Internal Controls & Risk Assessment Flashcards

Under the COSO 2013 Internal Control–Integrated Framework, how many principles support the five components of internal control?

Answer: 17

COSO 2013 sets out 17 principles spread across the five components of internal control.

Which COSO principle specifically requires management to consider the potential for fraud when assessing risks?

Answer: Principle 8

Principle 8 requires the organization to consider the potential for fraud when it assesses risks to its objectives.

A forensic accountant finds that one employee can create vendors, approve invoices, and release payments. Which control weakness does this most directly show?

Answer: Lack of segregation of duties

Letting one person authorize, record, and keep custody over a transaction cycle breaks segregation of duties.

Which type of control is a monthly bank reconciliation done by someone independent of cash receipts?

Answer: Detective control

Bank reconciliations find errors or irregularities after the transactions have happened, which makes them detective controls.

Inherent risk is best defined as the susceptibility of an assertion to material misstatement:

Answer: Before considering any related controls

Inherent risk is the risk of misstatement before any internal controls are considered.

Under SOX Section 404(b), who must attest to management's assessment of internal control over financial reporting at accelerated filers?

Answer: The external auditor

Section 404(b) requires the registered public accounting firm to attest to and report on ICFR for accelerated filers.

Which situation best shows management override of controls?

Answer: A CFO directs staff to post unsupported top-side journal entries at quarter-end

Management override happens when people in authority bypass controls on purpose, often through unsupported journal entries.