CAT Internal Controls & Risk Assessment 3

Question 1

Which risk response strategy involves shifting the financial consequence of a risk to a third party?

Accepted Answer

Risk transfer

Answer

Risk transfer, such as purchasing insurance, moves the financial impact of a risk event to another party.

Question 2

A monthly bank reconciliation prepared by an employee who does not handle cash receipts is an example of:

Accepted Answer

Independent reconciliation

Answer

Independent reconciliation ensures objectivity because the person performing the check has no involvement in the transactions being reviewed.

Question 3

Inherent risk in internal control refers to:

Accepted Answer

The susceptibility of an assertion to a material misstatement assuming no controls

Answer

Inherent risk is the natural exposure to error or fraud in a process before any controls are considered.

Question 4

Which of the following BEST describes a 'key risk indicator' (KRI)?

Accepted Answer

A metric that signals increasing exposure to a specific risk

Answer

KRIs are forward-looking metrics that alert management when risk levels are escalating beyond acceptable thresholds.

Question 5

Physical controls over assets include all of the following EXCEPT:

Accepted Answer

Periodic reconciliation of physical inventory to records

Answer

Periodic reconciliation is a detective control that compares records to physical counts, not a physical safeguard of the asset itself.

(CAT) Certified Accounting Technician Practice Test