Question 1

A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated.

Accepted Answer

A) True 
 B)False  True

Question 2

If evidence was obtained in the prior year's audit that indicates a key control was operating effectively:

Accepted Answer

A)  the tests of that control will be reduced this year. 
B)  the auditor would not test this area again this year. 
C)  it will be unnecessary to test that control this year. 
D)  the extent of tests of that control may be reduced this year if the auditor determines that it is still in place. 
A)  the tests of that control will be reduced this year. 
B)  the auditor would not test this area again this year. 
C)  it will be unnecessary to test that control this year. 
D)  the extent of tests of that control may be reduced this year if the auditor determines that it is still in place. D

Question 3

Evidential matter concerning proper segregation of duties ordinarily is BEST obtained by:

Accepted Answer

A)  direct personal observation of the employee who applies control procedures. 
B)  making inquiries of coworkers about the employee who applies control procedures. 
C)  inspection of third- party documents containing the initials of who applied control procedures. 
D)  preparation of a flowchart of duties performed and available personnel. 
A)  direct personal observation of the employee who applies control procedures. 
B)  making inquiries of coworkers about the employee who applies control procedures. 
C)  inspection of third- party documents containing the initials of who applied control procedures. 
D)  preparation of a flowchart of duties performed and available personnel. A

Question 4

Describe five common procedures an auditor can use to obtain an understanding of internal control design.

Accepted Answer

The five procedures used to obtain an un

Question 5

An internal control dictates that prices on sales invoices are verified with a standard price list by client personnel. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Accepted Answer

A)  Examining the invoices for signatures 
B)  Inquiry 
C)  Reperformance 
D)  Observation 
A)  Examining the invoices for signatures 
B)  Inquiry 
C)  Reperformance 
D)  Observation

Question 6

Management of public listed entities have to issue a report on the effectiveness of their organisation's internal control system:

Accepted Answer

A)  in the United States. 
B)  in neither Australia nor the United States. 
C)  in Australia. 
D)  in both Australia and the United States. 
A)  in the United States. 
B)  in neither Australia nor the United States. 
C)  in Australia. 
D)  in both Australia and the United States.

Question 7

Management typically has the following three concerns, or broad objectives, in designing an effective control system: 1. Reliability of financial reporting
2) Efficient and effective operations
3) Compliance with applicable laws and regulations
4) Maximise profit for stakeholders

Accepted Answer

A)  2, 3, 4 
B)  1, 2, 4 
C)  1, 2, 3 
D)  1, 3, 4 
A)  2, 3, 4 
B)  1, 2, 4 
C)  1, 2, 3 
D)  1, 3, 4

Question 8

The documents of a client company must be adequate to provide assurance that all assets are properly controlled and all transactions are correctly recorded.

Accepted Answer

A)  qualitative 
B)  sufficient appropriate 
C)  absolute 
D)  reasonable 
A)  qualitative 
B)  sufficient appropriate 
C)  absolute 
D)  reasonable

Question 9

An auditor will use an internal control questionnaire as a means to:

Accepted Answer

A)  assess control risk. 
B)  evaluate internal controls in place in an accounting system. 
C)  understand the internal controls procedures for an accounting system. 
D)  highlight inadequate aspects of internal control. 
A)  assess control risk. 
B)  evaluate internal controls in place in an accounting system. 
C)  understand the internal controls procedures for an accounting system. 
D)  highlight inadequate aspects of internal control.

Question 10

One benefit of effective internal control is the guarantee that all employee frauds will now be detected.

Accepted Answer

A) True 
 B)False

Question 11

When a compensating control exists, a deficiency in the system:

Accepted Answer

A)  is reduced but not removed; therefore, it is still of concern to the auditor. 
B)  is no longer a concern because the potential for misstatement has been sufficiently reduced. 
C)  could cause a material loss, so it must be tested using substantive procedures. 
D)  is magnified and must be removed from the sampling process and examined in its entirety. 
A)  is reduced but not removed; therefore, it is still of concern to the auditor. 
B)  is no longer a concern because the potential for misstatement has been sufficiently reduced. 
C)  could cause a material loss, so it must be tested using substantive procedures. 
D)  is magnified and must be removed from the sampling process and examined in its entirety.

Question 12

Match seven of the terms (a- i) with the definitions provided below (1- 7):
a. control environment
b. control activities
c. independent checks on performance
d. internal control
e. monitoring
f. separation of duties
g. general authorisation
h. specific authorisation
i. risk assessment
1. Management's ongoing and periodic assessment of the quality of internal control performance to determine that controls are operating as intended and modified when needed.
2. Company- wide policies for the approval of all transactions within stated limits.
3. The actions, policies and procedures that reflect the overall attitudes of top management, directors and owners of an entity about control and its importance to the entity.
4. Segregation of the following activities in an organisation: custody of assets, accounting, authorisation and operational responsibility.
5. Management's identification and analysis of risks relevant to the preparation of financial statements in accordance with applicable accounting standards.
6. Policies and procedures that help ensure necessary actions are taken to address risks in the achievement of the entity's objective.
7. A process designed to provide reasonable assurance regarding the achievement of management's objectives in the following categories: (1) reliability of financial reporting (2) effectiveness and efficiency of operations and (3) compliance with applicable laws and regulations.

Accepted Answer

1. e
2. g

Question 13

After considering a client's internal controls, an auditor has concluded that it is well designed and is functioning as intended. Under these circumstances the auditor would most likely:

Accepted Answer

A)  determine whether transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles. 
B)  perform reduced tests of controls to the extent outlined in the audit program. 
C)  not increase the extent of predetermined substantive tests. 
D)  determine the control procedures that should prevent or detect errors and irregularities. 
A)  determine whether transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles. 
B)  perform reduced tests of controls to the extent outlined in the audit program. 
C)  not increase the extent of predetermined substantive tests. 
D)  determine the control procedures that should prevent or detect errors and irregularities.

Question 14

For efficiency, if internal controls are ignored, then control risk is assumed to be maximum.

Accepted Answer

A) True 
 B)False

Question 15

Internal controls can NEVER be regarded as completely effective. Even if systems personnel could design an ideal system, its effectiveness depends on the:

Accepted Answer

A)  adequacy of the computer system. 
B)  competency and dependability of the people using it. 
C)  ability of the internal audit staff to maintain it. 
D)  proper implementation by management. 
A)  adequacy of the computer system. 
B)  competency and dependability of the people using it. 
C)  ability of the internal audit staff to maintain it. 
D)  proper implementation by management.

Question 16

The primary emphasis of auditors is on internal controls over classes of transactions because:

Accepted Answer

A)  financial statements may not accurately reflect accounting standards correctly. 
B)  the accuracy of the output of accounting systems is based on the accuracy of the input and processing. 
C)  the accuracy of the output of accounting systems is based on the accuracy of the input. 
D)  all of the above. 
A)  financial statements may not accurately reflect accounting standards correctly. 
B)  the accuracy of the output of accounting systems is based on the accuracy of the input and processing. 
C)  the accuracy of the output of accounting systems is based on the accuracy of the input. 
D)  all of the above.

Question 17

Of the three broad objectives of management when designing an effective system of internal control, which is of most concern to the external auditor?

Accepted Answer

Management typically has the following t

Question 18

If employees are competent and trustworthy, how does this affect controls?

Accepted Answer

A)  All employees become bored or dissatisfied. 
B)  All employees can reduce the system to a shambles. 
C)  Other controls can be absent. 
D)  All employees need numerous controls. 
A)  All employees become bored or dissatisfied. 
B)  All employees can reduce the system to a shambles. 
C)  Other controls can be absent. 
D)  All employees need numerous controls.

Question 19

Management's integrity and ethical values include:

Accepted Answer

A)  codes of conduct. 
B)  communication of entity values and behavioural standards to personnel through policy statements. 
C)  management's actions to reduce incentives for dishonest acts. 
D)  all of the above 
A)  codes of conduct. 
B)  communication of entity values and behavioural standards to personnel through policy statements. 
C)  management's actions to reduce incentives for dishonest acts. 
D)  all of the above

Question 20

Internal control comprises the plan of the organisation and the procedures and records that are concerned with:

Accepted Answer

A)  authorisation of transactions. 
B)  reliability of statistical data. 
C)  decision processes of management. 
D)  achievement of the company's objectives and goals. 
A)  authorisation of transactions. 
B)  reliability of statistical data. 
C)  decision processes of management. 
D)  achievement of the company's objectives and goals.

A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated.

If evidence was obtained in the prior year's audit that indicates a key control was operating effectively:

Evidential matter concerning proper segregation of duties ordinarily is BEST obtained by:

Describe five common procedures an auditor can use to obtain an understanding of internal control design.

An internal control dictates that prices on sales invoices are verified with a standard price list by client personnel. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Management of public listed entities have to issue a report on the effectiveness of their organisation's internal control system:

Management typically has the following three concerns, or broad objectives, in designing an effective control system: 1. Reliability of financial reporting 2) Efficient and effective operations 3) Compliance with applicable laws and regulations 4) Maximise profit for stakeholders

The documents of a client company must be adequate to provide assurance that all assets are properly controlled and all transactions are correctly recorded.

An auditor will use an internal control questionnaire as a means to:

One benefit of effective internal control is the guarantee that all employee frauds will now be detected.

When a compensating control exists, a deficiency in the system:

After considering a client's internal controls, an auditor has concluded that it is well designed and is functioning as intended. Under these circumstances the auditor would most likely:

For efficiency, if internal controls are ignored, then control risk is assumed to be maximum.

Internal controls can NEVER be regarded as completely effective. Even if systems personnel could design an ideal system, its effectiveness depends on the:

The primary emphasis of auditors is on internal controls over classes of transactions because:

Of the three broad objectives of management when designing an effective system of internal control, which is of most concern to the external auditor?

If employees are competent and trustworthy, how does this affect controls?

Management's integrity and ethical values include:

Internal control comprises the plan of the organisation and the procedures and records that are concerned with:

Demand for Audit and Assurance Services

Auditors Legal Environment

Audit Quality and Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Documentation

Materiality and Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Completing Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling

Audit of Transaction Cycles and Financial Statement Balances I

Audit of Transaction Cycles and Financial Statement Balances II

Completing the Audit

Audit Reporting

Other Auditing and Assurance Engagements

Filters

Exam 8: Internal Control and Control Risk

A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated.

If evidence was obtained in the prior year's audit that indicates a key control was operating effectively:

Evidential matter concerning proper segregation of duties ordinarily is BEST obtained by:

Describe five common procedures an auditor can use to obtain an understanding of internal control design.

An internal control dictates that prices on sales invoices are verified with a standard price list by client personnel. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Management of public listed entities have to issue a report on the effectiveness of their organisation's internal control system:

Management typically has the following three concerns, or broad objectives, in designing an effective control system: 1. Reliability of financial reporting 2) Efficient and effective operations 3) Compliance with applicable laws and regulations 4) Maximise profit for stakeholders

The documents of a client company must be adequate to provide assurance that all assets are properly controlled and all transactions are correctly recorded.

An auditor will use an internal control questionnaire as a means to:

One benefit of effective internal control is the guarantee that all employee frauds will now be detected.

When a compensating control exists, a deficiency in the system:

After considering a client's internal controls, an auditor has concluded that it is well designed and is functioning as intended. Under these circumstances the auditor would most likely:

For efficiency, if internal controls are ignored, then control risk is assumed to be maximum.

Internal controls can NEVER be regarded as completely effective. Even if systems personnel could design an ideal system, its effectiveness depends on the:

The primary emphasis of auditors is on internal controls over classes of transactions because:

Of the three broad objectives of management when designing an effective system of internal control, which is of most concern to the external auditor?

If employees are competent and trustworthy, how does this affect controls?

Management's integrity and ethical values include:

Internal control comprises the plan of the organisation and the procedures and records that are concerned with:

Demand for Audit and Assurance Services

Auditors Legal Environment

Audit Quality and Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Documentation

Materiality and Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Completing Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling

Audit of Transaction Cycles and Financial Statement Balances I

Audit of Transaction Cycles and Financial Statement Balances II

Completing the Audit

Audit Reporting

Other Auditing and Assurance Engagements

Filters