MCQ- Evaluation of Internal Control (PC-22)

Evaluation of Internal Control (PC-22)

Q-1		One of the following is not an objective of Internal Control
	(a)	Safeguarding the assets of the organization
	(b)	Verifying the accuracy and reliability of its accounting data
	(c)	Promoting staff efficiency
	(d)	Fostering and encouraging adherence to the prescribed managerial policies
Q-2		In recent years, the relevance and objectives of Internal Accounting Controls, have expanded far beyond the traditional ambit of protection against theft and fraud, well into the areas of -----------, ---------and --------  --------- of the organisation
	(a)	economy, effectiveness and operational efficiency
	(b)	effectiveness, accountability and operational efficiency
	(c)	effectiveness, reasonability and operational efficiency
	(d)	effectiveness, accountability and fair accounting
Q-3		Viewed in the Indian context, the Government in consultation with the Institute of Chartered Accountants of India, issued the Manufacturing and Other Companies (Auditors' Report) Order, 1975, (Order) for
	(a)	guidance in framing such evaluation
	(b)	finalization of accountability issues for such evaluation
	(c)	rationalization of the requirements for such evaluation
	(d)	rationalization of the guidelines for such evaluation
Q-4		A system of internal control recognizes the basic principle that it should be as --------as is practical and feasible, for individuals to be dishonest or careless. Such a premise is indeed not based on a cynical view of human nature in general, but rather on the realistic assumption that there could be a few persons who would be dishonest or careless if it is easy for them to be so.
	(a)	easy
	(b)	complex
	(c)	difficult
	(d)	informal
Q-5		Apart from the prevention and detection of fraud, internal controls should reflect the strength of the overall --------- ------------ in an organization as also the accuracy of its financial and operational records.
	(a)	financial accuracy
	(b)	accounting environment
	(c)	Accounting reforms
	(d)	financial environment
Q-6		The two dimensions of internal controls are..
	(a)	1)Administrative Control and 2) Accounting Control
	(b)	1)Administrative Control and 2) Accounting reforms
	(c)	1)Accounting accuracy and 2) Administrative Control
	(d)	1)Accounting Control and 2)Administrative reforms
Q-7		Accounting controls comprise the plan of organization , procedures and records that are concerned with safeguarding of assets and the reliability of financial records designed to provide reasonable ---------- that the transactions are recorded and executed in accordance with the general and /or specific authorization of the Management,
	(a)	guaranty
	(b)	justification
	(c)	safeguarding
	(d)	assurance
Q-8		Preparation and maintenance of accountal of assets should be in conformity with the generally accepted accounting principles and any other criteria applicable to such statements are….
	(a)	accountability for the physical verification of assets
	(b)	Management's authorization of access to assets
	(c)	proper maintenance of accountal of assets
	(d)	All of the above
Q-9		(A) The distinction between the Administrative Control and Accounting Control requires considerable dexterity as these two are very often inter-related. (B) Needless to say that the distinction should not be artificially made and administrative controls generally have a nexus with the accounting controls even if the linkage is indirect.
	(a)	Only (A) is correct
	(b)	Only (B) is correct
	(c)	Both (A) and (B) are correct
	(d)	None of the above
Q-10		Adequacy of the accounting systems is the responsibility of the Management, the Statutory Auditor is usually assigned the specific responsibility for reviewing the …..
	(a)	Accounting Systems and its related internal controls
	(b)	Internal controls of accounting system and monitoring their operations.
	(c)	Both (a) and (b)
	(d)	None of the above
Q-11		Review of non-financial and operating information includes
	(a)	Detailed testing of transactions, procedures and balances
	(b)	Identification, measurement, classification
	(c)	Both (a) and (b)
	(d)	Examination of the economy, efficiency and effectiveness of operations
Q-12		Before an evaluation is undertaken the auditor should determine :- (A) The degree of reliance that can be placed on the various systems and procedures in existence. (B) The nature, extent and timing of substantive audit tests to be applied.
	(a)	Only (A)
	(b)	Only (B)
	(c)	Both (A) and (B)
	(d)	None of the above
Q-13		Following is not an advantage of internal control
	(a)	Enables Government Audit to review the comprehensiveness in specific terms, of the evaluation conducted by the Statutory Auditor
	(b)	Facilitates acquisition of an in-depth knowledge and understanding of the systems and procedures, actually in operation.
	(c)	Enables the Statutory Auditor in the determination of the degree of effectiveness of Internal Audit in the auditee organization.
	(d)	Highlights areas of weakness in the operating systems, for suitable remedial action to be taken by the Chartered Accountants.
Q-14		The System of Internal Control is the plan of organization and all the methods and procedures adopted by the Management of an entity to assist in achieving management's objective of ensuring, as far as practicable, the orderly and efficient conduct of business, including. The system of internal control extends beyond those matters which relate directly to the functions of the accounting system. The internal audit functions constitute a separate component of internal control established with the objective of determining whether other internal controls are well designed and properly operated".
	(a)	adherence to Management policies, the safeguarding of assets, prevention and detection of fraud and error, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information
	(b)
	(c)
	(d)
Q-15		There is a distinction between the concepts of 'control environment' and 'control procedures'. The control environment refers to the overall attitude, awareness and actions of the Management regarding control and its role and importance in the entity. Whereas Control procedures encompass policies and procedures established by the Management, in order to provide for the attainment of certain objectives. Which one is not the part of “Control Environment”
	(a)	The organizational structure and methods of assigning authority and responsibility.
	(b)	Management's control system (including internal audit functions)
	(c)	The functions of the Board of Directors, personnel policies, procedures and external influences.
	(d)	Maintenance of control accounts and Trial Balances.
Q-16		There is a distinction between the concepts of 'control environment' and 'control procedures'. The control environment refers to the overall attitude, awareness and actions of the Management regarding control and its role and importance in the entity. Whereas Control procedures encompass policies and procedures established by the Management, in order to provide for the attainment of certain objectives. Which one is not the part of “Control Environment”
	(a)	Management's control system (including internal audit functions)
	(b)	System of operation of accounting procedures for ascertainment of accurate of accurate and reliable accounting data.
	(c)	Existence of an effective system for the efficient operation of the asset and a well regulated system for safeguarding of assets.
	(d)	System of managerial review of the work allocated to various individuals in the organisation.
Q-17		Evaluation of internal control systems can be done in a variety of ways. It would be reasonable to expect that the desired degree of documentation would be in proportion with the size and activities of the organisation. Only three among the following are the general methods adopted, single out the inappropriate method
	(a)	Appraisal by workflow,
	(b)	Appraisal by duties,
	(c)	Appraisal by questionnaire
	(d)	Appraisal by objectives
Q-18		The challenges faced by the Auditor are considerable in an environment where the use of the computer in data processing operations is on the increase. Thus it is possible that while in a manual system, incompatible functions such as the authority to initiate and execute a transaction and the recording of the transaction , are assigned to different departments or to different individuals within the accounting department, in a computerized environment, these incompatible functions may be consolidated within the EDP department. Please select, which among the following is not inappropriate alternative controls
	(a)	Organization controls with appropriate segregation of duties within the EDP Department.
	(b)	Sound personnel practices with effective control over the quality of work.
	(c)	Standard operating procedures for ensuring high quality processing and limiting the possibility of errors as also the unauthorized use of files, programs and reports.
	(d)	None of the above
Q-19		Evaluation of Internal Controls by the questionnaire methods (used in conjunction with other methods.) is __ _______ and ______ ____for documented evidence of such review having actually taken place.
	(a)	A complex and undesirable medium
	(b)	a convenient and efficient medium
	(c)	A convenient but complex medium
	(d)	None of the above
Q-20		A standard Internal Control Questionnaire has therefore, been prepared and presented by the
	(a)	Research Committee of Comptroller and Auditor General of India.
	(b)	Research Committee of ASOSAI
	(c)	Research Committee of Chartered Accountants of India.
	(d)	Research Committee of INTOSAI
Q-21		The questions are so framed that most of the answers can be given by "Yes" or "No" or "Not applicable". Affirmative answers generally indicate good internal controls while negative answers indicate weaknesses. The Auditors may obtain answers to the questions by adopting following methods
	(a)	Answers could be compiled by the auditor on the basis of his observations and personal interaction with the auditee.
	(b)	Alternatively, the questionnaire may be given to auditee who could furnish answers on separate sheets. The advantage of this method is that the auditee would have an opportunity to review his own systems of internal control through the mere process of answering the questionnaire.
	(c)	The auditor should then conduct a test check in order to ascertain the accuracy of the replies and the actual operation of the system.
	(d)	All of the above
Q-22		The Systems Control Evaluation (SCE) based on the questions and answers exercise, is thus designed to identify the controls in the system which would satisfy the general audit objectives. Having identified the controls, the auditor assesses the adequacy of the process. He would necessarily be required to adopt a critical approach attempting to:-
	(a)	envisage situations in which they might fail to operate and consequently result in the occurrence of an error or fraud
	(b)	the auditor should also consider how promptly errors could be identified and the their impact on the financial statements, in the event of their remaining undetected
	(c)	the auditor should then formulate his assessment based upon the suggested guidelines and'categorise the assessment of internal controls.
	(d)	All of the above
Q-23		It is generally accepted that internal control procedures can provide reasonable and in no case, absolute assurance, that the objectives of such controls relating to accounting systems are achieved. This could be due to the possible existence of certain inherent limitations including :-
	(a)	The potential for human error due to carelessness, distractions, errors of judgment and misinterpretation of instruction.
	(b)	The possibility of circumvention of controls through collusion with parties outside the entity or with employees of the entity, (e.g. a lack of segregation of duties between computer programmers and computer operations).
	(c)	Only (a)
	(d)	Both (a) and (b)
Q-24		Despite the existence of certain possible inherent weaknesses that would exist in almost every system, howsoever perfect in design, the corrective action taken for rectification by the Management and its periodic assessment
	(a)	through the Systems Control Evaluation method adopted in Systems Based Audit
	(b)	Fulfillment of the principal objectives of establishing and effectively operating Internal Control Procedures.
	(c)	Only (a)
	(d)	Both (a) and (b)

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