CSCP Internal Controls & Auditing 5

Question 1

The 'tone at the top' concept in internal controls refers to:

Accepted Answer

The ethical climate and commitment to compliance demonstrated by senior leadership

Answer

Tone at the top reflects how senior management's attitude toward ethics and compliance shapes the overall control environment throughout the organization.

Question 2

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:

Accepted Answer

Segregation of duties controls

Answer

Segregation of duties requires that incompatible functions—such as initiating, approving, and reconciling transactions—be performed by different individuals to prevent fraud and error.

Question 3

Under SEC regulations, which type of securities firm is required to undergo an annual audit by an independent public accountant?

Accepted Answer

Broker-dealers that carry customer accounts or custody customer assets

Answer

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.

Question 4

A broker-dealer's internal audit department should maintain its independence by reporting to which governance body?

Accepted Answer

The Audit Committee of the Board of Directors

Answer

Internal audit should functionally report to the Audit Committee of the Board to maintain independence from management and provide objective assurance to the board.

Question 5

When conducting a compliance audit of a broker-dealer's trading practices, which procedure would best detect potential market manipulation?

Accepted Answer

Analyzing trading patterns and comparing them against market data for layering or spoofing indicators

Answer

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.

(CSCP) Certified Securities Compliance Professional Practice Test

(CSCP) Certified Securities Compliance Professional Practice Test

CSCP Internal Controls & Auditing 5