Question 1

Certain relevant principles dictate the proper design and use of documents and records. Which one is NOT correct? Documents and records should be:

Accepted Answer

A)  sufficiently simple to ensure they are clearly understood. 
B)  prenumbered consecutively. 
C)  designed for multiple use. 
D)  prepared at some time after a transaction takes place. 
A)  sufficiently simple to ensure they are clearly understood. 
B)  prenumbered consecutively. 
C)  designed for multiple use. 
D)  prepared at some time after a transaction takes place.

Question 2

It is more common for the auditor's assessment of control risk to be low when auditing larger clients than smaller clients.

Accepted Answer

A) True 
 B)False

Question 3

For proper internal control, the custodianship of cash, including receipts and disbursements, should be the responsibility of the accounting department.

Accepted Answer

A) True 
 B)False

Question 4

Monitoring activities in an internal control structure determines that:

Accepted Answer

A)  auditing procedures are to be restricted. 
B)  external audit assurance is no longer necessary. 
C)  improvements in internal control are overdue. 
D)  controls are operating as intended. 
A)  auditing procedures are to be restricted. 
B)  external audit assurance is no longer necessary. 
C)  improvements in internal control are overdue. 
D)  controls are operating as intended.

Question 5

When the auditor's assessment of control risk is below maximum:

Accepted Answer

A)  detection risk is set as high. 
B)  the auditor reevaluates control risk. 
C)  the auditor predominately performs substantive tests. 
D)  the auditor performs tests of controls. 
A)  detection risk is set as high. 
B)  the auditor reevaluates control risk. 
C)  the auditor predominately performs substantive tests. 
D)  the auditor performs tests of controls.

Question 6

The auditor can conclude that control risk is low:

Accepted Answer

A)  after identifying specific controls that will reduce control risk and making an assessment of control risk. 
B)  after testing the controls for effectiveness. 
C)  after obtaining an understanding of the control environment and the accounting system at a fairly detailed level. 
D)  only after all three steps above are completed. 
A)  after identifying specific controls that will reduce control risk and making an assessment of control risk. 
B)  after testing the controls for effectiveness. 
C)  after obtaining an understanding of the control environment and the accounting system at a fairly detailed level. 
D)  only after all three steps above are completed.

Question 7

An effective accounting information and communication system must satisfy six transaction- related objectives. Identify the six objectives.

Accepted Answer

The six objectives are:
· Transactions a

Question 8

The essence of an effectively controlled organisation lies in the:

Accepted Answer

A)  attitude of its management. 
B)  effectiveness of its independent auditor. 
C)  effectiveness of its internal auditor. 
D)  attitude of its employees. 
A)  attitude of its management. 
B)  effectiveness of its independent auditor. 
C)  effectiveness of its internal auditor. 
D)  attitude of its employees.

Question 9

Narratives, flowcharts and internal control questionnaires are three common methods of:

Accepted Answer

A)  testing the internal controls. 
B)  documenting the auditor's understanding of internal controls. 
C)  designing the audit manual and procedures. 
D)  documenting the auditor's understanding of the client's organisational structure. 
A)  testing the internal controls. 
B)  documenting the auditor's understanding of internal controls. 
C)  designing the audit manual and procedures. 
D)  documenting the auditor's understanding of the client's organisational structure.

Question 10

Reportable conditions are matters that come to an auditor's attention, which should be communicated to an entity's audit committee because they represent:

Accepted Answer

A)  significant deficiencies in the design or operation of the internal controls. 
B)  intentional attempts by client personnel to limit the scope of the auditor's field work. 
C)  flagrant violations of the entity's documented conflict- of- interest policies. 
D)  material irregularities or illegal acts perpetrated by high- level management. 
A)  significant deficiencies in the design or operation of the internal controls. 
B)  intentional attempts by client personnel to limit the scope of the auditor's field work. 
C)  flagrant violations of the entity's documented conflict- of- interest policies. 
D)  material irregularities or illegal acts perpetrated by high- level management.

Question 11

When planning an audit, the auditor's assessed level of control risk is:

Accepted Answer

A)  calculated by using the formulas provided in ASA 315. 
B)  calculated by using the audit risk model. 
C)  an economic issue, trading off the costs of testing controls against the cost of testing balances. 
D)  determined by using actuarial tables. 
A)  calculated by using the formulas provided in ASA 315. 
B)  calculated by using the audit risk model. 
C)  an economic issue, trading off the costs of testing controls against the cost of testing balances. 
D)  determined by using actuarial tables.

Question 12

For internal controls that leave no documentary evidence, the auditor observes their application at year- end.

Accepted Answer

A) True 
 B)False

Question 13

When the auditor identifies significant deficiencies in the design or operation of internal controls, it will be communicated to client's audit committee in the:

Accepted Answer

A)  audit report. 
B)  management letter. 
C)  reportable conditions letter. 
D)  engagement letter. 
A)  audit report. 
B)  management letter. 
C)  reportable conditions letter. 
D)  engagement letter.

Question 14

It is not always practicable to apply tests of controls to transactions over the entire year.

Accepted Answer

A) True 
 B)False

Question 15

If employees are competent and trustworthy, other controls can be absent.

Accepted Answer

A) True 
 B)False

Question 16

During which part of an audit examination is the preparation of flowcharts most appropriate?

Accepted Answer

A)  When documenting the auditor's understanding of internal control 
B)  When evaluating the system of internal administrative control 
C)  When performing preliminary analytical procedures 
D)  When performing tests of controls 
A)  When documenting the auditor's understanding of internal control 
B)  When evaluating the system of internal administrative control 
C)  When performing preliminary analytical procedures 
D)  When performing tests of controls

Question 17

A procedure that would most likely be used by an auditor in performing tests of control procedures that involve segregation of functions and that leave no transaction trail is:

Accepted Answer

A)  observation. 
B)  reconciliation. 
C)  inspection. 
D)  reperformance. 
A)  observation. 
B)  reconciliation. 
C)  inspection. 
D)  reperformance.

Question 18

Which one of the following statements regarding auditor documentation of the client's internal controls is correct?

Accepted Answer

A)  Documentation must include procedural write- ups. 
B)  Documentation must include flowcharts. 
C)  No documentation is necessary, although it is desirable. 
D)  No one particular form of documentation is necessary, and the extent of documentation may vary. 
A)  Documentation must include procedural write- ups. 
B)  Documentation must include flowcharts. 
C)  No documentation is necessary, although it is desirable. 
D)  No one particular form of documentation is necessary, and the extent of documentation may vary.

Question 19

A major control available in a small company, which might not be feasible in a large company, is:

Accepted Answer

A)  fewer transactions to process. 
B)  a voucher system. 
C)  a wider segregation of duties. 
D)  the owner- manager's personal interest and close relationship with the personnel. 
A)  fewer transactions to process. 
B)  a voucher system. 
C)  a wider segregation of duties. 
D)  the owner- manager's personal interest and close relationship with the personnel.

Question 20

ASA 315 states: The auditor shall obtain an understanding of internal control to the audit.

Accepted Answer

A)  relevant 
B)  realistic 
C)  required 
D)  relative 
A)  relevant 
B)  realistic 
C)  required 
D)  relative

Certain relevant principles dictate the proper design and use of documents and records. Which one is NOT correct? Documents and records should be:

It is more common for the auditor's assessment of control risk to be low when auditing larger clients than smaller clients.

For proper internal control, the custodianship of cash, including receipts and disbursements, should be the responsibility of the accounting department.

Monitoring activities in an internal control structure determines that:

When the auditor's assessment of control risk is below maximum:

The auditor can conclude that control risk is low:

An effective accounting information and communication system must satisfy six transaction- related objectives. Identify the six objectives.

The essence of an effectively controlled organisation lies in the:

Narratives, flowcharts and internal control questionnaires are three common methods of:

Reportable conditions are matters that come to an auditor's attention, which should be communicated to an entity's audit committee because they represent:

When planning an audit, the auditor's assessed level of control risk is:

For internal controls that leave no documentary evidence, the auditor observes their application at year- end.

When the auditor identifies significant deficiencies in the design or operation of internal controls, it will be communicated to client's audit committee in the:

It is not always practicable to apply tests of controls to transactions over the entire year.

If employees are competent and trustworthy, other controls can be absent.

During which part of an audit examination is the preparation of flowcharts most appropriate?

A procedure that would most likely be used by an auditor in performing tests of control procedures that involve segregation of functions and that leave no transaction trail is:

Which one of the following statements regarding auditor documentation of the client's internal controls is correct?

A major control available in a small company, which might not be feasible in a large company, is:

ASA 315 states: The auditor shall obtain an understanding of internal control to the audit.

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

Certain relevant principles dictate the proper design and use of documents and records. Which one is NOT correct? Documents and records should be:

It is more common for the auditor's assessment of control risk to be low when auditing larger clients than smaller clients.

For proper internal control, the custodianship of cash, including receipts and disbursements, should be the responsibility of the accounting department.

Monitoring activities in an internal control structure determines that:

When the auditor's assessment of control risk is below maximum:

The auditor can conclude that control risk is low:

An effective accounting information and communication system must satisfy six transaction- related objectives. Identify the six objectives.

The essence of an effectively controlled organisation lies in the:

Narratives, flowcharts and internal control questionnaires are three common methods of:

Reportable conditions are matters that come to an auditor's attention, which should be communicated to an entity's audit committee because they represent:

When planning an audit, the auditor's assessed level of control risk is:

For internal controls that leave no documentary evidence, the auditor observes their application at year- end.

When the auditor identifies significant deficiencies in the design or operation of internal controls, it will be communicated to client's audit committee in the:

It is not always practicable to apply tests of controls to transactions over the entire year.

If employees are competent and trustworthy, other controls can be absent.

During which part of an audit examination is the preparation of flowcharts most appropriate?

A procedure that would most likely be used by an auditor in performing tests of control procedures that involve segregation of functions and that leave no transaction trail is:

Which one of the following statements regarding auditor documentation of the client's internal controls is correct?

A major control available in a small company, which might not be feasible in a large company, is:

ASA 315 states: The auditor shall obtain an understanding of internal control to the audit.

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