COSO TEST QUESTIONS AND ANSWERS
WITH EXPLANATION
D (*Correct Answer* The COSO framework treats internal control as a process
designed to provide reasonable assurance regarding the achievement of
objectives related to reliability of financial reporting, effectiveness and
efficiency of operations, and compliance with applicable laws and regulations.)
- ANSWER [ 1 ] The COSO framework treats internal control as a process
designed to provide reasonable assurance regarding the achievement of
objectives related to
A. Reliability of financial reporting.
B. Effectiveness and efficiency of operations.
C. Compliance with applicable laws and regulations.
D. All of the answers are correct.
A (*Correct Answer* The control environment includes, among other things,
the element of human resource policies and practices. Thus, hiring, orientation,
training,
evaluation, counseling, promotion, compensation, and remedial actions must be
considered by management.) - ANSWER [ 2 ] Which of the following
statements is correct regarding corporate compensation systems and related
bonuses?
1. A bonus system should be considered part of the control environment of an
organization and should be considered in formulating a report on internal
control.
,2. Compensation schemes do not form part of a corporation's control system,
nor should they be reported in an audit as such.
3. An audit concerning compensation schemes of a certain firm has to be
performed separately from, an audit of the same institution's control system
relevant for corporate bonuses.
A. 1 only
B. 2 only.
C. 3 only
D. 2 and 3 only.
A (*Correct Answer* Senior management is primarily responsible for
establishing a proper organizational culture and specifying a system of internal
control.) - ANSWER [ 3 ] An organization's directors, management, external
auditors, and internal auditors all play important roles in creating a proper
control environment. Senior management is primarily responsible for
A. Establishing a proper organizational culture and specifying a system of
internal control.
B. Plan and operate a control system that provides reasonable assurance that
established objectives and goals will be achieved.
C. Make sure the control environment is appropriately monitored by external
and internal auditors.
D. Establish and monitor controls as designed by the board of directors.
C (*Correct Answer* A limiting factor is that the cost of internal control should
not exceed its expected benefits. Thus, the potential loss associated with any
exposure or risk is weighed against the cost to control it. Although the
costbenefit relationship is a
, primary criterion that should be considered in designing and implementing
internal control, the precise measurement of costs and benefits usually is not
possible.) - ANSWER [ 4 ] Internal control can provide only reasonable
assurance that the organization's objectives will be met efficiently and
effectively. One factor limiting the likelihood of achieving those objectives is
that
A. The internal auditor's primary responsibility is the detection of fraud.
B. The board is active and independent.
C. The cost of internal control should not be more than its benefit.
D. Management monitors performance.
C (*Correct Answer* According to the COSO model for internal control, the
control environment reflects the attitude and actions of the board and
management regarding the significance of control within the organization.) -
ANSWER [ 5 ] Which of the following is the control component that reflects
the attitude and actions of the board and management regarding the significance
of control within the organization?
A. Risk assessment.
B. Control activities.
C. Control environment.
D. Monitoring.
A (*Correct Answer* Through words and actions, management communicates
its attitude toward integrity and ethical values. In this way, management sets the
tone at the top. Demonstrating appropriate behavior by example is the most
effective method to transmit a message of ethical behavior throughout an
organization.) - ANSWER [ 6 ] According to COSO, which of the following is
the most effective method to transmit a message of ethical behavior throughout
an organization?
WITH EXPLANATION
D (*Correct Answer* The COSO framework treats internal control as a process
designed to provide reasonable assurance regarding the achievement of
objectives related to reliability of financial reporting, effectiveness and
efficiency of operations, and compliance with applicable laws and regulations.)
- ANSWER [ 1 ] The COSO framework treats internal control as a process
designed to provide reasonable assurance regarding the achievement of
objectives related to
A. Reliability of financial reporting.
B. Effectiveness and efficiency of operations.
C. Compliance with applicable laws and regulations.
D. All of the answers are correct.
A (*Correct Answer* The control environment includes, among other things,
the element of human resource policies and practices. Thus, hiring, orientation,
training,
evaluation, counseling, promotion, compensation, and remedial actions must be
considered by management.) - ANSWER [ 2 ] Which of the following
statements is correct regarding corporate compensation systems and related
bonuses?
1. A bonus system should be considered part of the control environment of an
organization and should be considered in formulating a report on internal
control.
,2. Compensation schemes do not form part of a corporation's control system,
nor should they be reported in an audit as such.
3. An audit concerning compensation schemes of a certain firm has to be
performed separately from, an audit of the same institution's control system
relevant for corporate bonuses.
A. 1 only
B. 2 only.
C. 3 only
D. 2 and 3 only.
A (*Correct Answer* Senior management is primarily responsible for
establishing a proper organizational culture and specifying a system of internal
control.) - ANSWER [ 3 ] An organization's directors, management, external
auditors, and internal auditors all play important roles in creating a proper
control environment. Senior management is primarily responsible for
A. Establishing a proper organizational culture and specifying a system of
internal control.
B. Plan and operate a control system that provides reasonable assurance that
established objectives and goals will be achieved.
C. Make sure the control environment is appropriately monitored by external
and internal auditors.
D. Establish and monitor controls as designed by the board of directors.
C (*Correct Answer* A limiting factor is that the cost of internal control should
not exceed its expected benefits. Thus, the potential loss associated with any
exposure or risk is weighed against the cost to control it. Although the
costbenefit relationship is a
, primary criterion that should be considered in designing and implementing
internal control, the precise measurement of costs and benefits usually is not
possible.) - ANSWER [ 4 ] Internal control can provide only reasonable
assurance that the organization's objectives will be met efficiently and
effectively. One factor limiting the likelihood of achieving those objectives is
that
A. The internal auditor's primary responsibility is the detection of fraud.
B. The board is active and independent.
C. The cost of internal control should not be more than its benefit.
D. Management monitors performance.
C (*Correct Answer* According to the COSO model for internal control, the
control environment reflects the attitude and actions of the board and
management regarding the significance of control within the organization.) -
ANSWER [ 5 ] Which of the following is the control component that reflects
the attitude and actions of the board and management regarding the significance
of control within the organization?
A. Risk assessment.
B. Control activities.
C. Control environment.
D. Monitoring.
A (*Correct Answer* Through words and actions, management communicates
its attitude toward integrity and ethical values. In this way, management sets the
tone at the top. Demonstrating appropriate behavior by example is the most
effective method to transmit a message of ethical behavior throughout an
organization.) - ANSWER [ 6 ] According to COSO, which of the following is
the most effective method to transmit a message of ethical behavior throughout
an organization?
