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Canon > Test 1 > Flashcards

Test 1 Flashcards

1
Q

To determine the sufficiency of information regarding interpretation of a contract an internal auditor uses

A

Objective evaluation

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2
Q

Signature guarantee provides the transfer agent with

A

Protection from fraud

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3
Q

According to the SPPIA which of the following is not required to be included in any Audit report

A

Recommendations

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4
Q

When comparing perpetrators who have embezzled an organization funds with perpetrators of financial statement fraud those who have falsified financial statements are less likely to

A

Be living beyond their obvious means of support

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5
Q

The main component use in determining the expected return on an equity investment is

A

Management capabilities

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6
Q

To determine the sufficiency of information regarding interpretation of a contract and internal auditor uses

A

Objective evaluations

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7
Q

Signature guarantee provides the transfer agent with

A

Protection from Fraud

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8
Q

Which of the following best represents a risk versus a breakdown in control

A

Payments due not made

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9
Q

If an account suffers a loss/gain due to a clerical or trading error the trust department must rectify that error by

A

Covering the losses and returning the gain to the account

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10
Q

A distinguishing feature of municipal bonds for from Corporate bonds is the requirement that an ——- be imprinted on the face are attached to this certificate

A

Legal opinion

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11
Q

Securities traded in the over-the-counter market include

A

Government securities, common stocks, municipal bonds, listed securities.

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12
Q

An investment portfolio manager has the authority to use financial derivatives to hedge transactions, but is not supposed to take speculative positions. However the manager launches a scheme that includes (1) Taking a position larger than required by the hedge (2) Putting the speculative gains in a suspense account and (3) Transferring the funds to a nonexistent broker and from there to a personal account. Which of the following audit engagement procedures is the least effective in detecting fraud

A

Examine individual trades to determine whether the trades violate the authorization limit for the manager

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13
Q

Which of the following policies is most likely to result in an environment conducive to the occurrence of fraud

A

Unreasonable sales goals

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14
Q

If you have to own a convertible bond the underlining stock declines what you would expect

A

The price of your bond to decline less than the stock

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15
Q

Reliable information is

A

Competent and the best attainable through the use of appropriate engagement techniques

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16
Q

The greater the assessed levels of control risk

A

The greater the probability of material misstatements

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17
Q

Analytical procedures

A

May provide the best available information for the completeness assertion

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18
Q

The risk measure for the volatility of an international portfolio is

A

Standard deviation

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19
Q

To determine the sufficiency of information regarding interpretation of a contract an internal auditor uses

A

Objective evaluations

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20
Q

All of the following are primary objectives of the overall management process except

A

Improving the effectiveness of risk management, control, and the governance processes

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21
Q

A trust department has developed a culture that encourages salespersons to make their sales quota without regard to either long-term profitability or the company’s statement of values. This is an example of a control weakness in which of the following elements of internal control

A

Control environment

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22
Q

The term account corpus refers to

A

Principal cash and principal investments

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23
Q

According to the COSO model which one of the following is not one of the five major components of a control system

A

Corporate governance

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24
Q

The main components used in determining the expected return on an equity investment is

A

Management’s capabilities

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25
Q

The best definition of information identified to achieve an internal auditing engagements objective is the information that

A

Provides a sound basis for engagement’s conclusions

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26
Q

Preferred shares are securities with characteristics of both common shares and bonds. Preferred shares have —– like common shares and —–like bonds.

A

Preferred shares have no maturity date

Bonds have a fixed periodic payment

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27
Q

If you thought the stock market was too high you should

A

Buy a put

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28
Q

Which of the following best represents a risk versus a breakdown in control

A

Payments due not made

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29
Q

Participating preferred shareholders are entitled to

A

Share in the firm’s earnings beyond that stated dividend level

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30
Q

You purchase 100 shares of ABC Corporation for $1000. You received four dividend payments of $.10 per-share. After 12 months you so 100 shares at $12 per share. What was your annualized total return?

A

24%

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31
Q

Which of the following is an essential factor in evaluating the sufficiency of information? The information must

A

Be convincing enough for a prudent person to reach the same decision

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32
Q

Which of the following type of bonds is backed by a portfolio of stocks and bonds owned by the issuer?

A

Collateral trust

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33
Q

The strike or striking price of a securities option is the

A

Purchase/sale price set for the security

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34
Q

The OTC market is

A

A negotiated market

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35
Q

Which of the following is a red flag that an organization may be engaging in fraudulent activity

A

Existence of complex transactions that are difficult to understand and appear to have a little business purpose

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36
Q

On the USA Patriot Act, a financial institution is not required to establish

A

Systems to demonstrate compliance with the Act

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37
Q

Which of the following statements is true regarding the deterrence of fraud

A

The primary means of deterring fraud is true regarding an effective control system initiated by senior management

Internal auditors are responsible for assisting in the deterrence of fraud by examining and evaluating the adequacy of the internal control system

Internal auditors should determine whether communication channels provide management with adequate and reliable information regarding the effectiveness of the control system and the occurrence of unusual transactions

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38
Q

Which of the following documents provide full disclosure of all relevant information to investors in a new issue of a limited partnership?

A

Prospectus

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39
Q

Engagement information is usually considered relevant when it is

A

Consistent with the engagement objectives

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40
Q

The measure of sensitivity of an asset’s return to movement in the underlying market is

A

Beta

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41
Q

The risk measure that reflects unexpected performance is

A

Alpha

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42
Q

Signature guarantee provides the transfer agent with

A

Protection from fraud

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43
Q

Red flags are conditions that indicate a higher likelihood of fraud. Which of the following is not considered a red flag

A

Management has delegated the authority to make purchases under a certain value to subordinates

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44
Q

Credit risk is also known as

A

Counterparty risk

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45
Q

An investor is most likely to receive regular interest payment from

A

A corporate bond

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46
Q

Dividends are paid to holders appearing on the companies books as of

A

Record date

47
Q

If you own a convertible bond and the underlying stock declines you would expect

A

The price of your bond to decline less than the stock

48
Q

When equity securities are out on loan the owner retains all of the rights of the ownership except

A

Right to vote

49
Q

An investment portfolio manager has the authority to use financial derivatives to hedge transactions but is not supposed to take speculative positions. However the manager launches a scheme that includes. 1.taking a position larger than required by the hedge 2. Putting the speculative gains in a suspense account and. 3. Transferring the funds to a non-existent broker and from there to a personal account. Which of the following audit engagement procedures is the least effective in detecting fraud

A

Examine individual trades to determine whether the trades violate the authorization limit for the manager

50
Q

Which of the following is not a credit enhancement

A

S&P credit rating

51
Q

Which of the following is an essential factor in evaluating the sufficiency of information

A

Be convincing enough for a prudent person to reach the same decision

52
Q

Dividends are paid to holders appearing on the companies books as of

A

Record date

53
Q

To test the calculation of accrued interest on a trade, an auditor does not typically validate which of the following asset data elements?

A

Maturity year

54
Q

An internal auditor is evaluating the advertising function. The organization has engaged a medium-size local advertising agency to place advertising in magazine publications. As part of the review of the engagement working papers for internal auditing supervisor is evaluating the information collected. The internal auditor reviewed the language in the advertising for its legality and compliance with fair trade regulations by interviewing the advertising manager, the product marketing director, who may not have been objective, and five of the organization’s largest customers,who may not have been knowledgeable. The supervisor can justifiably conclude that the information is

A

Insufficient

55
Q

According to the COSO, all of the following our audit objectives, except

A

Developing an opinion as expressed in an audit report

56
Q

The risk measure for the volatility of an international portfolio is

A

Standard deviation

57
Q

Which of the following policies are most likely to result in an environment conducive to the occurrence of fraud

A

Unreasonable sales goals

58
Q

The posting of a transaction which satisfies the principal and income law conflicts with tax law, the trustee must

A

Satisfy both principal and income law, and the tax law

59
Q

Junk bonds

A

Have varying maturities

60
Q

Corporate bonds or securities representing corporate

A

Debt

61
Q

The date of entitlement for cash dividends on exchange traded equities is the

A

Ex-Date

62
Q

Rule 144A deals with shares of stock that are

A

Privately placed

63
Q

Which of the following documents provide full disclosure of all relevant information to investors in a new issue of a limited partnership?

A

Prospectus

64
Q

Which of the following types of securities are not lendable

A

Municipal bonds

65
Q

US banks may issue ADRs

A

In a sponsored or unsponsored program

66
Q

Which of the following is not a major obstacle to operational risk management

A

Difficulties in data analysis and interpretation

67
Q

In determining whether or not trust department accounts are appropriately invested in the banks proprietary mutual fund which of the following is not a consideration

A

Participants are limited to directed accounts

68
Q

In managing personal trust assets a trustee should seek to

A

Achieve one or more of the above depending on account objectives and investment authority

Maximize income ,preserve capital, obtained reasonable income and preservation of capital

69
Q

The findings of the Basle committee in their report evaluating control breakdowns within financial instuitions include which of the following

A

In adequate recognition of risk and financial services activities, poor corporate governance, inadequate escalation of problems

70
Q

The principal payments of a CMO are direct it first to the

A

The 1st tranche

71
Q

Under trust law the duty of loyalty means the trustee must

A

act in the exclusive best interest of the account beneficiaries

72
Q

The investment Company act of 1940 requires that a diversified fund must have at least —% of its value in cash, cash items, government securities, other investment companies, or other securities

A

75

73
Q

Signature guarantee provides the transfer agent with

A

Protection from fraud

74
Q

The principal risk in the operations of a proprietary mutual fund is

A

Asset valuation

75
Q

Under GBLA 99, banks will have to prove that the securities services that they provide to customers fall within the provisions of the law referred to as

A

Push out exemptions

76
Q

Which of the following types of interests typically creates the greatest audit concern with respect to unreasonable risk and fiduciary liability?

A

General partnership

77
Q

The purpose of SEC Rule 415 is to

A

Permit corporations to register an offering of their securities on a delayed or continuous basis

78
Q

The trust indentured act of 1939 refers to the prudent man rule which of the following actions best adhere to this rule?

A

Representing beneficiaries interests as though they are your own interests

79
Q

Stock dividend in shares of a corporation, other than the one in which shares are held is generally posted

A

To income

80
Q

A lender institution offering customers securities on a undisclosed basis is considered

A

The principal

81
Q

In the event dissolution holders of corporate debentures rank

A

Equally with general creditors

82
Q

The primary responsibility of the corporate trustee at a bond closing is

A

Deliver bonds and except payments from underwriter

83
Q

According to the COSO model, which one of the following is not one of the five major components of a control system

A

Corporate governance

84
Q

In fiduciary accounts for which it exercise investment discretion, the bank should make investments decisions based upon

A

It’s independent judgment as to the investment strategy most consistent with the purpose of the account

85
Q

A growth managers portfolio should

A

Have a PE ratio higher than the market

86
Q

In a stock issue, which of the following parties is charged with monitoring the number of shares outstanding?

A

Registar

87
Q

The main concerns that banks have with regard to changes in the banking and securities law affected by GLBA 99 is

A

Elimination of the blanket exemption for registration with the SEC

88
Q

A no-load mutual funds

A

Charges a management fee

89
Q

Rule 144A of the security exchange commission provides that

A

Certain persons may sell small amounts of securities without registration

90
Q

The price printed on the face of the stock certificate represents

A

Par value

91
Q

Lending institutions in a securities lending program that offer indemnification to owners-lenders should obtain

A

A legal opinion from Counsel

92
Q

Ex-date

A

Is determined by the exchange where a given stock is listed and determines entitlement for a cash dividend

93
Q

Proprietary mutual funds and common trust funds are alike in that they

A

Pool monies from many customers to invest in securities

94
Q

The risk measure that it reflects unexpected performance is

A

Alpha

95
Q

If ABC Corporation has a beta of 1.75

A

ABC common stock is more volatile than the market

96
Q

The Federal Reserve Board affects securities transactions by

A

Restricting the use of credit for securities purchases

97
Q

Which of the following will release the security interest of a trust indenture where the trustee perfected its security interest by filing a financing statement under the UCC?

A

Termination statement

98
Q

As a safeguard against fraud, it is advisable to provide notification of activity in a dormant accounts to the

A

Internal auditor

99
Q

The basic source of title information on natural resource assets is the

A

Deed

100
Q

Operational risks is

A

More important and service businesses which generate fee revenue

101
Q

The investment Company act of 1940 restricts a funds investment in any one issuer to no more than —- % of the outstanding voting securities of the issuer

A

10

102
Q

Securities traded over-the-counter market include

A

Government securities, common stocks, municipal bonds, listed securities.

103
Q

Dividends are paid to holders appearing in the company’s books as of

A

Record date

104
Q

An 8%, 20 year bond selling at a discount will have

A

Stated yield less than yield to maturity

105
Q

Junk bonds

A

Have varying maturities

106
Q

Diversification reduces which of the following types of portfolio risk the most

A

Issue specific risk

107
Q

In auditing activities proprietary mutual funds auditors should ensure compliance with

A

The investment Company act of 1940 and the investment advisers act of 1940

108
Q

All of the following documents are required to be on file for replacement of a lost bond certificate

A

A notarized affidavit of loss signed by the bondholder, lost security and indemnity bond listing the issuer and transfer agent as obliges, delivery instructions for the replacement certificate

109
Q

In security lending, the amount of margin is determined by

A

Lender institution

110
Q

An Invester purchasing zero-coupon corporate bonds would not be exposed to

A

Reinvestment risk

111
Q

The primary risk on an investment in a Government National Mortgage Association (GNMA) fund in a period of falling interest rates is

A

Reinvestment risk

112
Q

Which of the following is incorrect?

The OCC is the principal regulator of national banks fiduciary activities.

The FDIC regulates national banks have that have deposit insurance.

The SEC regulates the OTC market.

The NASD, MSRB and NYSE are considered SROs.

A

The SEC regulates the OTC market

113
Q

The major function of the municipal securities rule making board is to

A

Formulate and enforce rules for handling municipal securities by brokers, dealers, and investment bankers

Canon (1 decks)

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