Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
1) Internal control is an organizational plan that ensures that the financial statements are prepared and
submitted on time.
2) Controlling operations is a key responsibility of a business manager.
3) It is important for a business to identify policies which ensure that all customers are treated similarly
and that results can be measured effectively.
4) Promoting operational efficiency reduces expenses and business profits.
5) If a company does not protect its assets, it is throwing away resources.
6) Which of the following is true of internal control?
A) A company’s outside auditor is responsible for the company’s internal control system.
B) One of the major purposes of internal control is to ensure that the assets are safeguarded.
C) Internal control procedures tend to diminish the importance of operational efficiency.
D) Internal controls are only necessary for public companies.
7) Which of the following is an objective of internal control?
A) to encourage employees to follow company policies
B) to ensure timely payment of accounts payable
C) to ensure timely collection of accounts receivable
D) to guarantee that a business makes a profit
8) Reducing expenses to increase operating profit is representative of ________.
A) safeguarding assets
B) following company policies
C) promoting operational efficiency
D) ensuring accurate, reliable accounting records
9) Which of the following is representative of safeguarding assets?
A) attaching electronic sensors to merchandise inventory
B) reducing expenses to increase operating profit
C) increasing operating profit to increase net income
D) allowing company accountants to handle cash
10) Which of the following is a benefit provided by internal control?
A) ensuring timely collection of accounts receivables
B) ensuring that collusion will never happen
C) ensuring that a business is profitable
D) promoting operational efficiency
11) Define internal control.
12) The Sarbanes-Oxley Act requires all private companies in the United States to maintain an internal
control system.
13) The Public Company Accounting Oversight Board oversees the work of auditors of public companies.
14) Under the Sarbanes-Oxley Act, accounting firms are allowed to audit a public company and provide
certain consulting services for the same client.
15) Violators of the Sarbanes-Oxley Act may be sentenced to prison for making false sworn statements.
16) The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board.
17) To be IFRS compliant, foreign companies are not required to have their internal controls audited by
outside auditors.
18) Which of the following is a requirement of the Sarbanes-Oxley Act?
A) An outside auditor must evaluate the client’s internal controls and report on the internal controls as
part of the audit report.
B) The Public Company Accounting Oversight Board must conduct audits of public companies.
C) The accounting firm that audits a public client must also provide consulting services for the same
client.
D) The Public Company Accounting Oversight Board must create new accounting standards.
19) Which of the following statements is true of the Sarbanes-Oxley Act?
A) Accounting firms are allowed to provide both auditing services and a full range of consulting services
to their public company clients.
B) Those who commit securities fraud must be sentenced to 10 years in prison.
C) All private and foreign companies must issue an internal control report evaluated by an outside
auditor.
D) The Public Company Accounting Oversight Board oversees the work of auditors of public companies.
20) Public companies ________.
A) must issue an internal control report which states that the outside auditor is responsible for the
adequacy of internal controls
B) are audited by accounting firms that do not also provide certain consulting services to the public
company
C) are required by the Financial Accounting Standards Board to maintain a system of internal controls
D) are overseen by the Public Company Accounting Oversight Board
21) An information system is one of the five components by which a company can achieve its internal
control objectives.
22) The environment is the culture of a business, and it starts with the CEO or CFO and the top managers.
23) Internal auditors are employees of the business who ensure that employees are following company
policies and that operations are running efficiently.
24) External auditors evaluate company controls to ensure the financial statements are presented fairly, in
accordance with Generally Accepted Accounting Principles.
25) Which of the following statements about internal control is true?
A) Internal auditors ensure that the employees follow company policies.
B) The treasurer and controller have the same responsibilities.
C) External auditors are employees of the company they audit.
D) The internal control procedures are known as the “tone at the top.”
26) Which of the following components of internal control consist of work performed by internal and
external auditors?
A) monitoring of controls
B) information systems
C) control procedures
D) control environment
27) Which of the following describes the environment in internal control?
A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the
controls to ensure that the accounting records are accurate.
B) The environment is the “tone at the top” of the business.
C) The environment is designed to ensure that the business earns profit.
D) A company must identify its risks.
28) Which of the following describes the risk assessment component of internal control?
A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the
controls to ensure that the accounting records are accurate.
B) Risk assessment is the “tone at the top” of the business.
C) A company must identify its risks and take necessary steps to minimize them.
D) Risk assessment is designed to ensure that the business’s goals are achieved.
29) Which of the following is an attribute of the internal control component—monitoring of controls?
A) Internal auditors monitor company controls to safeguard assets, and external auditors evaluate the
controls to ensure that the accounting records are accurate.
B) Monitoring of controls is the “tone at the top” of the business.
C) Monitoring of controls is designed to ensure that the business‘s goals are achieved.
D) Monitoring of controls deals with identification and assessment of business risks.
30) Which of the following is true of the internal control component—information system?
A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the
controls to ensure that the accounting records are accurate.
B) Control procedures are designed to ensure that the business’s goals are achieved.
C) Only authorized users have access to various parts of the information system.
D) The information system is the “tone at the top” or the culture of the business.
31) A pharmaceutical company testing drugs to determine possible side effects is a part of ________.
A) monitoring controls
B) information systems
C) control procedures
D) risk assessment
32) List the five components of internal control.
33) List and briefly discuss the five components of internal control.
34) Discuss the roles of the internal auditors and the external auditors.
35) Burglar alarms, fire alarms, and security cameras improve internal control.
36) Separating the custody of assets from accounting implies that the accountants must not handle cash
and the cashier must not have access to the accounting records.
37) The use of computer firewalls is an essential element of good internal controls for e-commerce.
38) In a large company, the person in charge of signing checks is the controller.
39) If competent, reliable, and ethical employees are hired, there is no need to adequately supervise their
work.
40) Which of the following describes a firewall?
A) a malicious program that enters program code or destroys data without authorization
B) when two or more people cooperate together to defraud a company
C) a technique for protecting data
D) when a company defrauds its suppliers by making false claims