical values: Yes, Organizational: Yes</p> Signup and view all the answers

    Which of the following is NOT a component of an entity's internal control?

    <p>Control risk</p> Signup and view all the answers

    Which provision is part of the Foreign Corrupt Practices Act?

    <p>Every publicly held company must maintain internal control sufficient to meet internal control objectives</p> Signup and view all the answers

    In gathering evidence regarding fraud involving unauthorized merchandise purchases, what would the auditor most likely select for testing?

    <p>Receiving reports</p> Signup and view all the answers

    What type of procedure would most likely provide evidence to detect fraud involving merchandise purchases?

    <p>'Tracing' approved vouchers to receiving reports</p> Signup and view all the answers

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