COSO Quiz UPDATED ACTUAL Exam
Questions and CORRECT Answers
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.) - CORRECT 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.) - CORRECT 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 systems are not part of an organization's control system and should not be
reported as such.
3. An audit of an organization's compensation system should be performed independently of an
audit of the control system over other functions that impact 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.) - CORRECT
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. Designing and operating a control system that provides reasonable assurance that established
objectives and goals will be achieved.
C. Ensuring that external and internal auditors adequately monitor the control environment.
D. Implementing and monitoring controls 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.) - CORRECT
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 exceed its benefits.
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.) - CORRECT 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.) - CORRECT ANSWER - [ 6 ] According to COSO,
which of the following is the most effective method to transmit a message of ethical behavior
throughout an organization?
A. Demonstrating appropriate behavior by example.
B. Strengthening internal audit's ability to deter and report improper behavior.
C. Removing pressures to meet unrealistic targets, particularly for short-term results. D.
Specifying the competence levels for every job in an organization and translating
those levels to requisite knowledge and skills.
D (*Correct Answer* Monitoring is the process of assessing the quality of the system's
performance over time. It is designed to ensure that internal controls continue to operate
effectively.) - CORRECT ANSWER - [ 7 ] Within the COSO Internal Control - Integrated
Framework, which of the following components is designed to ensure that internal controls
continue to operate effectively?
A. Control environment.
B. Risk assessment.
C. Information and communication.
D. Monitoring.
Questions and CORRECT Answers
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.) - CORRECT 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.) - CORRECT 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 systems are not part of an organization's control system and should not be
reported as such.
3. An audit of an organization's compensation system should be performed independently of an
audit of the control system over other functions that impact 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.) - CORRECT
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. Designing and operating a control system that provides reasonable assurance that established
objectives and goals will be achieved.
C. Ensuring that external and internal auditors adequately monitor the control environment.
D. Implementing and monitoring controls 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.) - CORRECT
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 exceed its benefits.
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.) - CORRECT 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.) - CORRECT ANSWER - [ 6 ] According to COSO,
which of the following is the most effective method to transmit a message of ethical behavior
throughout an organization?
A. Demonstrating appropriate behavior by example.
B. Strengthening internal audit's ability to deter and report improper behavior.
C. Removing pressures to meet unrealistic targets, particularly for short-term results. D.
Specifying the competence levels for every job in an organization and translating
those levels to requisite knowledge and skills.
D (*Correct Answer* Monitoring is the process of assessing the quality of the system's
performance over time. It is designed to ensure that internal controls continue to operate
effectively.) - CORRECT ANSWER - [ 7 ] Within the COSO Internal Control - Integrated
Framework, which of the following components is designed to ensure that internal controls
continue to operate effectively?
A. Control environment.
B. Risk assessment.
C. Information and communication.
D. Monitoring.
