Question 1

A transaction walk- through involves:

Accepted Answer

A)  reviewing the process of recording transactions. 
B)  reviewing and evaluating the client's accounting processes. 
C)  tracing a sample of documents through the accounting process. 
D)  touring the client's plant and operations. 
A)  reviewing the process of recording transactions. 
B)  reviewing and evaluating the client's accounting processes. 
C)  tracing a sample of documents through the accounting process. 
D)  touring the client's plant and operations.

Question 2

There is a significant overlap between tests of controls and procedures to obtain an understanding of controls. However, discuss the main differences in the types of audit evidence.

Accepted Answer

Both tests of controls and procedures to

Question 3

The auditor considers internal control by 4 steps. What is the order for these steps? 1. Obtain an understanding of internal control.
2) Assess control risk.
3) Perform tests of controls.
4) Decide on planned detection risk and substantive testing.

Accepted Answer

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

Question 4

Is reperformance a type of audit evidence typically used in assessing control risk?

Accepted Answer

A)  Yes, in testing controls only. 
B)  Yes, in both obtaining an understanding of controls and testing controls. 
C)  Yes, in obtaining an understanding of controls only. 
D)  No. 
A)  Yes, in testing controls only. 
B)  Yes, in both obtaining an understanding of controls and testing controls. 
C)  Yes, in obtaining an understanding of controls only. 
D)  No.

Question 5

Procedures used to obtain an understanding of internal control are normally performed on fewer transactions than procedures used to test controls.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following statements is NOT correct?

Accepted Answer

A)  When reliable and understandable narratives, flowcharts and questionnaires are available from the client, it is desirable to use them rather than have the auditor prepare his or her own documents. 
B)  It would be unusual to use both a narrative and a flowchart to describe the same system. 
C)  The advantage of the narrative description is the ease of describing the details of the internal controls. 
D)  The use of both questionnaires and flowcharts on the same engagement is highly desirable for understanding the client's system. 
A)  When reliable and understandable narratives, flowcharts and questionnaires are available from the client, it is desirable to use them rather than have the auditor prepare his or her own documents. 
B)  It would be unusual to use both a narrative and a flowchart to describe the same system. 
C)  The advantage of the narrative description is the ease of describing the details of the internal controls. 
D)  The use of both questionnaires and flowcharts on the same engagement is highly desirable for understanding the client's system.

Question 7

Which one of the following is NOT typically a type of audit evidence the auditor would use in obtaining and understanding of internal controls?

Accepted Answer

A)  Inquiry 
B)  Reperformance 
C)  Observation 
D)  Documentation 
A)  Inquiry 
B)  Reperformance 
C)  Observation 
D)  Documentation

Question 8

Which one of the following audit tests would be regarded as a test of a control?

Accepted Answer

A)  Tests of the specific items making up the balance in a given general ledger account 
B)  Tests of matching batch totals of quantities shipped to quantities billed 
C)  Tests of the additions to property, plant and equipment by physical inspections 
D)  Tests of the inventory pricing to vendors' invoices 
A)  Tests of the specific items making up the balance in a given general ledger account 
B)  Tests of matching batch totals of quantities shipped to quantities billed 
C)  Tests of the additions to property, plant and equipment by physical inspections 
D)  Tests of the inventory pricing to vendors' invoices

Question 9

Record keeping is typically included in a separate department under the financial controller to protect the company primarily against:

Accepted Answer

A)  defalcation. 
B)  error. 
C)  non- compliance with accounting standards. 
D)  unbiased information. 
A)  defalcation. 
B)  error. 
C)  non- compliance with accounting standards. 
D)  unbiased information.

Question 10

For proper internal control, there should be adequate separation of duties. However, the extent of separation of duties considered 'adequate' depends heavily on the size of the organisation.

Accepted Answer

A) True 
 B)False

Question 11

Which one of the following is NOT a control related to safeguarding IT equipment, programs and data files?

Accepted Answer

A)  Backup and recovery procedures 
B)  Automated internal verification procedures 
C)  Physical controls 
D)  Access controls 
A)  Backup and recovery procedures 
B)  Automated internal verification procedures 
C)  Physical controls 
D)  Access controls

Question 12

When a company designs and implements an internal control system the control must be cost- effective.

Accepted Answer

A) True 
 B)False

Question 13

Because the auditor's main responsibility is to express an opinion on financial statements, which are composed of account balances, the primary emphasis by auditors when evaluating and testing internal control is on controls over account balances rather than controls over classes of transactions.

Accepted Answer

A) True 
 B)False

Question 14

Which one of the following is NOT a component of an entity's internal control?

Accepted Answer

A)  Control risk 
B)  The control environment 
C)  The accounting system 
D)  Control procedures 
A)  Control risk 
B)  The control environment 
C)  The accounting system 
D)  Control procedures

Question 15

Discuss the objectives of internal control with which management are primarily concerned.

Accepted Answer

The objectives of internal control that

Question 16

Control activities are defined as 'the policies and procedures, in addition to those included in the other elements, that help ensure necessary actions are taken to address risks in the achievement of the entity's objectives.' There are five categories of control activities. Please describe the five categories of control activities.

Accepted Answer

The five categories of control activitie

Question 17

When documenting their understanding of a client's internal controls, auditors are required to use narratives and may optionally also use flowcharts and/or internal control questionnaires.

Accepted Answer

A) True 
 B)False

Question 18

The most important type of protective measure for safeguarding assets and records is:

Accepted Answer

A)  proper authorisation of transactions. 
B)  adequate separation of duties among personnel. 
C)  the use of physical precautions. 
D)  adequate documentation. 
A)  proper authorisation of transactions. 
B)  adequate separation of duties among personnel. 
C)  the use of physical precautions. 
D)  adequate documentation.

Question 19

Tests of controls are conducted when:

Accepted Answer

A)  control risk may be higher than the initial assessment. 
B)  the auditor determines that substantive testing is not effective. 
C)  controls are expected to be operating effectively. 
D)  controls are not operating as effectively as initially assessed. 
A)  control risk may be higher than the initial assessment. 
B)  the auditor determines that substantive testing is not effective. 
C)  controls are expected to be operating effectively. 
D)  controls are not operating as effectively as initially assessed.

Question 20

Most audits of a company are done annually by the same audit firm. Except for initial engagements, the auditor begins the audit with a great deal of information about the client's internal controls developed in prior years. Because systems and controls usually don't change frequently:

Accepted Answer

A)  it eases the burden on the auditor's requirement to do a complete study of the controls this year. 
B)  it is sufficient for the auditor just to inquire of the client whether the controls have been changed since last year. 
C)  the auditor can skip the evaluation of this area on repeat engagements. 
D)  this information can be updated and carried forward to the current year's audit. 
A)  it eases the burden on the auditor's requirement to do a complete study of the controls this year. 
B)  it is sufficient for the auditor just to inquire of the client whether the controls have been changed since last year. 
C)  the auditor can skip the evaluation of this area on repeat engagements. 
D)  this information can be updated and carried forward to the current year's audit.

A transaction walk- through involves:

There is a significant overlap between tests of controls and procedures to obtain an understanding of controls. However, discuss the main differences in the types of audit evidence.

The auditor considers internal control by 4 steps. What is the order for these steps? 1. Obtain an understanding of internal control. 2) Assess control risk. 3) Perform tests of controls. 4) Decide on planned detection risk and substantive testing.

Is reperformance a type of audit evidence typically used in assessing control risk?

Procedures used to obtain an understanding of internal control are normally performed on fewer transactions than procedures used to test controls.

Which one of the following statements is NOT correct?

Which one of the following is NOT typically a type of audit evidence the auditor would use in obtaining and understanding of internal controls?

Which one of the following audit tests would be regarded as a test of a control?

Record keeping is typically included in a separate department under the financial controller to protect the company primarily against:

For proper internal control, there should be adequate separation of duties. However, the extent of separation of duties considered 'adequate' depends heavily on the size of the organisation.

Which one of the following is NOT a control related to safeguarding IT equipment, programs and data files?

When a company designs and implements an internal control system the control must be cost- effective.

Because the auditor's main responsibility is to express an opinion on financial statements, which are composed of account balances, the primary emphasis by auditors when evaluating and testing internal control is on controls over account balances rather than controls over classes of transactions.

Which one of the following is NOT a component of an entity's internal control?

Discuss the objectives of internal control with which management are primarily concerned.

When documenting their understanding of a client's internal controls, auditors are required to use narratives and may optionally also use flowcharts and/or internal control questionnaires.

The most important type of protective measure for safeguarding assets and records is:

Tests of controls are conducted when:

Most audits of a company are done annually by the same audit firm. Except for initial engagements, the auditor begins the audit with a great deal of information about the client's internal controls developed in prior years. Because systems and controls usually don't change frequently:

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 transaction walk- through involves:

There is a significant overlap between tests of controls and procedures to obtain an understanding of controls. However, discuss the main differences in the types of audit evidence.

The auditor considers internal control by 4 steps. What is the order for these steps? 1. Obtain an understanding of internal control. 2) Assess control risk. 3) Perform tests of controls. 4) Decide on planned detection risk and substantive testing.

Is reperformance a type of audit evidence typically used in assessing control risk?

Procedures used to obtain an understanding of internal control are normally performed on fewer transactions than procedures used to test controls.

Which one of the following statements is NOT correct?

Which one of the following is NOT typically a type of audit evidence the auditor would use in obtaining and understanding of internal controls?

Which one of the following audit tests would be regarded as a test of a control?

Record keeping is typically included in a separate department under the financial controller to protect the company primarily against:

For proper internal control, there should be adequate separation of duties. However, the extent of separation of duties considered 'adequate' depends heavily on the size of the organisation.

Which one of the following is NOT a control related to safeguarding IT equipment, programs and data files?

When a company designs and implements an internal control system the control must be cost- effective.

Because the auditor's main responsibility is to express an opinion on financial statements, which are composed of account balances, the primary emphasis by auditors when evaluating and testing internal control is on controls over account balances rather than controls over classes of transactions.

Which one of the following is NOT a component of an entity's internal control?

Discuss the objectives of internal control with which management are primarily concerned.

When documenting their understanding of a client's internal controls, auditors are required to use narratives and may optionally also use flowcharts and/or internal control questionnaires.

The most important type of protective measure for safeguarding assets and records is:

Tests of controls are conducted when:

Most audits of a company are done annually by the same audit firm. Except for initial engagements, the auditor begins the audit with a great deal of information about the client's internal controls developed in prior years. Because systems and controls usually don't change frequently:

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