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

Inherent risk is the susceptibility of an assertion to a material misstatement assuming no related internal controls exist.

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

Control risk is the risk that a material misstatement will occur and not be prevented or detected on a timely basis by the entity's internal controls.

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

SOX Section 404 requires management to assess and report on the effectiveness of internal controls over financial reporting, and external auditors must attest to that assessment.

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 material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement will not be prevented or detected and corrected on a timely basis.

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

Detective controls are designed to identify and expose undesirable events that have already occurred, such as reconciliations, audits, and exception reports.

(CAA) Certified Accounting Analyst Practice Test

(CAA) Certified Accounting Analyst Practice Test

CAA Internal Controls & Risk Management 2