CFA Internal Control Evaluation 2

Question 1

Which control activity is most effective at preventing fictitious vendor payments?

Accepted Answer

Mandatory vendor approval and verification before setup in accounts payable system

Answer

Preventing fictitious vendors requires a robust vendor vetting and approval process before any payment can be initiated.

Question 2

A company's IT department has unrestricted access to both program source code and production data. This represents a failure in which control principle?

Accepted Answer

Segregation of duties

Answer

When the same individuals control programming and live data, they can alter programs and conceal the changes, violating segregation of duties.

Question 3

Under the COSO framework, 'tone at the top' is a component of which element?

Accepted Answer

Control Environment

Answer

Tone at the top — management's ethical stance and commitment to integrity — is the foundation of the Control Environment component.

Question 4

An auditor discovers that purchase orders are approved by the same employee who receives goods. What type of fraud risk does this create?

Accepted Answer

Misappropriation of assets through fictitious purchases or theft of inventory

Answer

When one person approves purchases and receives goods, they can order fictitious items or personally steal received inventory without detection.

Question 5

Which of the following best describes a 'preventive control'?

Accepted Answer

A physical lock on a storage room that stops unauthorized access before it occurs

Answer

Preventive controls stop fraud or errors before they occur, such as physical barriers that block unauthorized access.

CFA Practice Test

CFA Practice Test

CFA Internal Control Evaluation 2