COSO Framework MCQ

COSO Framework MCQ
1. All of the following are sub-systems (contents) of an entity’s information system except:
a. Computer systems software
b. Customer and vendor records
c. Production System
d. Personnel information
ANSWER: D
2. The owner of ABC Company has approached the managing partner of a CPA firm about conducting a
first-time independent audit. While discussing the nature and scope of the audit, the owner of ABC
Company asks if it is really necessary for the auditor to gain an understanding of ABC Company’s system
of internal control. Which of the following responses would NOT be correct?
a. Independent auditors can no longer assess control risk at a maximum without having support for
that assessment.
b. Audit standards do not require he auditor to gain an understanding of the client’s system of internal
control since risk can be assessed by other means.
c. The auditor needs to gain an understanding of the client’s internal control in order to assess risk.
d. An understanding of internal control is necessary to support the audit opinion.
ANSWER: B
3. The auditor's primary consideration is whether, and how, a specific control prevents, or detects and
corrects, material misstatements:
a. In disclosures
b. In account balances
c. In classes of transactions
d. In classes of transactions, account balances or disclosure
ANSWER: D
4. Within the COSO Internal Control—Integrated Framework, which of the following components is
designed to ensure that internal controls continue to operate effectively?
a. Monitoring
b. Information and communication
c. Risk assessment
d. Control environment
ANSWER: A
5. Which of the following is not one of the three primary objectives of effective internal control?
a. Reliability of financial reporting
b. Efficiency and effectiveness of operations
c. Assurance of elimination of business risk
d. Compliance with laws and regulations
ANSWER: C
6. Internal controls are grouped into the following categories:

a. Effective operations, financial reporting, and compliance
b. Efficient operations, financial analysis, and compliance
c. Production and operations, financial reporting, and management reporting
d. Efficient operations, financial analysis, and management reporting
ANSWER: A
7. Rizal & Co. has been struggling to implement the monitoring component of the COSO Internal Control—
Integrated Framework. Which of the following is NOT correct in how the company can implement the
monitoring component?
a. The independent auditor can serve as part of the control environment
b. Monitoring can be conducted as a separate evaluation
c. Monitoring can be an ongoing process
d. An adequate internal audit staff can reduce external audit costs
ANSWER: A
8. _____ deal with ongoing or periodic assessment of the quality of internal control by management.
A. Monitoring activities
B. Quality monitoring activities
C. Management activities
D. Oversight activities
ANSWER: A
9. Which of the following is not true about the risk assessment component of the COSO internal control
framework?
a. How responsibility is distributed is usually spelled out in formal company policy manuals.
b. If management effectively assesses and responds to risks, the auditor will typically need to
accumulate less audit evidence than when management fails to, because control risk is lower.
c. Auditors assess risks to decide the evidence needed in the audit.
d. Management assesses risks as part of designing and operating the internal control system to
minimize errors and irregularities.
ANSWER: A
10. Within the component of control activities, one would encounter:

a. Segregation of duties.
b. Estimates of exposure.
c. Management’s philosophy.
d. Human resources policies and practices.
e. Organizational structure
ANSWER: A
11. That companies must comply with many laws and regulations including company law, tax law and
environmental protection regulations requires what category of internal control objectives?
a. Government reporting.
b. Financial reporting
c. Effective operations
d. Compliance.
ANSWER: D
12. All the following describe internal control, according to COSO, except:
a. It is designed to provide reasonable assurance regarding the achievement of objectives in reliability
of financial reporting.
b. It is a process effected by people.
c. It is designed to provide reasonable assurance regarding the achievement of objectives of efficient
operations.
d. It is designed to provide reasonable assurance regarding the achievement of objectives of
compliance with capital structure strategy.
ANSWER: D
13. Which of management’s concerns with respect to implementing internal controls is the auditor primarily
concerned?
a. Reliability of financial reporting.
b. Effectiveness of operations.
c. Efficiency of operations
d. Compliance with applicable laws and regulations.
ANSWER: A
14. There are a number of specific elements that usually contribute to a successful control environment and
which may be used as indicators of the quality of the control environment of a particular organization.
Which of the following is not one of these elements?
a. Human resource policies and practices
b. Organizational structure.
c. Segregation of duties in management.
d. Assignment of authority and responsibility.
ANSWER: C
15. One of the hallmarks of COSO's study is the broadening of the definition of control. The COSO project
moved the definition from the restrictive language of accounting controls to a wider definition that
includes board and management objectives. COSO's internal control model includes five components.
Identify the component that is not included in the COSO model.
a. IT processes
b. Information and communication
c. Control environment
d. Risk assessment
ANSWER: A
16. To obtain an understanding of an entity’s control environment, an auditor should concentrate on the
substance of management’s policies and procedures rather than their form because:
a. Management may establish appropriate policies and procedures but not act on them
b. The board of directors may not be aware of management’s attitude toward the control
environment.
c. The auditor may believe that the policies and procedures are inappropriate for that particular entity.
d. The policies and procedures may be so weak that no reliance is contemplated by the auditor.
ANSWER: A
17. All of the following are components of internal control except:

a. The information system.
b. Management reports.
c. Risk assessment process.
d. Monitoring.
ANSWER: B
18. Which of the following is not one of the components of internal control according to COSO?
a. Communication processes related to stakeholders
b. Risk assessment process.
c. Control procedures
d. Monitoring of controls.
ANSWER: A
19. The most emphasis by auditors is placed on understanding which of the following types of controls?
a. Controls over efficiency of operations.
b. Controls over disclosures.
c. Controls over classes of transactions.
d. Controls on account balances.
ANSWER: C
20. Which of the following is not one of the subcomponents of the control environment?
a. Adequate separation of duties.
b. Organizational structure.
c. Management’s philosophy and operating style.
d. Commitment to competence.
ANSWER: A

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COSO Framework MCQ

6. Internal controls are grouped into the following categories:

10. Within the component of control activities, one would encounter:

17. All of the following are components of internal control except:

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