St.

Anthony’s College Business Education Department

San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

I. MULTIPLE CHOICE. Select the best answer. Write the LETTER of your answer on a sheet of paper.
Deadline is on or before June 9, 2020.(2 pts each)

1. Risk management is concerned with

a. Identification and treatment of loss exposures
b. Management of speculative risks only
c. The management of pure risk that are uninsurable
d. The purchase of insurance only
2. A risk manager is concerned with
I. Identifying potential losses
II. Selecting the appropriate techniques for treating loss exposures
a. I only
b. II only
c. Both I and II
d. Neither I nor II
3. All of the following are true concerning the nature of risk assessment EXCEPT
a. Risk assessment starts by first identifying risk that face the business
b. How often risk assessment will be done in an organization will depend on the nature of the
environment in which the organization operates
c. Changes in the environment that may have changed the nature and scale of risks should be
considered
d. A precondition to risk assessment is the establishment of a risk committee
4. Which of the following will NOT result to any type of risk?
I. The probability that employees will steal from the company.
II. The probability that company will not achieve its objectives.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
5. Which of the following is true about risk?
I. When the risk is high and the likelihood is high, the best course of action is probably to avoid the risk.
II. When the risk is high and the likelihood is high, the best course of action is probably to reduce the risk.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
6. Which of the following simply describes risk?
I. The probability of failure of a company’s IT system.
II. The responsibility that the board has to manage risk.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
7. Which of the following statements is INCORRECT concerning organization’s system of internal control?
a. Internal control should include guarantees that organizational objectives will be achieved in a
timely manner.
b. Internal control should include procedures for reporting immediately to appropriate levels of
management any significant control weaknesses.

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

c. Internal control should be embedded in the operations of the company and form part of its
culture.
d. Internal control should be capable of responding quickly to evolving risks to the business arising
from factors within the company and to changes in the business environment
8. Internal controls have certain limitations in any internal control system. Which one of the following
scenarios is the result of an inherent limitation of internal control?
a. The firm sells to customers on account, without credit approval.
b. A security guard allows one of the warehouse employees to remove company assets from the
premises without authorization.
c. An employee, who is unable to read, is assigned custody of the firm’s computer tape library and
run manuals that are used in the third shift.
d. The comptroller both makes and records cash deposits.
9. A restaurant manager food chain has over 680 restaurants. All food orders are required to be inputted
into an electronic device which records all food orders by food servers and transmits the order to the
kitchen for preparation. All food servers are responsible for collecting cash for all their orders and must
turn in cash at the end of their shift equal to the sales value of food ordered for their I.D. number. The
manager then reconciles the cash received for the day with the computerized record of food orders
generated. All differences are investigated immediately by the restaurant. The Corporate headquarters
has established monitoring controls to determine when an individual restaurant might not be recording all
its revenue and transmitting applicable cash to corporate headquarters. Which one of the following would
be the best example of a monitoring control as a component of internal control?
a. The restaurant manager reconciles the cash received with the food orders recorded on the
computer.
b. Cash is transmitted to corporate headquarters on a daily basis.
c. Management prepares a detailed analysis of gross margin per store and investigates any store that
shows significantly lower gross margin.
d. All food orders must be entered on the computer, and segregation of duties is maintained
between the food servers and the cooks.
10. What is the primary difference between fraud and errors in financial statement reporting?
a. The materiality of the misstatement
b. The intent to deceive
c. The level of management involved
d. The type of transaction effected
11. Which of the following creates an opportunity for fraud to be committed in an organization?
a. Management demands financial success
b. Poor internal control
c. Commitments tied to debt covenants
d. Management is aggressive in its application of accounting rules
12. Which of the following best represents fraudulent financial reporting?
a. The transfer agent issues 40,000 shares of the company’s stock to a friend without authorization
by the board of directors.
b. The controller of the company inappropriately records January sales in December so that year-end
results will meet analyst’s expectations.
c. The in-house attorney received payments from a Japanese businessman for negotiating the
development of a new plant in Batangas City.
d. The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables
without authorization.

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

13. In a well-designed internal control system, two tasks that should be performed by different persons are
a. Recording of cash receipts and preparation of bank reconciliations
b. Approval of bad debt write-offs, and reconciliation of the accounts payable and subsidiary ledger
and posting controlling account
c. Posting of amounts from both cash receipts journal and cash payments journal to the general
ledger
d. Distribution of payroll checks and approval of sales return for credit
14. The cash receipts function should be separated from the related recordkeeping function in an
organization in order to
a. Physically safeguard the cash receipts
b. Prevent disbursement of cash from cash receipts
c. Minimize undetected losses of cash receipts
d. Establish accountability when the cash is first received
15. Segregation of duties is required in the processing of customer’s orders in order to maintain an internal
control structure. Which of the following situations is NOT a proper segregation of duties in the processing
of orders from customers?
a. Approval of Credit Department of a sales order prepared by Sales Department
b. Approval of a Sales Credit Memo because of a product return by the Sales Department with
subsequent posting to the customer’s account by the Accounts Receivable Department
c. Shipping of goods by the Shipping Department that have been retrieved from stock by the Finished
Goods Storeroom Department
d. Invoice preparation by the Billing Department and posting to customer’s accounts by the Accounts
Receivable Department
16. Which of the following describes a control weakness?
a. The purchasing agent invests in a publicly traded mutual fund that lists the stock of one of the
organization’s suppliers in its portfolio.
b. Normal operational purchases fall in the range from P5,000 to P10,000 with two signatures
required for purchases over P10,000.
c. Purchasing procedures are well designed and are followed unless otherwise directed by the
purchasing supervisor.
d. Pre-numbered blank purchase orders are secured within the purchasing department
17. The treasurer makes disbursements by check and reconciles the monthly bank statements to accounting
records. Which of the following best describes the control impact of this arrangement?
a. The treasurer will be able to make unauthorized adjustments to the cash account.
b. Controls will be enhanced because the treasurer will have two opportunities to discover
inappropriate disbursements.
c. Internal controls will be enhanced because these are duties that the treasurer should perform.
d. The treasurer will be in a position to make and conceal unauthorized payments
18. Which of the following errors may occur in the acquisition and payments cycle?
I. Failing to record a purchase in the proper period
II. Recording goods accepted on consignment as a purchase
III. Misclassifying purchases of assets and expenses
IV. Recording payment twice
a. I and III only
b. I, III and IV only
c. II,III and IV only
d. I, II, III and IV

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

19. A means of ensuring that payroll checks are drawn for properly authorized amounts is to
a. Require that undelivered checks be returned to the cashier
b. Witness the distribution of payroll checks
c. Conduct periodic floor verification of employees on the payroll
d. Require supervisory approval of employee time cards
20. Employee time cards in one department are not properly approved by the supervisor. Which of the
following could result?
a. Duplicate paychecks might be issued.
b. Payroll checks might not be distributed to the appropriate payees.
c. The wrong hourly rate could be used to calculate gross pay.
d. Employees might be paid for hours they did not work.
21. Which of the following activities represents both an appropriate personnel department function and a
deterrent to payroll fraud?
a. Collection and retention of unclaimed paychecks
b. Authorization of additions and deletions from the payroll
c. Distribution of paychecks
d. Authorization of overtime
22. Which of the following internal controls over business transactions related to accounts receivable are
considered as strengths of the organization?
I. Credit department approves credit
II. Treasurer writes-off delinquent accounts
III. Monthly aging of receivables
IV. Handling of credit memos
a. I and IV only
b. III and IV only
c. I, II, III and IV
d. I, III and IV only
23. Which of the following internal controls would result to potential misstatement of cash?
I. Reconciliation of subsidiary ledger of customer’s accounts with the general ledger control account
II. Deposit cash on a timely basis
III. Review bank reconciliation annually
a. I only
b. II only
c. III only
d. I, II and III
24. Which of the following statements would result to potential misstatements of financial investment?
I. Failure to record changes in market values of investments may result to misstatements
II. An employee with access to securities coverts them for personal use
a. I only
b. II only
c. Both I and II
d. Neither I nor II
25. A receiving department receives copies of purchase orders for use in identifying and recording inventory
receipts. The purchase orders list the name of the vendor and the quantities of the materials ordered. A
possible error that this system could allow is
a. Overpayment for partial deliveries
b. Delay in recording purchases
c. Payment to unauthorized vendors
d. Payment for unauthorized purchases

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

26. Which of the following is an inherent risk relating to inventory?

a. Inventory is easily transportable
b. Inventory may become obsolete because of technological advances even though there are no
visible signs of wear
c. Inventory is often returned by customers, so care must be taken to separately identify returned
merchandise, check it for quality, and record it at net realizable value
d. All of the above
27. Which of the following is NOT an example of fraud in the acquisition and payment of inventory?
a. Theft of inventory by an employee
b. Employee schemes involving fictitious vendor as means to transfer payments as themselves
c. Executives recording fictitious inventory or inappropriately recording higher values
d. Erroneous pricing of inventory
28. Which statement/s is/are correct regarding fraud risk factors related to property and equipment?
a. A potential fraud scheme involves not removing sold assets from the books
b. Because long-lived assets are typically an audit area of low risk, auditors do not need to perform
brainstorming activities related to property and equipment
c. Management might use unreasonably long depreciable lives in an effort to reduce expenses
d. All of the above
29. Which of the following is NOT an example of error with regards to property and equipment?
a. Expenditures for repairs and maintenance expenses recorded as property and equipment
acquisitions to overstate income.
b. Purchases of equipment erroneously reported in maintenance and repairs expense account.
c. An asset that has been replaced is discarded due to its lack of value, without an accounting entry.
d. A gain recorded on an exchange of nonmonetary assets that lacks commercial substance.
30. Inherent risks related to debt obligations primarily include which of the following?
a. Debt is not properly authorized
b. Interest expense is not properly accrued
c. Debt covenants are not properly disclosed
d. Debt is not appropriately classified as short or long term
31. Operations risk is manifested in all of the following EXCEPT
a. Interest rates volatility
b. Process stoppage
c. Technological obsolescence
d. Management fraud
32. The technique of eliminating or reducing risk which could mean losing out on the potential gain is called
a. Risk sharing
b. Risk retention
c. Risk avoidance
d. Risk reduction
33. Risk catalysts might be triggered by, EXCEPT
a. Technology
b. Organizational Change
c. Processes
d. Internal factors
34. This refers to the policies and procedures that help ensure that management directives are carried out.
a. Control Environment
b. Information system
c. Control activities
d. Monitoring of controls

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

35. Which of the following is correct about fraud and error?

I. Fraud is an intentional act.
II. Error is not an intentional act.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
36. It occurs when a perpetrator steals or misuses an organization’s assets.
a. Fraud
b. Error
c. Asset Misappropriation
d. Fraudulent financial reporting
37. Which of the following statements is INCORRECT about sales and collections cycle?
I. Fraud in sales generally relate to fraudulent financial reporting.
II. Fraud in sales generally relate to misappropriation of assets
a. I only
b. II only
c. Both I and II
d. Neither I nor II
38. This technique in misappropriation of collections involves withholding of cash receipts without recording
them.
a. Skimming
b. Lapping
c. Kiting
d. Stealing
39. Which of the following statements is correct about acquisitions and payments cycle?
I. Failure to record purchases in proper period is an error
II. Failure to record purchases in proper period is a fraud
a. I only
b. II only
c. Both I and II
d. Neither I nor II
40. Which of the following statements is INCORRECT about payroll and personnel cycle?
I. Fictitious employees is an example of fraud.
II. Fictitious employees is an example of error
a. I only
b. II only
c. Both I and II
d. Neither I nor II
41. Which of the following errors will result to potential misstatements about receivables?
a. Holding sales journal open to record next year sales
b. Recording fictitious sales without receiving customer order
c. Intentional overshipment of goods
d. Inaccurate billing and recording of sales
42. Which of the following factors will NOT increase the risk of misstatement for receivables?
a. Ineffective board of directors
b. Ineffective billing process
c. Not updated accounting manual
d. Incompetent accounting personnel

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

43. Which of the following would result to possible inventory or cost of goods sold manipulation that might
occur when inventory is sold?
a. Overstate returns
b. Overcount inventory
c. Not record cost of goods sold nor reduce inventory
d. Under-record purchases
44. Which of the following would result to misstatement of inventories due to error?
a. Intentional misstatement of inventory prices
b. Items are stolen with no journal entry reflecting the theft
c. Miscounting inventory by personnel involved in the physical inventory
d. Intentional recording of purchases in the subsequent period
45. Which of the following statements is correct about misstatement property and equipment?
I. One of the misstatements in property and equipment is the failure to record its retirements.
II. Pressure to meet earnings targets may increase the risk of misstatement of property and equipment.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
46. Which of the following describes a weak internal control over property and equipment?
I. Incompetent accounting personnel in-charge of preparing lapsing schedule
II. Inadequate accounting manual to support accounting for property and equipment
a. I only
b. II only
c. Both I and II
d. Neither I nor II
47. Which of the following is NOT an inherent risk typically associated with the existence of dividends?
a. Dividends are recorded before being declared.
b. Dividends are not properly amortized
c. Dividends have not been approved before being declared
d. Dividends are recorded in the wrong period
48. The risk that refers to uncertainty about the rate of return caused by the nature of the business is
a. Default risk
b. Business risk
c. Liquidity risk
d. Financial risk
49. Once the risk has been identified and assessed, techniques to manage the risk should be applied. These
techniques include the following, EXCEPT
a. Retention
b. Sharing
c. Reduction
d. Complete disregard
50. Financial tools that can be applied in making strategic financial decision affecting profitability include the
following, EXCEPT
a. Variance analysis
b. Assessment of market entry and exit barriers
c. Break-even analysis
d. All of the above

END

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

Prepared by:

MISS AIZA C. ALOJAMIENTO, CPA

Instructor

Approved:

MRS. MA. ADELA LUDOVINA V. EVANGELIO, CPA, MMBM

Dean, Business Education Department

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 218-Governance, Business Ethics, Risk Management and Internal Control

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