CAA Internal Controls & Risk Management 3

Question 1

How is a 'significant deficiency' in internal controls distinguished from a 'material weakness'?

Accepted Answer

A significant deficiency is less severe than a material weakness but still warrants attention from those charged with governance

Answer

A significant deficiency is more severe than a material weakness

Answer

A significant deficiency only applies to IT systems

Answer

A significant deficiency does not need to be reported to the audit committee

Question 2

What is residual risk in risk management?

Accepted Answer

The risk that remains after all controls and mitigation strategies have been applied

Answer

The total risk before any controls are implemented

Answer

The risk transferred to an insurance company

Answer

The risk associated with manual journal entries

Question 3

What does the concept of 'tone at the top' refer to in internal control?

Accepted Answer

Management's ethical values, integrity, and commitment to internal controls that set the organizational culture

Answer

The volume of communication sent to frontline employees

Answer

The physical layout of an accounting department

Answer

The number of senior managers involved in approving transactions

Question 4

Which type of risk primarily involves the potential for employees or external parties to steal or misappropriate company assets?

Accepted Answer

Fraud risk

Answer

Market risk

Answer

Compliance risk

Answer

Liquidity risk

Question 5

What is the purpose of a corrective control in an internal control system?

Accepted Answer

To fix errors or irregularities after they have been detected

Answer

To prevent transactions from being processed without authorization

Answer

To identify irregularities after they occur

Answer

To document compliance with company policies

Question 6

What is the primary function of a whistleblower policy in an organization's internal control environment?

Accepted Answer

To encourage reporting of suspected fraud or misconduct without fear of retaliation

Answer

To discipline employees who make accounting errors

Answer

To require employees to report all personal financial transactions

Answer

To limit communication between departments

Question 7

What does an organization's 'risk appetite' refer to?

Accepted Answer

The maximum level of risk the organization is willing to accept in pursuit of its objectives

Answer

The dollar amount of insurance coverage purchased by the organization

Answer

The number of audits conducted annually

Answer

The organization's sensitivity to changes in interest rates