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Chapter 11 Introduction to Internal Control Systems True-False Questions 1. Controls that specifically encourage operating efficiency are often called preventive controls. 2. Controls that attempt to safeguard asset resources are often called detective controls. 3. For a specific internal control to be effective, both the preventive and the detective aspect of the control must exist and be interrelated. 4. Preventive and corrective controls are established solely to discourage fraud and embezzlement by an organization's employees. 5. A good internal control system will contribute towards detecting accidental errors made by employees. 6. An organization should always attempt to implement ideal controls into its system. 7. It is normally considered good organizational design to establish the internal audit function within the accounting subsystem. 8. The introduction of a computer into an organization's data processing system will normally eliminate problems associated with following the organization's audit trail. 9. A good audit trail is an important element within a company's internal control system. 10. An audit trail problem associated with computerized data processing is that certain financial data processed by the computer may never be seen by the company's management. 11. Operational audits are performed by a companys internal audit staff. 12. The separation of duties control would not be violated if a company's cashier was also responsible for recording cash transactions. 13. The separation of duties control does not eliminate completely the possibility of embezzlement by employees. 14. The personnel subsystem has the important function of matching job qualifications to people qualifications. 15. The COSO report failed to define internal control. 16. An effective approach for maintaining a good audit trail for cash disbursements is to utilize a voucher system with coins and currency issued for each disbursement. TB 11.1 17. COBIT extensively examined the internal control area. 18. Risk assessment is an important component of an internal control system. 19. A companys control environment is unimportant when developing an internal control system. 20. Timely performance reports contribute towards achieving the monitoring component of an internal control system. 21. Control activities and monitoring are one and the same. 22. The Basle Committee published a framework for the evaluation of internal control systems in banking organizations. Multiple- Choice Questions 23. Three objectives of a company's internal control system should be safeguarding assets, checking the accuracy and reliability of accounting data, and promoting operational efficiency. A fourth objective of a company's internal control system should be: a) Preventing embezzlement of assets b) Encouraging adherence to prescribed managerial policies c) Avoiding the payment of overtime to company employees d) Revising standards for production costs on a weekly basis 24. The control environment is a component of a company's internal control system that:... View Full Document

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