Internal Controls & Auditing Flashcards
7 cards from real CSCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Internal Controls & Auditing flashcards as text
The 'tone at the top' concept in internal controls refers to:
Answer: The ethical climate and commitment to compliance demonstrated by senior leadership
Tone at the top reflects how senior management's attitude toward ethics and compliance shapes the overall control environment throughout the organization.
An internal auditor at a securities firm identifies a finding where the same individual has the ability to both approve wire transfers and reconcile bank accounts. This represents a failure in:
Answer: Segregation of duties controls
Segregation of duties requires that incompatible functions—such as initiating, approving, and reconciling transactions—be performed by different individuals to prevent fraud and error.
Under SEC regulations, which type of securities firm is required to undergo an annual audit by an independent public accountant?
Answer: Broker-dealers that carry customer accounts or custody customer assets
SEC Rule 17a-5 requires broker-dealers that carry customer accounts or hold customer assets (carrying firms) to undergo annual audits by an independent public accountant.
A broker-dealer's internal audit department should maintain its independence by reporting to which governance body?
Answer: The Audit Committee of the Board of Directors
Internal audit should functionally report to the Audit Committee of the Board to maintain independence from management and provide objective assurance to the board.
When conducting a compliance audit of a broker-dealer's trading practices, which procedure would best detect potential market manipulation?
Answer: Analyzing trading patterns and comparing them against market data for layering or spoofing indicators
Analyzing trading patterns against market data is the most effective way to identify potential market manipulation schemes like layering or spoofing, which are detectable through behavioral patterns.
A securities firm's audit committee receives a report indicating that the same control deficiency was identified in two consecutive audit cycles without remediation. The audit committee should:
Answer: Escalate the matter and require an accelerated remediation plan with executive accountability
Repeat findings indicate a systemic failure in management's commitment to remediation and should be escalated with enhanced accountability and urgency.
Which of the following best describes 'continuous auditing' as applied in a securities firm context?
Answer: Automated, real-time or near-real-time testing of transactions and controls using technology
Continuous auditing uses automated tools and data analytics to monitor transactions and test controls on an ongoing basis, providing timely identification of exceptions.