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BEC CPA Exam Chapter 1 Questions and Answers
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BEC CPA Exam Chapter 1Committee of Sponsoring organizations - answer- Independent private sector created in
the mid 1980's to study the factors that led to fraulent financial reporting
Internal Control - Integrated Framework - answer-Used by a company's management
and BOD to obtain initial understanding of what constitutes on effective IC
- Provides confidence to external stakeholders
- Principles based approach ( not black and white)
- eveolved into 17 principles that are categorized into 5 major internal control
components
Application to Management and Board - answerAssists management and BOD in the
following:
-effectively applying IC to the overall organization
-determining the requirements of an effective IC system
-Identifying and analyzing risks
- extending IC applications beyond the financial reporting
Application to stakeholders - answer-Provides greater understanding of what constitutes
an effective IC
-greater confidence in management and BOD has effective oversight
-
Internal Control Framework Objectives (ORC) - answer1. Operations Objectives: relates
to the effectiveness and efficiency of operations
2. Reporting Objectives: pertains to the reliability, timeliness, and transparency of an
entity's external/ internal financial/ nonfinancial reporting established by regulators
3. Compliance Objectives: ensure the entity is adhering to all applicable laws and
regulations
Components of IC (CRIME) - answer- Applies to all 3 ORC Objectives
Control Environment
Risk assessment
Information and Communication
Monitoring
Existing Control Activities
Control Environment (EBOCA) - answer1. Commitment to Ethics and Integrity:
establishing standard of conduct
2. Board Independence and Oversight: oversight responsibilities
, 3. Organizational Structure: establishing reporting lines, limiting authorities and
responsibilities
4. Commitment to Competence: hire, develop and retain competent employees
5. Accountability: establishing performance measures, incentives and rewards
Risk Assessment (SAFR) - answer1. Specify Objectives
2. Identify and analyze risks
3. Consider potential for fraud: assessing incentives and pressures, opportunities and
attitudes
4. Identify and Assess Changes
Information and Communication (OIE) - answer1. Obtain and Use information: obtains
or generates and uses relevant, high quality information to support the functioning of IC
2. Internally Communicate Information: flow of information up, down and across the
organization using a variety of methods and channels
3. Communicate with External Parties: two way external communication channels using
a variety of methods
Monitoring Activities (SOD) - answer1. Ongoing and/or Separate Evaluations: whether
the components of internal controls are present and functioning
2. Communication of Deficiencies: communication to internal control deficiencies in a
timely matter to parties responsible for taking corrective action
Existing Control Activities (CAT will P) - answer1. Select and develop control activities
2. Select and Develop Technology Controls
3. Deployment of Policies and Procedures
Effective IC - answer1. General Requirements: provides reasonable assurance that an
entity's Objectives will be achieved. All 5 components and 17 principles must be present
and functioning
2. Specific Requirements: complies with all rules and regulations and laws as well as
prepares reports in conformity with the entity's reporting objectives
Ineffective IC - answer1. Major deficiency: material IC deficiency that significantly
reduces the likelihood that an organization can achieve its objectives
Limitations of the IC Framework - answerIt does not prevent bad decisions or eliminate
all external events that may prevent the achievement of the entity's operational goals
1. Human failure
2. Biased judgement
3. External events beyond the control of the entity
4. Collusion
5. Management override
Enterprise Risk Management - answero Created in 2004, to assist organizations in
developing a response to risk management.
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