Tag: Ethics

Which ONE of the following statements about audit committees is incorrect?

Select ONE answer:

1. At least 50% of the members of an audit committee must be non-executive directors
2. Listed companies are required to have an audit committee
3. Audit committees are considered to be good practice for all large companies
4. Audit committees are an important aspect of a company’s control environment 

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct => is incorrect as all members of an audit committee must be non-executive directors.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Which ONE of the following statements about audit committees is incorrect?

Select ONE answer:

1. Listed companies are required to have an audit committee
2. Audit committees are considered to be good practice for all large companies
3. If a company has an internal audit function, the chief internal auditor should sit on the audit committee
4. Audit committees are an important aspect of a company’s control environment 

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct => The chief internal auditor does not sit on the audit committee, but should ideally report directly to this committee.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

In each of the following three examples, select whether control risk is higher or lower than normal.

Example 1 – The company has an established and well-resourced internal audit function.

Example 2 – The company has a history of reviewing financial performance on a regular basis at the board level.

Example 3 – Purchase invoices are not authorised before payment.

Select ONE answer:

1. Example 1. Higher and Example 2. Higher and Example 3. Lower
2. Example 1. Lower and Example 2. Higher and Example 3. Lower
3. Example 1. Lower and Example 2. Lower and Example 3. Higher
4. Example 1. Lower and Example 2. Higher and Example 3. Higher

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct =>   Control risk is lower than normal (ie, internal controls are stronger) where the company has an established internal audit function (which strengthens the control environment by monitoring the adequacy and effectiveness of the controls in place) and where the board has a track record of performance review, monitoring and investigating deviations from expected performance. Control risk is higher than normal where purchase invoices are not authorised (control deficiency).
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

ISA (UK) 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding of the Entity and Its Environment states that an internal control system in an organisation consists of five components:

• the control environment
• the entity’s risk assessment process
• the information system
• controls activities
• monitoring of controls

For the following example, select the component which it illustrates.

– Locking the inventory storeroom

Select ONE answer:

1. Information system
2. Controls activities
3. Control environment
4. Monitoring of controls

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct => Locking the inventory storeroom is a specific control activity.. Note – the control environment refers to the management style and philosophy towards controls.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

ISA (UK) 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding of the Entity and Its Environment states that an internal control system in an organisation consists of five components:

• the control environment
• the entity’s risk assessment process
• the information system
• controls activities
• monitoring of controls

For the following example, select the component which it illustrates.

– The process of preparing the financial statements

Select ONE answer:

1. Information system
2. Controls activities
3. Control environment
4. Monitoring of controls

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct => The process of preparing the financial statements forms part of the information processing system. Note – the control environment refers to the management style and philosophy towards controls.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.