Corporate Governance Risk Management & Internal Controls

Question 1

What framework is most widely used for evaluating internal controls over financial reporting?

Accepted Answer

COSO Internal Control – Integrated Framework

Answer

The COSO Internal Control – Integrated Framework is the standard used by most US public companies to design, implement, and evaluate internal controls under SOX 404.

Question 2

What does SOX Section 404 require of management?

Accepted Answer

An annual assessment of the effectiveness of internal controls over financial reporting

Answer

SOX 404 requires management to assess and report on the effectiveness of internal controls over financial reporting, with external auditor attestation for large accelerated filers.

Question 3

What is 'enterprise risk management' (ERM)?

Accepted Answer

A framework for identifying, assessing, and managing risks across the entire organization to achieve strategic objectives

Answer

ERM is a comprehensive, board-level process for identifying, quantifying, and managing risks that could affect an organization's ability to achieve its objectives.

Question 4

Which of the following is a 'preventive' internal control?

Accepted Answer

Segregation of duties

Answer

Segregation of duties prevents errors or fraud by ensuring no single individual controls all phases of a transaction, acting as a preventive rather than detective control.

Question 5

What is a 'material weakness' in internal controls?

Accepted Answer

A significant deficiency that creates a reasonable possibility of a material misstatement in financial statements

Answer

A material weakness is the most serious internal control deficiency — it creates a reasonable possibility that a material misstatement could occur and not be prevented or detected.

Corporate Governance Practice Test

Corporate Governance Practice Test

Corporate Governance Risk Management & Internal Controls