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ACC 112 SAS 25 - notes

Accounting (Araullo University)

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ACC112: CORPORATE GOVERNANCE, BUSINESS ETHICS,

RISK MANAGEMENT AND INTERNAL CONTROL
Student Activity Sheet Module #25

Name: Class number:

Section: Schedule: Date:

Materials:
LE ARNING OBJECTIVE: Student Activity Sheet;
pencil with eraser and ball pen
This assessment measures the competence of the student in terms
of his/her application of knowledge and skills in the following topics:
1. Corporate Governance
2. Business Ethics
3. Risk management
4. Internal Control

ACC 112 - CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND

INTERNAL CONTROL
LONG QUIZ

GENERAL DIRECTIONS
READ THIS PAGE BEFORE STARTING THE ASSESSMENT

This test is composed of one (1) section and has a total score of sixty (60) points. You have one (1) hour
to finish this examination. The composition is as follows:

(1) Multiple-choice question Section. The questions in this section is with four answer choices. The test
is composed of sixty (60) questions and is rated as one (1) point each.
 All things unnecessary for the test must be put in front of the testing area. Use BLACK or BLUE ink
ballpen only. Write all your answers on the designated space. Further, erasures are strictly NOT
allowed and will invalidate your answers.
 You may NOT use smart phones or reference materials during the testing session. Only the
allowed calculators should be used.
 Try to answer all questions. In general, if you have some knowledge about a question, it is better
to try to answer it. You will not be penalized for guessing.
 Be sure to allocate your time carefully so you can complete the entire test within the exam session.
You may go back and review your answers at any time during the exam session.
 Those who are caught cheating or doing acts not allowed during the exam shall be instructed to
surrender their test papers and shall leave the testing room immediately. Subsequently, their papers
shall be rated as ZERO.

This concludes the instruction page.

You may now begin answering. MULTIPLE CHOICE

This document is the property of PHINMA

EDUCATION
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1. The primary factor that distinguishes errors from fraud is.

a. whether the underlying cause of misstatement relates to the misapplication of accounting principles or
to clerical processing.
b. whether the underlying cause of a misstatement is intentional or unintentional.
c. whether the misstatement is concealed.
d. whether the misstatement is perpetrated by an employee or by a member of management.

2. The auditor is most likely to presume that a high risk of a fraud exists if
a. the client is a multinational company that does business in numerous foreign countries.
b. the client does business with several related parties
c. inadequate segregation of duties places an employee in a position to perpetrate and conceal thefts.
d. inadequate employee training results in lengthy IT exception reports each month.

3. In general, material frauds perpetrated by which of the following people are most difficult to detect?
a. Financial controller
b. Cashier
c. Internal auditor
d. Marketing Manager

4. Which of the following situations would be defined as fraud under the auditing standards?
a. Errors in the application of accounting principles.
b. Errors in the accounting data underlying the financial report
c. Misinterpretation of facts that existed when the financial report was prepared.
d. Misappropriation of assets.

5. Red flags that auditors can use to alert them to the possibility that a fraud may have occurred include.
a. Strong internal controls.
b. Routine transactions.
c. A high turnover of key employees.
d. Effective internal auditing staff.

6. Which of the following is an example of a misappropriation of assets fraud?

a. Unauthorized discounts or refunds to customers
b. Inappropriate application of accounting principles
c. Unrecorded liabilities
d. Improper asset valuations

7. Attitudes and rationalization to justify a fraud include:

a. Significant related party transactions
b. An excessive focus on profit maximization.
c. A significant decline in demand for the client's products or services.

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d. A high volume of transactions close to year-end.

8. Risks associated with information technology include

a. Loss of data.
b. Errors in programs
c. Unauthorized access to computers
d. All of the above.

9. Which of the following statements relating to application controls is correct?

a. They impact on the procedures used for data entry, data processing and output.
b. They include procedures for purchasing new computers.
c. They are not designed to prevent or detect a material misstatement in the financial statements
d. They include the use of passwords and other security measures to minimize the risk of unauthorized
access.

10. Which of the following is not an example of a risk when a client installs a new IT system?
a. Client staff are not adequately trained to use the new system effectively
b. The system may not be appropriate for the client.
c. The client has appropriate procedures for selecting new IT systems.
d. Data may be lost or corrupted.

11. What is “top level commitment” principle about.

a. Top management should foster the culture without any room for corruption in its organization.
b. Top management should encourage and cover its employees when they commit bribery
c. Top management should hold training to their employees in order to understand provisions of
Bribery Act.
d. Top management is not liable for bribery committed by its employees.
12. What is the next approach after ethical issues from the facts has been identified?
a. Determine who is affected by the outcome of the dilemma.
b. Obtain the relevant facts.
c. Identify the alternatives available to the person who must resolve the dilemma.
d. Identify the likely consequences of each alternative.

13. Which of the following is the study and practice of decisions about what is good, or right?
a. Business
b. Consequences
c. Morals
d. Ethics
14. The role of corporate governance and business ethics education is to:
a. Teach students their professional accountability and to uphold their
personal integrity to society.
b. Change the way in which ethics is taught to students.

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c. Increase the workload for accounting students.

d. Create more ethics standards by which corporate professionals must
operate.

15. The primary stakeholders are:

a. Shareholders.
b. Creditors.
c. customers.
d. suppliers.

16. An independent director is one who:

a. Did not attend a school supported by the company.
b. Does not have any other relationships with the company other than his or
her directorship
c. Does not have outside relationships with other directors.
d. All of the above.

17. Traditionally risk has been defined as

a. any situation in which the probability of loss is one.
b. any situation in which the probability of loss is zero.
c. uncertainty concerning the occurrence of loss.
d. the probability of loss occurring.

18. To provide oversight of the internal and external audit function and the process of preparing annual
financial statements as well as public reports on internal control are responsibility of:
a. Audit Committee of board of directors
b. Management
c. External auditor
d. External regulators

19. Which characteristic of good governance where fair legal framework are enforces impartially:
a. Accountability.
b. Equity
c. Participation.
d. Rule of Law.

20. This is the system of stewardship and control to guide organizations in fulfilling their long-term
economic moral, legal and social obligations towards stakeholders
a. Good Governance.
b. Corporate Governance.
c. Governance
d. Principles of Governance.

21. A situation a person faces in which a decision must be made about the appropriate behavior.

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a. Ethical Issues
b. Ethical management
c. Ethical challenge
d. Ethical dilemma

22. If the chance of loss is high and loss severity is high, generally the most appropriate risk
management tool is
a. risk sharing
b. risk avoidance
c. risk reduction
d. risk transfer

23. Which ISO standard enlist principles and guidelines on implementation, the process of risk management:
a. 11000
b. 21000
c. 31000
d. 41000

24. What is the process of steps taken during risk management?

a. identification, analysis, treatment, monitoring, review
b. identification, analysis, monitoring and review, treatment
c. analysis, identification, treatment, monitoring and review
d. identification, treatment, analysis, monitoring, review

25. When there’s an and the risk is compared to the benefits obtained, corruption is most
likely to occur.
a. opportunity; minimal
b. incentives; minimal
c. opportunity; high
d. incentives; high
26. Which of the following is not objective of internal control?
a. reliability of financial reporting.
b. efficiency and effectiveness of operation.
c. compliance with laws and regulations.
d. assurance of elimination of business risk

27. A company frequently sells products at price below inventory cost. Essential control in the
risk assessment process would include:
a. adequate control that address the risk of overstating inventory.
b. adequate control that address the risk of not including a purchased item in
inventory. c. adequate controls that address the risk of understatement of inventory.
d. adequate controls that address the risk of overstatement of cost of goods sold.

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28. Internal controls are not designed to provide reasonable assurance

that a. all frauds will be detected.
b. transactions are executed in accordance with management's authorization.
c. access to assets is permitted only in accordance with management's
authorization. d. company personnel comply with applicable rules and regulations.

29. The most cost-efficient type of internal control is

a. accounting control
b. detective control
c. preventive control
d. corrective control

30. Which of the following suggest a weakness in internal control environment?

a. a firm that has an up-to-date organizational chart.
b. monthly reports comparing actual performance to budget are distributed to managers.
c. performance evaluations are prepared every three years.
d. the audit committee meet quarterly with external auditors.

31. Which of the following is not an internal control procedure?

a. authorization
b. management operating cycle
c. independent verification
d. accounting records.

32. Which one of the following below is not an element of internal control?
a. risk assessment
b. cost-benefit considerations
c. information and communication
d. monitoring

33. Which one of the following below is not a factor that influences a business's control environment?
a. management's philosophy and operating style.
b. organizational structure
c. personnel policies
d. proofs and security measurers

34. The objectives of internal control are to

a. provide reasonable assurance that operations are managed to achieve goals, financial reports
are accurate, and laws and regulations are complied with.
b. provide control over "internal-use only" reports and employee internal
conduct. c. prevent fraud, and promote the social interest of the company.
d. control the internal organization of the accounting department personnel and equipment.

35. Which one of the following below reflects a weak internal control system?

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a. all employees are well supervised

b. a single employee is responsible for comparing a receiving report to an invoice.
c. ` all employees must take their vacations.
d. a single employee is responsible for collecting and recording of cash

36. Internal control does not consist of policies and procedures

that a. ensure that business information is accurate
b. guarantee the company will not go bankrupt
c. aid management in directing operations toward achieving business
goals d. protect assets from misuse

37. An element of internal control is

a. journals
b. risk assessment
c. subsidiary ledger
d. controlling accounts

38. A firm’s internal control environment is not influenced

by a. management's operating style
b. monitoring policies
c. personnel policies
d. organizational structure

39. A necessary element of internal control

is a. systems design
b. system analysis
c. information and communication
d. database

40. The cash account in the company's ledger is a(n)

a. asset with a debit balance
b. asset with a credit balance
c. liability with a debit balance
d. liability with a credit balance

41. An example of a preventive control is

a. a single person handles the responsibilities for operations, custody of assets, and
accounting. b. separation of the Purchasing Department and Accounting Department personnel
c. bonding employees who handle cash
d. accepting payment in currency only

42. The reconciliation of the cash register tape with the cash in the register is an example
of a. other controls
b. independent internal verification

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c. establishment of responsibility
d. segregation of duties

43. Which of the following is not an internal control activity for cash?
a. All cash receipts should be recorded promptly.
b. The number of persons who have access to cash should be
limited. c. Surprise audits of cash on hand should be made
occasionally.
d. The functions of record keeping and maintaining custody of cash should be combined.

44. A bank reconciliation should be prepared periodically because

a. the company's records and the bank's records are in agreement
b. the bank has not recorded all of its transactions
c. any differences between the company's records and the bank's records should be determined,
and any errors made by either party should be discovered and corrected
d. the bank must make sure that its records are correct

45. Which of the following is not a limitation of the internal control system?
a. fraud occurs because of collusion between two
employees b. the industry is inherently risky
c. management instructs the bookkeeper to make fraudulent journal
entries d. All of the above

46. Which of the following is a preventive control?

a. credit check before approving a sale on account.
b. bank reconciliation
c. physical inventory count
d. comparing the accounts receivable subsidiary ledger to the control account

47. A physical inventory count is an example of a

a. preventive
b. corrective
c. detective
d. feed-forward control

48. Which of the following indicates a strong internal control environment?

a. the internal audit group reports to the audit committee of the board of
directors b. adverse business conditions exist in the industry
c. here is no segregation of duties between organization
functions d. there are questions about the integrity of
management

49. According to COSO, an effective accounting system performs all of the following
except a. identifies and records all valid financial transactions
b. separates the duties of data entry and report generation
c. records financial transactions in the appropriate accounting period

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d. records all financial transactions promptly

50. Which of the following is the best reason to separate duties in a manual system?
a. to avoid collusion between the programmer and the computer
operator b. to ensure that supervision is not required
c. to prevent the record keeper from authorizing transactions
d. to enable the firm to function more efficiently

51. The decision to extend credit beyond the normal credit limit is an example
of a. . independent verification
b. authorization
c. segregation of duties
d. supervision

52. When duties cannot be segregated, the most important internal control procedure
is a. authorization
b. supervision
c. independent verification
d. segregation of duties

53. An accounting system that maintains an adequate audit trail is implementing which internal
control procedures?
a. access controls
b. segregation of duties
c. independent verification
d. accounting records

54. The board of directors consists entirely of personal friends of the chief executive officer. This indicates
a weakness in
a. the accounting system
b. the control environment
c. control procedures
d. this is not a weakness

55. Management can expect various benefits to follow from implementing a system of strong internal control.
Which of the following benefits is least likely to occur?
a. reduced cost of an external audit.
b. prevents employee collusion to commit fraud.
c. availability of reliable data for decision-making purposes.
d. some assurance that important documents and records are protected.

56. . Which of the following situations is not a segregation of duties violation?

a. The treasurer has the authority to sign checks but gives the signature block to the assistant
treasurer to run the check-signing machine.

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b. The sales manager has the responsibility to approve credit and the authority to write off
accounts. c. The department time clerk is given the undistributed payroll checks to mail to absent
employees.
d. The warehouse clerk, who has the custodial responsibility over inventory in the warehouse,
selects the vendor and authorizes purchases when inventories are low.

57. Inherent risk

a. exists because all control structures are flawed in some ways
b. is the likelihood that material misstatements exist in the financial statements of the firm
c. is associated with the unique characteristics of the business or industry of the
client. d. is the likelihood that the auditor will not find material misstatements

58. Internal control over cash disbursement is more effective when payments are made by:
a. check
b. cash
c. both a and b
d. none of the above

59. The concept of reasonable assurance rest on the premise that:

a. rotating employees’ duties.
b. requiring employees to take vacation.
c. the cost of establishing control procedures should not exceed their expected
benefit. d. physical, mechanical, and electronic controls.

60. The following measure is recommended to obtain maximum benefit from independent
internal verification:
a. The verification should be made periodically or on a surprise basis.
b. The verification should be done by an employee who is independent of the personnel responsible
for the information.
c. Discrepancies and exceptions should be reported to a management level that can take appropriate
corrective action.
d. all of the above.

-NOTHING FOLLOWS-

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