Question 1

Understanding components of internal control and assessing the level of control risk are primarily used by the auditor to:

Accepted Answer

A)  determine the nature, timing and extent of substantive tests for financial statement assertions. 
B)  modify the initial assessments of inherent risk and preliminary judgements about materiality levels. 
C)  ascertain whether the opportunities to allow any person to both perpetrate and conceal irregularities are minimised. 
D)  determine whether procedures and records concerning the safeguarding of assets are reliable. 
A)  determine the nature, timing and extent of substantive tests for financial statement assertions. 
B)  modify the initial assessments of inherent risk and preliminary judgements about materiality levels. 
C)  ascertain whether the opportunities to allow any person to both perpetrate and conceal irregularities are minimised. 
D)  determine whether procedures and records concerning the safeguarding of assets are reliable.

Question 2

The control environment consists of the actions, policies and procedures that reflect the overall attitudes towards internal control of:

Accepted Answer

A)  owners. 
B)  directors. 
C)  top management. 
D)  all of the above 
A)  owners. 
B)  directors. 
C)  top management. 
D)  all of the above

Question 3

Adequate documents and records is a subcomponent of the control environment.

Accepted Answer

A) True 
 B)False

Question 4

The most important aspect of any system of controls is:

Accepted Answer

A)  regular review by top management. 
B)  competent trustworthy personnel. 
C)  proper authorisation procedures. 
D)  separation of duties. 
A)  regular review by top management. 
B)  competent trustworthy personnel. 
C)  proper authorisation procedures. 
D)  separation of duties.

Question 5

Discuss what is meant by the term 'control environment' and identify four control environment subcomponents that the auditor should consider.

Accepted Answer

The control environment consists of the

Question 6

Once an understanding of the client's internal control is obtained that is sufficient for audit planning, then the auditor must first assess:

Accepted Answer

A)  whether the financial statements are auditable. 
B)  the level of control risk supported by the understanding obtained. 
C)  the level of control risk. 
D)  whether a lower level of control risk could be supported. 
A)  whether the financial statements are auditable. 
B)  the level of control risk supported by the understanding obtained. 
C)  the level of control risk. 
D)  whether a lower level of control risk could be supported.

Question 7

The primary emphasis by auditors is on controls over:

Accepted Answer

A)  account balances. 
B)  classes of transactions. 
C)  both A and B, because they are equally weighted. 
D)  both A and B, because they vary from client to client. 
A)  account balances. 
B)  classes of transactions. 
C)  both A and B, because they are equally weighted. 
D)  both A and B, because they vary from client to client.

Question 8

Auditors assess internal controls for the purpose of planned audit evidence.

Accepted Answer

A)  increasing 
B)  reducing 
C)  requiring 
D)  estimating 
A)  increasing 
B)  reducing 
C)  requiring 
D)  estimating

Question 9

When two or more employees act together to misstate accounting records, they have committed what is referred to as:

Accepted Answer

A)  a felony. 
B)  collusion. 
C)  defalcation. 
D)  malfeasance. 
A)  a felony. 
B)  collusion. 
C)  defalcation. 
D)  malfeasance.

Question 10

Significant deficiencies in internal control are first communicated by auditors to the:

Accepted Answer

A)  Australian Securities Industry Commission (ASI
C) . 
B)  board of directors. 
C)  chief executive officer. 
D)  audit committee. 
A)  Australian Securities Industry Commission (ASI
C) . 
B)  board of directors. 
C)  chief executive officer. 
D)  audit committee.

Question 11

It is important for the auditor to consider the competence of the audit client's employees because their competence bears directly and importantly upon the:

Accepted Answer

A)  cost/benefit relationship of the system of internal control. 
B)  timing of the tests to be performed. 
C)  achievement of the objectives of the system of internal control. 
D)  comparison of recorded accountability with assets. 
A)  cost/benefit relationship of the system of internal control. 
B)  timing of the tests to be performed. 
C)  achievement of the objectives of the system of internal control. 
D)  comparison of recorded accountability with assets.

Question 12

Three steps must be completed by the auditor before he or she can conclude that control risk is low. Discuss these three steps.

Accepted Answer

The three steps that must be completed b

Question 13

Which one of the following BEST describes the inherent limitations that should be recognised by an auditor when considering the potential effectiveness of a system of internal accounting control?

Accepted Answer

A)  Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion. 
B)  The competence and integrity of client personnel provides an environment conducive to accounting control and provides assurance that effective control will be achieved. 
C)  The benefits expected to be derived from effective internal accounting control usually do not exceed the costs of such control. 
D)  Procedures designed to assure the execution and recording of transactions in accordance with proper authorisations are effective against irregularities perpetrated by management. 
A)  Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion. 
B)  The competence and integrity of client personnel provides an environment conducive to accounting control and provides assurance that effective control will be achieved. 
C)  The benefits expected to be derived from effective internal accounting control usually do not exceed the costs of such control. 
D)  Procedures designed to assure the execution and recording of transactions in accordance with proper authorisations are effective against irregularities perpetrated by management.

Question 14

Management, with the help of the auditor, must establish and maintain the entity's controls.

Accepted Answer

A) True 
 B)False

Question 15

Control risk is a measure of the auditor's expectation that the internal controls:

Accepted Answer

A)  will prevent material misstatements from occurring. 
B)  will either prevent material misstatements or detect and correct them. 
C)  will detect and correct material misstatements. 
D)  will neither prevent material misstatements nor detect and correct them. 
A)  will prevent material misstatements from occurring. 
B)  will either prevent material misstatements or detect and correct them. 
C)  will detect and correct material misstatements. 
D)  will neither prevent material misstatements nor detect and correct them.

Question 16

Why do the procedures used to gain an understanding of internal control and assess control risk vary for smaller clients?

Accepted Answer

In practice, the procedures used to gain

Question 17

The primary purpose of a control risk matrix is to document the auditor's understanding of internal control.

Accepted Answer

A) True 
 B)False

Question 18

If the auditor decides to go for a lower assessed control risk, more extensive tests of controls are applied.

Accepted Answer

A) True 
 B)False

Question 19

When controls leave no documentary evidence or trail:

Accepted Answer

A)  it is impossible to verify them, so the auditor will have to rely on substantive tests. 
B)  it is impossible to audit that area of client's system. 
C)  the only thing available as verification of their effectiveness is inquiry of management. 
D)  the auditor generally observes them being applied. 
A)  it is impossible to verify them, so the auditor will have to rely on substantive tests. 
B)  it is impossible to audit that area of client's system. 
C)  the only thing available as verification of their effectiveness is inquiry of management. 
D)  the auditor generally observes them being applied.

Question 20

Which one of the following activities would be LEAST likely to strengthen a company's internal control?

Accepted Answer

A)  Maintaining insurance for fire and theft 
B)  Carefully selecting and training employees 
C)  Fixing responsibility for the performance of employee duties 
D)  Management demonstrating by policy and example that it values accuracy and integrity 
A)  Maintaining insurance for fire and theft 
B)  Carefully selecting and training employees 
C)  Fixing responsibility for the performance of employee duties 
D)  Management demonstrating by policy and example that it values accuracy and integrity

Understanding components of internal control and assessing the level of control risk are primarily used by the auditor to:

The control environment consists of the actions, policies and procedures that reflect the overall attitudes towards internal control of:

Adequate documents and records is a subcomponent of the control environment.

The most important aspect of any system of controls is:

Discuss what is meant by the term 'control environment' and identify four control environment subcomponents that the auditor should consider.

Once an understanding of the client's internal control is obtained that is sufficient for audit planning, then the auditor must first assess:

The primary emphasis by auditors is on controls over:

Auditors assess internal controls for the purpose of planned audit evidence.

When two or more employees act together to misstate accounting records, they have committed what is referred to as:

Significant deficiencies in internal control are first communicated by auditors to the:

It is important for the auditor to consider the competence of the audit client's employees because their competence bears directly and importantly upon the:

Three steps must be completed by the auditor before he or she can conclude that control risk is low. Discuss these three steps.

Which one of the following BEST describes the inherent limitations that should be recognised by an auditor when considering the potential effectiveness of a system of internal accounting control?

Management, with the help of the auditor, must establish and maintain the entity's controls.

Control risk is a measure of the auditor's expectation that the internal controls:

Why do the procedures used to gain an understanding of internal control and assess control risk vary for smaller clients?

The primary purpose of a control risk matrix is to document the auditor's understanding of internal control.

If the auditor decides to go for a lower assessed control risk, more extensive tests of controls are applied.

When controls leave no documentary evidence or trail:

Which one of the following activities would be LEAST likely to strengthen a company's internal control?

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

Understanding components of internal control and assessing the level of control risk are primarily used by the auditor to:

The control environment consists of the actions, policies and procedures that reflect the overall attitudes towards internal control of:

Adequate documents and records is a subcomponent of the control environment.

The most important aspect of any system of controls is:

Discuss what is meant by the term 'control environment' and identify four control environment subcomponents that the auditor should consider.

Once an understanding of the client's internal control is obtained that is sufficient for audit planning, then the auditor must first assess:

The primary emphasis by auditors is on controls over:

Auditors assess internal controls for the purpose of planned audit evidence.

When two or more employees act together to misstate accounting records, they have committed what is referred to as:

Significant deficiencies in internal control are first communicated by auditors to the:

It is important for the auditor to consider the competence of the audit client's employees because their competence bears directly and importantly upon the:

Three steps must be completed by the auditor before he or she can conclude that control risk is low. Discuss these three steps.

Which one of the following BEST describes the inherent limitations that should be recognised by an auditor when considering the potential effectiveness of a system of internal accounting control?

Management, with the help of the auditor, must establish and maintain the entity's controls.

Control risk is a measure of the auditor's expectation that the internal controls:

Why do the procedures used to gain an understanding of internal control and assess control risk vary for smaller clients?

The primary purpose of a control risk matrix is to document the auditor's understanding of internal control.

If the auditor decides to go for a lower assessed control risk, more extensive tests of controls are applied.

When controls leave no documentary evidence or trail:

Which one of the following activities would be LEAST likely to strengthen a company's internal control?

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