CSCP Internal Controls & Auditing 4

Question 1

In the context of a securities firm's internal controls, 'compensating controls' are best described as:

Accepted Answer

Alternative controls that mitigate risk when primary controls cannot be implemented

Answer

Controls that reward employees for identifying compliance breaches

Answer

Controls mandated by regulators to compensate for past violations

Answer

Financial reserves set aside to cover losses from control failures

Question 2

Which of the following would be considered a 'control deficiency' in a broker-dealer's trade surveillance program?

Accepted Answer

Alert review is performed by the same trader who executed the flagged transactions

Answer

The surveillance system generates too many false positive alerts

Answer

Surveillance rules are reviewed and updated annually

Answer

Surveillance alerts are escalated to senior management when warranted

Question 3

An auditor testing a securities firm's order management controls would most likely use 're-performance' as an audit technique when:

Accepted Answer

Independently executing the same control procedure to verify it produces the same results

Answer

Interviewing compliance staff about their understanding of trade reporting requirements

Answer

Observing a trader executing an order in the order management system

Answer

Reviewing documentation of control exceptions identified by the first line of defense

Question 4

FINRA's Annual Compliance Meeting requirement under Rule 3110 requires that each registered representative attend a compliance meeting or receive compliance information:

Accepted Answer

Annually

Answer

Quarterly

Answer

Semi-annually

Answer

Every two years

Question 5

A securities firm's internal audit charter should NOT include which of the following elements?

Accepted Answer

Specific audit findings from the most recent examination cycle

Answer

The purpose and authority of the internal audit function

Answer

The organizational independence of the internal audit function

Answer

The scope of internal audit responsibilities

Question 6

In a risk control self-assessment (RCSA) conducted at a broker-dealer, business line managers are asked to:

Accepted Answer

Identify and evaluate risks and controls within their own business areas

Answer

Undergo independent testing by the internal audit department

Answer

Review the adequacy of the compliance department's policies and procedures

Answer

Assess the performance of the external auditors

Question 7

During a gap assessment of a broker-dealer's AML controls, the auditor finds that the firm does not have a designated AML Compliance Officer. Under FinCEN regulations, this represents:

Accepted Answer

A mandatory regulatory requirement violation that must be remediated immediately

Answer

A best practice gap that should be addressed in the next planning cycle

Answer

A minor deficiency requiring a management action plan within 180 days

Answer

A waivable requirement for broker-dealers with fewer than 50 employees