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

Inherent risk is the susceptibility of an activity or assertion to material misstatement assuming no related controls are in place.

Question 2

What does a risk assessment involve in internal control planning?

Accepted Answer

Identifying and evaluating risks that could prevent organizational objectives

Answer

Risk assessment involves identifying potential risks to achieving organizational objectives and evaluating their likelihood and potential impact.

Question 3

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

Accepted Answer

Requiring purchase orders before any inventory purchase

Answer

Requiring purchase orders before inventory purchases is a preventive control because it stops unauthorized purchases from occurring in the first place.

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

Control risk is the risk that a company's internal controls will fail to prevent or detect a material misstatement in the financial statements.

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

A whistleblower policy establishes a confidential process for employees to report suspected fraud, misconduct, or ethics violations without fear of retaliation.

(ABA) Accredited Business Accountant Practice Test

(ABA) Accredited Business Accountant Practice Test

ABA ABA Internal Controls & Risk Management 2