Chapter 8 internal control, fraud (f1 acca)

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Chapter 8 – Internal Control, Fraud:

Practice Exam Questions and Answers with

Explanations

August 11, 2025

1 Questions

1 The prerequisites for fraud are:

A Placement, layering and integration

B Motive, opportunity and attitude

C Placement, opportunity and layering

D Motive, layering and attitude

2 Management has the primary responsibility for the prevention and detec-tion of fraud

A True

B False

3 What is the ’control environment’ of an organisation?

A The collection of procedures used to establish internal control

B The oversight of the audit committee

C The attitude within the organisation towards internal control

D The temperature of the internal audit department

4 Auditors are responsible for guaranteeing that financial statements are free from all fraud

A True

B False

5 Which of the following is true?

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A It is management’s responsibility to prevent fraud the auditor’s re-sponsibility to detect it

B It is the auditor’s responsibility to detect fraud and to prepare the fi-nancial statements

C It is the auditors’ responsibility to prevent and detect fraud

D It is management’s responsibility to prevent fraud and to prepare the financial statements

6 The control environment is the foundation for all other components of in-ternal control

A True

B False

7 Internal controls are:

A Mechanisms in place to primarily prevent fraud

B The collection of mechanisms whereby an organisation tries to ensure that all its transactions are properly authorised and recorded, and that its assets are safeguarded

C The culture of the organisation so that poor accounting is not tolerated

D The national and international laws and regulations under which or-ganisations operate

8 Physical controls include the use of locks and security guards

A True

B False

9 The system of internal controls fall into TWO parts These are: (Select two)

A The control environment

B Compliance with IFRSs

C The control processes

D Individual responsibility

E Complying with the ACCA Ethical Guide

10 Rationalization is not part of the fraud triangle

A True

B False

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11 Computer controls can be grouped under two headings: general controls and application controls Which two of the following are general controls? (Select two)

A Edit checks

B Regular back-ups taken of data files

C Sequence checks

D Batch total checks

E Firewalls

12 Internal controls can eliminate all risks of fraud

A True

B False

13 Which of the following is NOT a principle of internal control?

A Establishment of responsibility

B Segregation of duties

C Unlimited access to assets

D Independent internal verification

14 Whistleblowing policies can help in detecting fraud

A True

B False

15 The fraud triangle consists of:

A Opportunity, pressure, rationalization

B Motive, attitude, placement

C Opportunity, attitude, layering

D Pressure, opportunity, integration

16 Application controls are company-wide controls over IT

A True

B False

17 Which of the following is a general control in a computer system?

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A Edit checks

B Password protection

C Batch total checks

D Sequence checks

18 Segregation of duties means one person handles all aspects of a transaction

A True

B False

19 Segregation of duties is an example of:

A Physical controls

B Human resource controls

C Internal verification procedures

D Establishment of responsibility

20 Independent internal verification involves periodic reviews by employees not involved in the activity

A True

B False

21 Which TWO of the following are examples of application controls? (Select two)

A Firewalls

B Range checks

C Regular backups

D Format checks

E Antivirus software

22 Money laundering is only related to drug crimes

A True

B False

23 Money laundering typically involves which three stages? (Select three)

A Placement

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C Integration

D Detection

E Prevention

24 Fraud risk factors include incentives, opportunities, and attitudes

A True

B False

25 Which of the following would NOT be a red flag for fraud?

A Unusual transactions

B Consistent profits

C Management override of controls

D High employee turnover

26 Auditors must report all suspected fraud to the police

A True

B False

27 Internal audit’s role is primarily:

A To prepare financial statements

B To evaluate internal controls

C To detect all fraud

D To manage daily operations

28 The audit committee oversees the internal audit function

A True

B False

29 Which body oversees the internal control framework in many organiza-tions?

A COSO

B IASB

C IESBA

D FASB

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30 Human resource controls include bonding employees and background checks.

A True

B False

2 Answers and Explanations

1 Answer: B (Motive, opportunity and attitude)

Explanation: The fraud triangle consists of motive (pressure), opportunity,

and attitude (rationalization) The other options refer to stages of money laundering or incorrect combinations

2 Answer: A (True)

Explanation: Management and those charged with governance have the

primary responsibility for preventing and detecting fraud through internal controls

3 Answer: C (The attitude within the organisation towards internal

con-trol)

Explanation: The control environment is the overall attitude, awareness,

and actions of directors and management regarding internal controls and their importance

4 Answer: B (False)

Explanation: Auditors provide reasonable assurance, not a guarantee, that

financial statements are free from material misstatement due to fraud

5 Answer: A (It is management’s responsibility to prevent fraud the

au-ditor’s responsibility to detect it)

Explanation: Management is responsible for implementing controls to

pre-vent fraud, while auditors are responsible for detecting material misstate-ments due to fraud during the audit

Explanation: The control environment sets the tone of the organization

and influences the control consciousness of its people

7 Answer: B (The collection of mechanisms whereby an organisation tries

to ensure that all its transactions are properly authorised and recorded, and that its assets are safeguarded)

Explanation: Internal controls are designed to provide reasonable

assur-ance regarding the achievement of objectives in effectiveness and efficiency

of operations, reliability of financial reporting, and compliance with laws

Explanation: Physical controls are measures to safeguard assets, such as

locks, alarms, and security personnel

9 Answer: A, C (The control environment, The control processes)

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Explanation: The system of internal controls comprises the control

envi-ronment (overall attitude) and control procedures (specific actions)

Explanation: Rationalization is one of the three elements of the fraud

tri-angle

11 Answer: B, E (Regular back-ups taken of data files, Firewalls)

Explanation: General controls are policies and procedures that relate to

the overall IT environment, such as backups and firewalls Application controls are specific to individual applications, like edit checks, sequence checks, and batch totals

Explanation: Internal controls provide reasonable assurance but cannot

eliminate all risks due to inherent limitations

13 Answer: C (Unlimited access to assets)

Explanation: Principles of internal control include limited access to assets

to prevent misuse or theft

Explanation: Whistleblowing policies encourage reporting of suspected

fraud, aiding in its detection

15 Answer: A (Opportunity, pressure, rationalization)

Explanation: The fraud triangle identifies three factors that contribute to

fraudulent activity: pressure (motive), opportunity, and rationalization (at-titude)

Explanation: Application controls are specific to transactions and data

processing; general controls are company-wide

17 Answer: B (Password protection)

Explanation: General controls include access controls like passwords, while

the others are application-specific

Explanation: Segregation of duties divides responsibilities to reduce the

risk of error or fraud

19 Answer: B (Human resource controls)

Explanation: Segregation of duties is a key internal control principle to

prevent fraud by dividing responsibilities among different people

Explanation: Independent verification involves reviews by personnel not

directly involved in the activities

21 Answer: B, D (Range checks, Format checks)

Explanation: Application controls validate data input, such as range and

format checks General controls include firewalls, backups, and antivirus

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Explanation: Money laundering can involve proceeds from any illegal

ac-tivity, not just drugs

23 Answer: A, B, C (Placement, Layering, Integration)

Explanation: Money laundering involves three stages: placement

(intro-ducing illegal funds), layering (concealing source), and integration (making

funds appear legitimate)

Explanation: Fraud risk factors align with the fraud triangle: incentives/pressure,

opportunities, attitudes/rationalizations

25 Answer: B (Consistent profits)

Explanation: Consistent profits are normal; unusual transactions,

man-agement override, and high turnover are red flags for potential fraud

Explanation: Auditors report suspected fraud to management or those

charged with governance; reporting to police depends on laws and

circum-stances

27 Answer: B (To evaluate internal controls)

Explanation: Internal auditors assess the effectiveness of internal

con-trols, risk management, and governance processes

Explanation: The audit committee typically oversees the internal audit

function and financial reporting

29 Answer: A (COSO)

Explanation: The Committee of Sponsoring Organizations (COSO) provides

a framework for internal control

Explanation: Human resource controls include screening, bonding, and

rotation of duties to mitigate fraud risks

Tiêu đề	Internal control, fraud
Thể loại	Practice exam
Năm xuất bản	2025

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