CCA Internal Controls & Risk Management 1 — Questions and Answers
Question 1: What is the main purpose of internal controls in a corporation?
- To increase executive bonuses
- To reduce staff numbers
- To ensure accurate and compliant operations (Correct answer)
- To outsource core functions
Correct answer: To ensure accurate and compliant operations
Internal controls safeguard assets, ensure reliable financial reporting, and promote compliance with laws and policies.
Question 2: Which is an example of a preventive control?
- Monthly reconciliation
- Approval requirements for purchases (Correct answer)
- Correcting journal entries
- Year-end audits
Correct answer: Approval requirements for purchases
Preventive controls are designed to stop errors or irregularities before they occur, like requiring approvals for transactions.
Question 3: What is risk assessment in financial management?
- Tracking department absences
- Forecasting marketing trends
- Analyzing threats to financial goals (Correct answer)
- Outsourcing compliance reviews
Correct answer: Analyzing threats to financial goals
Risk assessment involves identifying, analyzing, and prioritizing risks that could affect the achievement of objectives.
Question 4: Which of the following is a component of the COSO internal control framework?
- Risk avoidance
- Monitoring activities (Correct answer)
- System programming
- Workforce planning
Correct answer: Monitoring activities
Monitoring activities are part of the COSO framework, helping ensure controls continue to operate effectively over time.
Question 5: Why is segregation of duties important in accounting?
- It increases speed of approvals
- It limits staff workload
- It helps prevent fraud and error (Correct answer)
- It simplifies compliance forms
Correct answer: It helps prevent fraud and error
Segregation of duties reduces the risk of error or fraud by ensuring that no single individual has control over all parts of a transaction.
Question 6: What is inherent risk?
- Risk after controls are applied
- Risk ignored by auditors
- Natural risk before mitigation (Correct answer)
- Risk from employee absences
Correct answer: Natural risk before mitigation
Inherent risk refers to the susceptibility of an account or process to error or fraud without considering controls.
CCA Internal Controls & Risk Management 1
What is the main purpose of internal controls in a corporation?