Internal Controls & Risk Assessment Flashcards
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Read the first 7 Internal Controls & Risk Assessment flashcards as text
Which concept in internal controls refers to the idea that a combination of weaker controls can together achieve the same objective as one strong control?
Answer: Compensating controls
Compensating controls substitute for a primary control that cannot be implemented, providing an alternative means of achieving the same assurance.
A risk register typically includes all of the following EXCEPT:
Answer: Detailed audit procedures for each risk
A risk register captures identified risks, their ratings, owners, and responses—not the detailed audit steps used to test them.
When assessing the design of an internal control, an auditor is evaluating whether:
Answer: The control, if operating properly, would prevent or detect material misstatements
Design effectiveness asks whether a control is theoretically capable of achieving its intended objective, assuming it operates as planned.
Which of the following BEST illustrates the 'tone at the top' concept in internal controls?
Answer: Senior executives visibly adhering to the company's code of ethics
Tone at the top reflects the ethical environment set by leadership; when executives model ethical behavior, it permeates the entire organization.
A company experiences frequent system outages. Which type of control would BEST address the continuity risk this creates?
Answer: Business continuity and disaster recovery plan
A business continuity and disaster recovery plan ensures systems and operations can be restored quickly after an outage, addressing continuity risk.
Under the COSO ERM framework, 'strategy and objective-setting' is important because:
Answer: Risk appetite is established in the context of the organization's strategy
Strategy and objective-setting is where risk appetite is defined, linking acceptable risk levels directly to the pursuit of business goals.
Which scenario is MOST indicative of a material weakness in internal controls over financial reporting?
Answer: Year-end financial statements contain a material misstatement that internal controls did not detect
A material weakness exists when a significant deficiency in internal controls results in a reasonable possibility that a material misstatement will not be prevented or detected.