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

Compensating controls are alternative measures that reduce risk to an acceptable level when the preferred primary control is not feasible due to operational or cost constraints.

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

Having a trader review alerts for their own transactions creates a conflict of interest and eliminates the independence required for effective surveillance, constituting a control deficiency.

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

Re-performance involves the auditor independently executing a control procedure to determine whether it produces the same result as when performed by company personnel.

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

FINRA Rule 3110 requires that each registered representative participate in an annual compliance meeting to ensure ongoing awareness of regulatory requirements and firm policies.

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 internal audit charter establishes the function's authority, independence, and scope, but specific audit findings belong in individual audit reports, not the charter itself.

(CSCP) Certified Securities Compliance Professional Practice Test

(CSCP) Certified Securities Compliance Professional Practice Test

CSCP Internal Controls & Auditing 4