CAA Internal Controls & Risk Management 2

Question 1

What is inherent risk in the context of audit and internal control?

Accepted Answer

The risk of a material misstatement before considering any related controls

Answer

The risk that a material misstatement will not be detected by the auditor

Answer

The risk that arises from weak internal controls

Answer

The risk of management override of controls

Question 2

What is control risk as defined in auditing standards?

Accepted Answer

The risk that a material misstatement will not be prevented or detected by internal controls

Answer

The risk that the auditor will issue an incorrect opinion

Answer

The risk inherent to the nature of the business

Answer

The risk of unauthorized access to computer systems

Question 3

Under Sarbanes-Oxley Act Section 404, what are public company management teams required to do?

Accepted Answer

Assess and report on the effectiveness of internal controls over financial reporting

Answer

File quarterly tax returns with the SEC

Answer

Conduct annual employee background checks

Answer

Submit internal audit plans to the board of directors

Question 4

How is a 'material weakness' in internal controls defined under PCAOB standards?

Accepted Answer

A deficiency where there is a reasonable possibility that a material misstatement will not be prevented or detected

Answer

A minor deficiency that does not affect financial statements

Answer

A significant deficiency that has been remediated

Answer

Any control that fails more than once during the year

Question 5

Which of the following best describes a detective control?

Accepted Answer

A control that identifies errors or fraud after they have occurred

Answer

A policy that prevents unauthorized transactions from being initiated

Answer

A procedure that corrects errors once detected

Answer

A training program that educates employees on compliance

Question 6

What is Enterprise Risk Management (ERM)?

Accepted Answer

A comprehensive approach to identifying, assessing, and managing risks across an entire organization

Answer

A framework for pricing insurance products

Answer

A method for calculating a company's tax exposure

Answer

A process limited to managing financial statement fraud risk

Question 7

Which of the following is the key distinction between internal auditors and external auditors?

Accepted Answer

Internal auditors are employees of the organization; external auditors are independent third parties

Answer

Internal auditors only review tax compliance; external auditors review all financial matters

Answer

External auditors report to the CFO; internal auditors report to shareholders

Answer

Internal auditors issue publicly available opinions; external auditors do not