1. The control environment consists ofactions, policies, and procedures that

A. help implement the ethical attitudes at theorganization, such as a computer usage policy.

B. govern access to particularapplications, such as how employees use passwords to change master file payroll rates.

C. reflect the overall attitudes of topmanagement, thedirectors, and the owners of an entity about control and its importance.

D. are recorded on the web site(for example, access policies todata).

2. The board of directors is essential for effective corporate governance because it has ultimate responsibility to

A. provide a report to the auditor confirming that internal controls are working properly.

B. test internal controls and ensure they are working properly.

C. make sure management implements proper internal control and financial reporting processes.

D. assist management in the preparation of the financial statements.

3. The methods that management uses to enforce accountability over internal controls are called

A. personnel practices.

B. performance measures.

C. control testing.

D. management's operating style.

4. Which of the following is an example of a generalauthorization?

A. Grocery supervisors approve each transaction reversal over five dollars.

B. Each supervisory wage rate must be approved by the executive manager.

C. ABC Company has a credit limit of$25 000.

D. The highest credit limit allowed for accounts receivable is$50 000.

5. An essential characteristic of the persons performing internal check procedures is

A. independence from the original data preparer.

B. competence in data entry skills.

C. an analytical and inquisitive mind.

D. a thorough knowledge of accounting.

6. The chart of accounts is an important control because it provides the framework for determining the information presented to management and other financial statement users. What type of error is the chart of accounts helpful inpreventing?

A. errors of completeness

B. errors of accuracy

C. errors of occurrence

D. errors of classification

7. Which of the following duties would indicate a weakness in internalcontrols?

A. The internal auditor reports to the board of directors.

B. The custodianship of buildings and equipment is the responsibility of thecontroller's function.

C. The accounting function is under the controller.

D. The custodianship of cash is the responsibility of thetreasurer's function.

8. Which one of the following is an example of a specificauthorization?

A. Grocery sales clerks may approve returns of goods less than ten dollars in value.

B. Each sales transaction that exceeds the credit limit of a customer must be approved by the controller.

C. The highest credit limit allowed for accounts receivable customers is$100 000.

D. The computer systems automatically reorder inventory when quantities fall below the economic order quantity.

9. External auditor Maryann Smith may not rely on the work of internal auditor Raymond Jones unless

A. Jones is supervised by Smith.

B. Jones is certified(CA, CGA, orCMA).

C. Jones is independent of the client.

D. Smith obtains evidence that supports thecompetence, integrity, and objectivity of Jones.

10. An employee who communicates improprieties is called a

A. spy.

B. informer.

C. tipster.

D. whistleblower.

11. A firewall allows the organization to

A. monitor network hot spots for signs of intruders.

B. support identity management initiatives.

C. prevent unauthorized communication both into and out of the network.

D. prevent known spyware and malware from entering the system.

12. Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

A. direct participation by the owner of the business in the recordkeeping activities of the business.

B. engaging a public accountant to perform monthly "writeup" work.

C. delegation offull, clearcut responsibility to each employee for the functions assigned to each.

D. employment of temporary personnel to aid in the segregation of duties.

13. As a first time auditor of a smallcompany, what will be your strategy to obtain an understanding of internal controls of thecompany?

A. conduct the procedure of understanding internal controls in the current year

B. get the company employees to test the internal controls for you

C. as the company issmall, defer the procedure to understand internal controls until next year

D. rely on the verbal assurance from management that internal control exists