CHAPTER 3- ETHICS, FRAUD, and INTERNAL CONTROL

1. This pertains to the entity-wide computer d. Accounting Records

environment and make sure an organization's
control environment is stable and well
managed. 5. These are independent checks of the
accounting system to identify errors and
a. Physical control
misrepresentations.
b. IT control
a. Supervision
c. General control**
b. Accounting Records
d. Application control
c. Access Control

d. Independent Verification**
2. It prevents, detects, and corrects transaction
errors and fraud in application programs.
6. It is the foundation for the other four control
a. Physical control
components. It sets the tone for the
b. IT control organization and influences the control and
awareness of it's management.
c. General control
A. Control environment
d. Application control**
B. Risk assessment

C. Monitoring
3. The work of one cannot be done by others. If
so, then there would be a possible conflict of D. Information and communication
interest that may lead to a fraud.

a. Transaction Authorization
7. It is the process by which the quality of the
b. Segregation of Duties** internal control design and operation can be
assessed.
c. Supervision
A. Information and communication
d. Accounting Records
B. Control activities

4. This is used to ensure that employees are
carrying out only authorized transactions and
that all material transactions processed by the
information system are valid and in accordance
with management’s objectives.
a. Transaction Authorization**
b. Segregation of Duties
c. Supervision
C. Monitoring
D. Risk assessment
8. What does SAS stands for
A. Statement on Auditing Standards
B. Statement on Accounting Standards
C. Statement on Auditing System
 CHAPTER 3- ETHICS, FRAUD, and INTERNAL CONTROL

D. Statement on Accounting System d. Illegal gratuities

9. Denotes a false representation of a material 13. It is designed to reduce the frequency of

fact made by one party to another party with occurrence of undesirable events.
the intent to decieve the other party to
a. Corrective Control
justifiably rely on the fact.
b. Preventive Control ***
a. False Representation
c. Detective Control
b. Fraud
d. All of the Above.
c. Employee Fraud

d. Management Fraud
14. The following are the undesirable events in
internal control system, except
10. Involves an executive, manager or employee
a. Attempts at unauthorized access to the firm's
of the organization in collusion with an
asset
outsider, 10% of occupational fraud cases
b. Errors due to employees incompetence,
a. Corruption
faulty computer programs and corrupted input
b. Illegal gratuities data

c. Bribery c. Fraud perpetrated by persons both inside and

outside the firm,
d. Fraudulent Statements
d. Circumvention ***

11. Usually does not involve the direct theft of

assets and usually done by top management 15. A weakness in internal control may expose
where internal controls can't detect the firm to one or more of the following risks.
Except,
a. Economic extortion
a. Destruction of assets
b. Employee Fraud
b. Theft of assets
c. Fraud Triangle
c. Corruption in the management ***
d. Management Fraud
d. Disruption of the information system.

12.Is the use of force by an individual or

organization to obtain something value

a. Conflict of interest

b. Bribery

c. Economic extortion
 CHAPTER 3- ETHICS, FRAUD, and INTERNAL CONTROL

16. What are the limitations of internal control? 19. The following are the Legal definition of
fraud, except
a. Possibility of Errors, Circumvention,
Management override, Changing conditions a. False representation

b. Possibility of Errors, Fraud, Circumvention, b. immaterial fact

Management override, Changing conditions
c. Intent to deceive
c. Possibility of Errors, Fraud, Destruction,
d. Justifiable reliance
Management override, Changing conditions

d. Possibility of Errors, Fraud, Destruction,

Circumvention, Management override, . 20. It is the control that actually fixes the
Changing conditions problem

a. Corrective Control
17. Inherent in the internal control objectives b. Preventive Control
are modifying assumptions that guide designers
and auditors’ internal control, except c. Detective Control

a. Management Responsibility d. All of the Above.

b. Reasonable Assurance

c. Methods of Data Processing

d. safeguards the assets of the firm

18. This concept holds the establishment and

maintenance of a system of internal control.

a. Management Responsibility

b. Reasonable Assurance

c. Methods of Data Processing

d. Management Control