PART 1

1. Fraud is intentional while error is unintentional.

ANSWER: TRUE

2. Receivables aside from accounts receivable may also be a source of both fraud and error.
ANSWER: TRUE

3. The property, plant and equipment of the company have the lowest inherent risk among
assets.
ANSWER: TRUE

4. The existence of the internal control components in a company means that the internal
control is effective.
ANSWER: FALSE

5. The first line of defense in internal control is the control implemented by its management.
ANSWER: TRUE

6. Errors can either be principal or clinical errors.

ANSWER: FALSE

7. The misstatement may arise from misapplication of asset or error in financial reporting.
ANSWER: FALSE

8. Internal control has 5 processes.

ANSWER: FALSE

9. The internal control can give an absolute assurance in an organization when they are
implemented successfully.
ANSWER: FALSE

10. Internal control is implemented to address identified business risks that threaten the
achievement of any of these objectives
ANSWER: FALSE

11. One of the limitations of internal control is human failure

ANSWER: TRUE

12. The regulatory requirements that must be complied by the companies are fixed and the
same among industries.
ANSWER: FALSE
13. Reliability of reporting can refer to internal and external as well as financial and non-financial
ANSWER: TRUE

14. Internal control has 4 components based from the internal control pyramid
ANSWER: FALSE

15. The financial investments of the company have the highest inherent risk among assets.
ANSWER: FALSE

PART 2

1. Fraud and error can be (except)

ANSWER: Circumvented

2. The organization selects, develops and performs ongoing and/or separate evaluations to
ascertain whether the components of internal control are present and functioning
ANSWER: Monitoring activities

3. Which of the following must not be communicated when immaterial

ANSWER: Errors

4. The organization selects and develops general control activities over technology to support
the achievement of objectives
ANSWER: Control activities

5. The following are considered as inventory on the buyer’s side except:

ANSWER: Goods in transit with FOB destination shipping term

6. The following are the common irregularities under payroll and personnel cycle except:
ANSWER: Receiving kickbacks

7. The main responsible for establishing a control environment and maintain policies and
procedures by implementing and ensuring continued operation of accounting and internal
control systems, which are designed to prevent fraud and error
ANSWER: Management

8. These are three conditions generally present when fraud occurs except:
ANSWER: Proportionality

9. Risk Factors contributory to fraudulent financial reporting are the following except:
ANSWER: Embezzlement
10. The organization identifies and assesses the changes that could significantly impact the
system of internal control:
ANSWER: Control Environment

11. Which of the following is affected the most when there is a fraud or error relating to cut-off?
ANSWER: Completeness

12. The board of directors demonstrates independence from management and exercises
oversight of the development and performance of internal control
ANSWER: Control environment

13. Risk factors contributory to misappropriation of assets are the following except
ANSWER: Stealing physical assets or intellectual property.

14. Which of the following must be communicated when material?

ANSWER: All of the choices

15. Which of the following has the least susceptibility to theft?

ANSWER: Building