Establishing and maintaining an organizational

culture.
Reviewing the reliability and integrity of financial and operational information.
Ensuring that external and internal auditors oversee the administration of the system of
risk management and control processes.
Implementing and monitoring controls designed by the board of directors.
1. Directors, management, external auditors, and internal auditors all play important roles in creating
proper control processes. Senior management is primarily responsible for

2. The design and practice of effective governance vary with

I.

The size, complexity, and life-cycle maturity of the organization

II.

The organizations stakeholder structure

III.

Legal and cultural requirements

I and II only.
II and III only.
I and III only.

3. Which of the following is true regarding ISO 14000?

I, II, and III.

It is a set of criteria established by the

International Organization for
Standardization for a quality
assurance program.
It details certain requirements for
environmental performance, such as
efficient uses of resources and
reductions of waste.
It often results in higher costs in
processes but is compensated for by
an improved public image.
None of the answers are correct.
4. Which of the following goals sets risk management strategies at the optimum level?

Minimize costs.
Maximize market share.
Minimize losses.
Maximize shareholder value.
5. Which of the following may be assessed by the internal auditor to determine the effectiveness of the
risk management process?

I.

Significant risks

II.

Ongoing monitoring activities

III.

Previous risk evaluation reports by management, internal auditors, external auditors, and any
other sources

I and II only.
I and III only.
II and III only.
I, II, and III.
6. Many organizations use electronic funds transfer to pay their suppliers instead of issuing checks.
Regarding the risks associated with issuing checks, which of the following risk management techniques
does this represent?

Controlling.
Accepting.
Transferring.
Avoiding.
7. Under the COSOs ERM framework, which of the following most accurately describes risk
management responsibilities?

In practice, management has primary

responsibility.
The internal audit activity has an
oversight role.
The board provides assurance about
the effectiveness of ERM.
The chief audit executive should
serve as chief risk officer.
8. Which of following are affected by external events that the entity may not be able to control?
I.

Strategic objectives

II.

Operations objectives

III.

Reporting objectives

IV.

Compliance objectives

I and II only.
III and IV only.
II and IV only.
I and III only.
9. Internal auditors frequently recommend that formal policies be written. However, the presence of
certain conditions in an organization minimizes the need for written policies. One condition that minimizes
the need for written policies is

A high division of labor.

A strong organizational culture.
A large span of control.
A strict unity of command.
10. Departmentation may be performed by
I.

Function

II.

Product

III.

Geography

I only.
II only.
I and II only.
I, II and III.
11. Advantages of decentralization include all of the following except

Decisions are more easily made.

Managers motivation increases.
Greater uniformity in decisions.
Problems can be dealt with on the
spot.
12. Physical distribution is the moving of finished products to

Retail outlets.
Shipping point.
Consumers.
Warehouses.
13. When the economic order quantity (EOQ) decision model is employed, the <List A> are being offset
or balanced by the <List B>.

List A

List B

Ordering costs
Purchase costs

Carrying costs
Carrying costs

Purchase costs
Ordering costs

Quality costs
Stockout costs

14. A company manufactures banana hooks for retail sale. The bill of materials for this item and
the parts inventory for each material required are as follows:
Bill of Materials

Raw Material
Quantity Required
On Hand

Wooden neck
1
0
Wooden base
1
0
Swag hook
1
300
Wood screws
2
400
Foot pads
4
1,000
An incoming order calls for delivery of 2,000 banana hooks in 2 weeks. The company has 200
finished banana hooks in current inventory. If no safety stocks are required for inventory, what

are the companys net requirements for swag hooks and screws needed to fill this order?
Swag
Hooks

Wood
Screws

1,500

1,400

1,500
1,700

3,200
3,600

1,800

3,600

15. The emergence of electronic data interchange (EDI) as standard operating practice increases the risk
of

Unauthorized third-party access to

systems.
Systematic programming errors.
Inadequate knowledge bases.
Unsuccessful system use.
16. Communication plays an important role in the successful operation of all organizations. Which of the
following statements concerning organizational communications is false?

Communication involves at least

two people: a sender and a receiver.
Communication is what the sender
says, not what the receiver
understands.
Every act of communication
influences the organization in some
way.
Management spends the majority of
its time communicating with other
members of the organization.
17. But I mailed the order 4 weeks ago, giving the supplier plenty of time, said the parts manager when
asked why a critical part was not available. The most likely reason for this failed communication between
the parts manager and the supplier was

Lack of feedback.
Confusing language.
Inappropriate medium.
Perceptual selectivity.
18. Audit committees have been identified as a major factor in promoting the independence of both
internal and external auditors. Which of the following is the most important limitation on the effectiveness
of audit committees?

Audit committees may be composed

of independent directors. However,
those directors may have close
personal and professional friendships
with management.
Audit committee members are
compensated by the organization and
thus favor an owners view.
Audit committees devote most of
their efforts to external audit concerns
and do not pay much attention to the
internal audit activity and the overall
control environment.
Audit committee members do not
normally have degrees in the
accounting or auditing fields.
19. The concurrent action of basic competitive forces as defined by Porters model determines the

Long-term profitability and the

competitive intensity of the industry.
Entrance barriers that potential
players must face to get into the
industry.
Rivalry inside the industry.
Strategy that a firm should follow to
achieve its objectives.
20. At the introduction stage of an innovative product, the profit growth is normally slow due to

Expensive sales promotion.

High competition.
A mass market.
Available alternatives.