FAC Finance and Accounting Auditing & Risk Review 5

Question 1

A company transfers risk by purchasing insurance against potential losses. Under COSO ERM, this is classified as which risk response?

Accepted Answer

Risk sharing

Answer

Risk sharing (also called risk transfer) involves shifting some or all of the financial impact of a risk to a third party, such as through insurance or hedging.

Question 2

The Sarbanes-Oxley Act prohibits external auditors of public companies from providing which non-audit service to their audit clients?

Accepted Answer

Bookkeeping or maintaining financial records

Answer

SOX Section 201 explicitly prohibits auditors from performing bookkeeping or other services related to the client's accounting records or financial statements.

Question 3

In a walkthrough audit procedure, the auditor traces a transaction from its origination through to recording in the financial statements to:

Accepted Answer

Validate that controls described in documentation actually operate as intended

Answer

A walkthrough allows the auditor to confirm that controls described in system documentation are actually in place and functioning as described in practice.

Question 4

Which type of operational risk arises from the failure of internal processes, people, systems, or from external events, as defined by Basel II?

Accepted Answer

Operational risk

Answer

Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people, systems, or from external events, distinguishing it from financial risks.

Question 5

An auditor's responsibility for detecting fraud is BEST described as:

Accepted Answer

Obtaining reasonable assurance that financial statements are free of material misstatement due to fraud

Answer

Auditors are responsible for reasonable assurance — not absolute assurance — that financial statements are free from material misstatement, whether caused by error or fraud.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Finance and Accounting Auditing & Risk Review 5