1. Which of the following is not an objective of internal control:

a. Effectiveness and efficiency of operations.
b. Achievement of earnings per share targets.
c. Reliability of financial reporting.
d. Compliance with applicable laws and regulations.

2. Recent models of control emphasize the following as critically important for internal control.

a. Values
b. International expansion.
c. Computerization of systems.
d. The internet.

3. Which of the following refers to making required purchases at the most favorable prices?

a. Economy.
b. Efficiency.
c. Effectiveness.
d. Internal control.

4. Which is an example of a conflict of interest?

a. The lack of internal controls.
b. A long-term employee.
c. A nephew who works for his uncle
d. A vendor list.

5. Which is not a limitation of internal control?

a. Human error
b. Carelessness.
c. Fatigue and stress.
d. Policies and procedures.

6. A failure of the internal control system to attain intended results may be due to each of the following except for:

a. When employees fail to act in the interests of the organization
b. Competition is more severe than anticipated.
c. The control system is designed inappropriately.
d. The control system fails to detect that a control is not working.

7. In designing systems of internal control, the following must exist:

a. A balance between costs and benefits.
b. Activity-based costing
c. Variable costing.
d. Budgets.

8. Which is not a step in the control cycle?

a. Develop objectives.
b. Measure results.
c. Provide incentives.
d. Continuous reappraisal.

9. Which is not one of the five types of controls?

a. Compensating.
b. Annual.
c. Preventive.
d. Corrective.

10. Which control emphasizes positive actions?

a. Preventative.
b. Detective.
c. Corrective.
d. Directive.

11. Compensating control exists to do all of the following, except for:

a. To compensate for possible shortcomings.
b. To compensate employees.
c. To introduce redundancy.
d. To be a fail-safe control.

12. The following represent sets of activities that should be separated from one another forinternal control purposes, except for:

a. Activities from costs.
b. Custody of assets from recording of assets.
c. Systems development from maintenance.
d. Reconciliation from recording.

13. Decentralization creates internal control problems because of all the following, except for:

a. There is confusion about the objectives of the overall organization.
b. Decentralized decision makers have interests which differ from the overall organization.
c. The existence of more decision-makers creates coordination problems.
d. Decentralized decision-makers have access to better information.

14. Why might an excessive span of control lead to internal control problems?

a. The manager might not be able to effectively supervise subordinates.
b. There are too many subordinates.
c. There are too few managers.
d. The structure would be too tall or too flat.

15. Internal control can be reinforced with:

a. Policies and procedures.
b. Managers.
c. Moral and ethical values.
d. The audit committee.

16. Why is computerization a threat to internal control?

a. There is no or minimal "paper trail".
b. Too fast to see the transactions.
c. Minimal involvement of employees.
d. The processing is distributed.

17. Which employee group has tended to monitor internal control in the past but which has been downsized in recent years to the detriment of effective internal control?

a. Professionals
b. Middle managers.
c. The audit committee.
d. Senior managers.

18. Internal control is necessary because:

a. Organizations are large.
b. Organizations have many products or services.
c. Employees do not always do what the organization desires.
d. Organizations operate in many geographical locations.

19. Which of the following is not a method that employees use to manipulate information?

a. Smoothing.
b. Gaming.
c. Decentralization.
d. Data falsification.

20. Gaming exists when an employee:

a. Alters his or her actions to manipulate a performance indicator.
b. Accelerates or delays the planned flow of information.
c. Falsifies information.
d. Steals from his or her employer.

21. Organizational controls include all but:

a. Purposes, authorities, and responsibilities
b. The organization structure
c. Plans
d. Decision authority

22. Operational controls include all but:

a. Budgets.
b. Job descriptions.
c. Established policies and procedures
d. Accounting and information systems.

23. Personnel controls include all but:

a. Recruitment policies and procedures
b. Employee orientation and training policies and procedures
c. An organization structure.
d. Supervision of employees.