ABA ABA Internal Controls & Risk Management 2

Question 1

What is 'inherent risk' in risk management?

Accepted Answer

The natural risk of error or fraud before any controls are applied

Answer

Risk that remains after applying internal controls

Answer

Risk caused by poor employee training

Answer

Risk from external market conditions only

Question 2

What does a risk assessment involve in internal control planning?

Accepted Answer

Identifying and evaluating risks that could prevent organizational objectives

Answer

Calculating insurance premiums for business assets

Answer

Auditing all vendor invoices for accuracy

Answer

Setting employee performance goals

Question 3

Which of the following is an example of a preventive internal control?

Accepted Answer

Requiring purchase orders before any inventory purchase

Answer

Monthly bank reconciliation

Answer

Reviewing variance reports after period close

Answer

Investigating customer complaints

Question 4

What is 'control risk' in the context of internal auditing?

Accepted Answer

The risk that internal controls will fail to prevent or detect a material misstatement

Answer

The risk that the auditor will fail to detect a material misstatement

Answer

The risk that management will override controls

Answer

The risk that external auditors charge too much

Question 5

What is the purpose of a whistleblower policy in internal controls?

Accepted Answer

To provide a safe channel for reporting suspected fraud or misconduct

Answer

To track employee absences and tardiness

Answer

To manage customer complaints about products

Answer

To document environmental compliance activities

Question 6

In a small business with limited staff, which compensating control can substitute for full segregation of duties?

Accepted Answer

Owner or manager review of transactions and reconciliations

Answer

Purchasing more accounting software

Answer

Hiring temporary employees during busy periods

Answer

Outsourcing all payroll processing