Question 1

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

Question 2

A)Discuss what is meant by the term "control environment" and identify four control environment subcomponents that the auditor should consider.B)List the steps that management follows in assessing risks relevant to the preparation of financial statements in conformity with an applicable financial reporting framework.C)How does the auditor obtain knowledge about management's risk assessment process? D)Explain how management's risk assessment process differs from the auditor's risk assessment process.E)What is the relationship between management's risk assessment process and audit evidence?

Accepted Answer

A)The control environment consists of 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.Subcomponents include:
1.demonstrate commitment to integrity and ethical values.
2.board of directors exercises oversight responsibility.
3.management establishes structure,authority,and responsibility.
4.commitment to competence.
5.organization establishes and enforces accountability.
6.organization specifies relevant objectives.
7.identifies and assesses risks.
8.considers the potential for fraud in assessing risk.
9.identifies and assesses significant changes.
10.selects and develops control activities.
11.selects and develops general controls over technology.
12.deploys policies and procedures.
13.obtains or generates relevant,quality information.
14.communicates internally.
15.communicates externally.
B)Management's steps include:
•identify factors that may increase risk.
•estimate the significance of risks.
•assess the likelihood that risks would occur.
•develop specific actions that need to be taken to reduce the risk to an acceptable level.
C)The auditor:
•determines how management identifies risk relevant to financial reporting.
•evaluates the significance of these risks.
•evaluates the likelihood of the risks occurring.
•decides what evidence is required pertaining to the risks.
Questionnaires and discussions with management are the most common ways to obtain this understanding.
D)Management's risk assessment process is focused on the identification and analysis of risks relevant to the preparation of financial statements in conformity with an applicable financial reporting framework.Management assesses risks as a part of designing and operating internal controls to minimize errors and fraud.Auditors assess risks to decide the evidence needed in the audit.
E)There is an inverse relationship: If management effectively assesses and responds to risks,the auditor will typically accumulate less evidence than when management fails to identify or respond to significant risks.

Question 3

The methods that management uses to enforce accountability over internal controls are called

Accepted Answer

A) personnel practices. 
B) performance measures. 
C) control testing. 
D) management's operating style. 
A) personnel practices. 
B) performance measures. 
C) control testing. 
D) management's operating style. B

Question 4

Which of the following controls would be of concern to management but not to the auditor?

Accepted Answer

A) controls over the collection of accounts receivable amounts 
B) controls over the entry of payroll wage rates into the computer systems 
C) controls over health and safety guidelines compliance by employer 
D) controls over the cost of inventory items as recorded in the perpetual inventory system 
A) controls over the collection of accounts receivable amounts 
B) controls over the entry of payroll wage rates into the computer systems 
C) controls over health and safety guidelines compliance by employer 
D) controls over the cost of inventory items as recorded in the perpetual inventory system

Question 5

A well-designed organizational structure at an entity

Accepted Answer

A) has operations and programming personnel tasks combined. 
B) clearly defines authority and responsibility assignments. 
C) requires that wage rates are recorded and tracked by the human resources department. 
D) has the internal audit department report to the Chief Financial Officer. 
A) has operations and programming personnel tasks combined. 
B) clearly defines authority and responsibility assignments. 
C) requires that wage rates are recorded and tracked by the human resources department. 
D) has the internal audit department report to the Chief Financial Officer.

Question 6

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

Accepted Answer

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

Question 7

The operational responsibility and the recording of transactions are normally kept separate

Accepted Answer

A) to centralize activities in order to be more cost efficient. 
B) to ensure unbiased information is recorded. 
C) because operational personnel rarely have the necessary accounting skills to record transactions. 
D) to avoid confusion of responsibilities and duplication of efforts. 
A) to centralize activities in order to be more cost efficient. 
B) to ensure unbiased information is recorded. 
C) because operational personnel rarely have the necessary accounting skills to record transactions. 
D) to avoid confusion of responsibilities and duplication of efforts.

Question 8

The essence of an effectively controlled organization lies in the

Accepted Answer

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

Question 9

The board of directors is essential for effective corporate governance because it has ultimate responsibility to

Accepted Answer

A) make sure management implements proper internal control and financial reporting processes. 
B) assist management in the preparation of the financial statements. 
C) test internal controls and ensure they are working properly. 
D) provide a report to the auditor confirming that internal controls are working properly. 
A) make sure management implements proper internal control and financial reporting processes. 
B) assist management in the preparation of the financial statements. 
C) test internal controls and ensure they are working properly. 
D) provide a report to the auditor confirming that internal controls are working properly.

Question 10

For large companies,what is essential for effective monitoring of internal controls?

Accepted Answer

A) competent external auditors 
B) competent fraud department 
C) competent accounting department 
D) competent internal audit department 
A) competent external auditors 
B) competent fraud department 
C) competent accounting department 
D) competent internal audit department

Question 11

The chart of accounts is an important control because it provides the framework for determining the information presented to management and other financial statement users.What type of error is the chart of accounts helpful in preventing?

Accepted Answer

A) errors of occurrence 
B) errors of completeness 
C) errors of accuracy 
D) errors of classification 
A) errors of occurrence 
B) errors of completeness 
C) errors of accuracy 
D) errors of classification

Question 12

Public key encryption uses

Accepted Answer

A) four keys. 
B) three keys. 
C) one key. 
D) two keys. 
A) four keys. 
B) three keys. 
C) one key. 
D) two keys.

Question 13

Dimple Leather is a chain of retail stores that sells leather clothing and accessories across Canada.Each store has point-of-sale equipment that is linked to a local server.At night,local accounting information is transmitted to the head office computer and any updates to prices or other adjustments are transferred to the local office.
Required:
Define the control environment.List the components of the control environment.For each component,provide an example of a control that might exist at Dimple Leather.

Accepted Answer

Definition: The control environment cons

Question 14

Which one of the following is an example of a specific authorization?

Accepted Answer

A) The computer systems automatically reorder inventory when quantities fall below the economic order quantity. 
B) The highest credit limit allowed for accounts receivable customers is $100 000. 
C) Each sales transaction that exceeds the credit limit of a customer must be approved by the controller. 
D) Grocery sales clerks may approve returns of goods less than ten dollars in value. 
A) The computer systems automatically reorder inventory when quantities fall below the economic order quantity. 
B) The highest credit limit allowed for accounts receivable customers is $100 000. 
C) Each sales transaction that exceeds the credit limit of a customer must be approved by the controller. 
D) Grocery sales clerks may approve returns of goods less than ten dollars in value.

Question 15

The accuracy of the results of the accounting system (account balances)is heavily dependent upon the

Accepted Answer

A) knowledge and skills of the auditor. 
B) adequacy of the entity-level controls. 
C) accuracy of the inputs and processing (the transactions). 
D) training provided to the personnel. 
A) knowledge and skills of the auditor. 
B) adequacy of the entity-level controls. 
C) accuracy of the inputs and processing (the transactions). 
D) training provided to the personnel.

Question 16

Distinguish between entity level controls and transactional controls.Give an example of each.

Accepted Answer

Entity-level controls are controls that

Question 17

A)Describe the four broad objectives of management when designing an effective system of internal control.B)Describe the aspect of internal control that auditors are primarily concerned with for a financial statement audit.

Accepted Answer

A)Management typically has the following

Question 18

It is important for the public accountant to consider the competence of the audit clients' employees because their competence bears directly and importantly upon the

Accepted Answer

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

Question 19

Which of the following controls would not be of concern to the auditor?

Accepted Answer

A) controls over the collection of accounts receivable amounts 
B) controls over the entry of payroll wage rates into the computer systems 
C) controls over health and safety guidelines compliance by employer 
D) controls over the cost of inventory items as recorded in the perpetual inventory system 
A) controls over the collection of accounts receivable amounts 
B) controls over the entry of payroll wage rates into the computer systems 
C) controls over health and safety guidelines compliance by employer 
D) controls over the cost of inventory items as recorded in the perpetual inventory system

Question 20

Management safeguards assets by

Accepted Answer

A) having the internal auditors conduct periodic counts of physical assets. 
B) controlling access and by comparing physical items to records. 
C) requiring the external auditors to do surprise audits. 
D) having management sign a management representation letter. 
A) having the internal auditors conduct periodic counts of physical assets. 
B) controlling access and by comparing physical items to records. 
C) requiring the external auditors to do surprise audits. 
D) having management sign a management representation letter.

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

The methods that management uses to enforce accountability over internal controls are called

Which of the following controls would be of concern to management but not to the auditor?

A well-designed organizational structure at an entity

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

The operational responsibility and the recording of transactions are normally kept separate

The essence of an effectively controlled organization lies in the

The board of directors is essential for effective corporate governance because it has ultimate responsibility to

For large companies,what is essential for effective monitoring of internal controls?

The chart of accounts is an important control because it provides the framework for determining the information presented to management and other financial statement users.What type of error is the chart of accounts helpful in preventing?

Public key encryption uses

Which one of the following is an example of a specific authorization?

The accuracy of the results of the accounting system (account balances)is heavily dependent upon the

Distinguish between entity level controls and transactional controls.Give an example of each.

A)Describe the four broad objectives of management when designing an effective system of internal control.B)Describe the aspect of internal control that auditors are primarily concerned with for a financial statement audit.

It is important for the public accountant to consider the competence of the audit clients' employees because their competence bears directly and importantly upon the

Which of the following controls would not be of concern to the auditor?

Management safeguards assets by

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 8: Internal Control and COSO Framework

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

The methods that management uses to enforce accountability over internal controls are called

Which of the following controls would be of concern to management but not to the auditor?

A well-designed organizational structure at an entity

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

The operational responsibility and the recording of transactions are normally kept separate

The essence of an effectively controlled organization lies in the

The board of directors is essential for effective corporate governance because it has ultimate responsibility to

For large companies,what is essential for effective monitoring of internal controls?

The chart of accounts is an important control because it provides the framework for determining the information presented to management and other financial statement users.What type of error is the chart of accounts helpful in preventing?

Public key encryption uses

Which one of the following is an example of a specific authorization?

The accuracy of the results of the accounting system (account balances)is heavily dependent upon the

Distinguish between entity level controls and transactional controls.Give an example of each.

A)Describe the four broad objectives of management when designing an effective system of internal control.B)Describe the aspect of internal control that auditors are primarily concerned with for a financial statement audit.

It is important for the public accountant to consider the competence of the audit clients' employees because their competence bears directly and importantly upon the

Which of the following controls would not be of concern to the auditor?

Management safeguards assets by

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters