Question 1

At what stage during the audit is the existence of internal controls tested and how are these tests carried out?

Accepted Answer

The existence of internal control will usually be tested during the control risk assessment stage.Types of testing the auditor would undertake in evaluating the existence of an internal control include inquiries of entity personnel, inspection of documents and reports, and observation of the application of specific internal control policies and procedures, including walk-throughs.
Tests of the effectiveness and continuity of controls (commonly called operating effectiveness) are undertaken as a test of the controls that are expected to be relied upon.

Question 2

Outline the factors that will determine whether the auditor has obtained sufficient appropriate evidence to support a particular risk assessment.

Accepted Answer

There are a number of factors that will determine whether the auditor has obtained sufficient appropriate evidence to support a particular control risk assessment.The auditor requires stronger evidence if the assessed level of control risk is low rather than medium.If control risk is high, the auditor does not have to gather evidence to support this assessment, as they do not intend to rely on controls.They will gather their evidence via substantive testing.Other factors that the auditor considers in determining whether the tests of controls have yielded sufficient appropriate evidence include: type and source of evidence (some types of audit tests provide stronger evidence); timeliness of evidence; and interrelationship with other evidence (does all evidence point to the same conclusion?).

Question 3

In a computer information system control procedures that provide reasonable assurance that the recording, processing and reporting of data are properly performed for specific applications are known as:

Accepted Answer

A) application controls. 
B) general controls. 
C) user controls. 
D) integrated testing. 
A) application controls. 
B) general controls. 
C) user controls. 
D) integrated testing. A

Question 4

What is the purpose of the preliminary assessment of control risk?

Accepted Answer

A) To obtain a reasonable expectation of controls so as to decide on an appropriate audit strategy. 
B) To determine the extent to which internal controls have been implemented. 
C) To obtain the necessary information for developing the flowchart. 
D) To provide management with an opinion on the effectiveness of controls. 
A) To obtain a reasonable expectation of controls so as to decide on an appropriate audit strategy. 
B) To determine the extent to which internal controls have been implemented. 
C) To obtain the necessary information for developing the flowchart. 
D) To provide management with an opinion on the effectiveness of controls.

Question 5

The audit test that would normally be regarded as a test of control is:

Accepted Answer

A) enquiries of third parties. 
B) test of the specific items making up the balance in a given general ledger account. 
C) test of the additions to property, plant, and equipment by physical inspections. 
D) test of the signatures on purchase orders to a list of approved signatories. 
A) enquiries of third parties. 
B) test of the specific items making up the balance in a given general ledger account. 
C) test of the additions to property, plant, and equipment by physical inspections. 
D) test of the signatures on purchase orders to a list of approved signatories.

Question 6

Testing the work of the internal auditors is least likely when the external auditor has decided that:

Accepted Answer

A) the internal auditors will be used to directly assist in the conduct of the audit. 
B) the internal auditors have operating responsibilities as well as their auditing role. 
C) the internal auditors are full-time employees of the client. 
D) the reports of the internal auditors are consistent with the results of the work performed. 
A) the internal auditors will be used to directly assist in the conduct of the audit. 
B) the internal auditors have operating responsibilities as well as their auditing role. 
C) the internal auditors are full-time employees of the client. 
D) the reports of the internal auditors are consistent with the results of the work performed.

Question 7

Assessing control risk at a level below high most likely would involve:

Accepted Answer

A) identifying specific internal controls relevant to specific assertions. 
B) changing the timing of substantive tests by omitting interim testing and performing the tests at year-end. 
C) reducing inherent risk for most of the assertions relevant to significant account balances. 
D) performing more extensive substantive tests with larger sample sizes than originally planned. 
A) identifying specific internal controls relevant to specific assertions. 
B) changing the timing of substantive tests by omitting interim testing and performing the tests at year-end. 
C) reducing inherent risk for most of the assertions relevant to significant account balances. 
D) performing more extensive substantive tests with larger sample sizes than originally planned.

Question 8

To determine whether the internal control structure policies and procedures operate effectively to minimise errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:

Accepted Answer

A) subsidiary customer accounts ledger. 
B) sales invoice file. 
C) bill of lading file. 
D) customer order file. 
A) subsidiary customer accounts ledger. 
B) sales invoice file. 
C) bill of lading file. 
D) customer order file.

Question 9

External auditors have a duty to communicate in writing significant deficiencies in internal control to those charged with governance.Which of the following is unlikely to be relevant when determining whether a 'significant deficiency' exists?

Accepted Answer

A) The susceptibility to loss or fraud of the related asset. 
B) The extent of substantive procedures performed. 
C) The likelihood of deficiencies leading to material misstatements in the financial statements in the future. 
D) The importance of controls to the financial reporting process. 
A) The susceptibility to loss or fraud of the related asset. 
B) The extent of substantive procedures performed. 
C) The likelihood of deficiencies leading to material misstatements in the financial statements in the future. 
D) The importance of controls to the financial reporting process.

Question 10

When tests of controls are not performed while obtaining an understanding under the predominantly substantive approach:

Accepted Answer

A) preliminary control risk must be assessed at below maximum. 
B) preliminary control risk must be assessed at the minimum. 
C) they must be performed at year-end. 
D) preliminary control risk must be assessed at the maximum. 
A) preliminary control risk must be assessed at below maximum. 
B) preliminary control risk must be assessed at the minimum. 
C) they must be performed at year-end. 
D) preliminary control risk must be assessed at the maximum.

Question 11

Which of the following statements is true?

Accepted Answer

A) Tests of controls are not a form of audit evidence. 
B) With good results from tests of controls, an auditor will most likely increase the level of substantive testing of transactions and balances. 
C) Where the auditor decides to use a substantive approach to obtaining evidence, it is not necessary to obtain an understanding of internal controls to assess the risk of possible financial statement misstatements. 
D) If the preliminary assessment of internal controls suggests that controls cannot be relied on, the auditor should go straight to performing substantive testing. 
A) Tests of controls are not a form of audit evidence. 
B) With good results from tests of controls, an auditor will most likely increase the level of substantive testing of transactions and balances. 
C) Where the auditor decides to use a substantive approach to obtaining evidence, it is not necessary to obtain an understanding of internal controls to assess the risk of possible financial statement misstatements. 
D) If the preliminary assessment of internal controls suggests that controls cannot be relied on, the auditor should go straight to performing substantive testing.

Question 12

'Enquiring' is a control test used by auditors.It requires the auditor to:

Accepted Answer

A) re-perform the control. 
B) observe client personnel perform their duties. 
C) inspect documents for signatures that indicate the control was performed. 
D) question client personnel about the performance of their duties. 
A) re-perform the control. 
B) observe client personnel perform their duties. 
C) inspect documents for signatures that indicate the control was performed. 
D) question client personnel about the performance of their duties.

Question 13

Which of the following is a limitation of using 'observation' for tests of controls?

Accepted Answer

A) Employees may perform the control differently when not being observed. 
B) The evidence applies for the entire period. 
C) It is a dual-purpose test. 
D) It shows how employees perform their duties. 
A) Employees may perform the control differently when not being observed. 
B) The evidence applies for the entire period. 
C) It is a dual-purpose test. 
D) It shows how employees perform their duties.

Question 14

When an auditor is designing tests of the operational effectiveness of controls they must decide their nature, timing and extent.Explain what each of these concepts mean and why they are important in designing these tests.

Accepted Answer

Nature of tests: auditors need to decide

Question 15

The statement that is accurate concerning audit testing is:

Accepted Answer

A) the test data approach involves dummy transactions prepared by and processed under the control of the auditor. 
B) the test data approach is relatively complicated, time consuming and expensive. 
C) the test data approach involves dummy transactions prepared by the client and processed under the control of the auditor. 
D) the test data approach involves dummy transactions prepared by the auditor and processed under the control of the client. 
A) the test data approach involves dummy transactions prepared by and processed under the control of the auditor. 
B) the test data approach is relatively complicated, time consuming and expensive. 
C) the test data approach involves dummy transactions prepared by the client and processed under the control of the auditor. 
D) the test data approach involves dummy transactions prepared by the auditor and processed under the control of the client.

Question 16

After performing additional tests of controls, the auditor reassesses control risk from the initial planning level of slightly below maximum to moderate.The auditor should now:

Accepted Answer

A) decrease the level of detection risk, and decrease substantive testing. 
B) increase the level of detection risk, and increase substantive testing. 
C) increase planned substantive testing. 
D) increase the level of detection risk, and decrease substantive testing. 
A) decrease the level of detection risk, and decrease substantive testing. 
B) increase the level of detection risk, and increase substantive testing. 
C) increase planned substantive testing. 
D) increase the level of detection risk, and decrease substantive testing.

Question 17

Discuss the test data approach to testing controls.

Accepted Answer

Under the test data approach, dummy tran

Question 18

For the following potential misstatements for cash payments, identify a necessary control and a test of the operational effectiveness of that control.
1 a cash payment may be made for an unauthorised purpose.
2 an invoice may be paid twice.
3 a cheque may be issued for the wrong amount.
4 a cash payment transaction may not be recorded.

Accepted Answer

The answer of For the following potential misstatements for cash...

Question 19

Which of the following is not an advantage of the test data approach?

Accepted Answer

A) It is simple to use. 
B) It is a way of auditing 'through the computer'. 
C) There is no examination of the documentation actually processed by the system. 
D) There is not much disruption to the client's computer system. 
A) It is simple to use. 
B) It is a way of auditing 'through the computer'. 
C) There is no examination of the documentation actually processed by the system. 
D) There is not much disruption to the client's computer system.

Question 20

Which of the following would be a necessary control to avoid an invoice being paid twice?

Accepted Answer

A) Segregating the duties of approving invoices and signing cheques. 
B) Invoice stamped paid when the cheque is issued. 
C) Making payments by cheque. 
D) Periodic bank reconciliations. 
A) Segregating the duties of approving invoices and signing cheques. 
B) Invoice stamped paid when the cheque is issued. 
C) Making payments by cheque. 
D) Periodic bank reconciliations.

At what stage during the audit is the existence of internal controls tested and how are these tests carried out?

Outline the factors that will determine whether the auditor has obtained sufficient appropriate evidence to support a particular risk assessment.

In a computer information system control procedures that provide reasonable assurance that the recording, processing and reporting of data are properly performed for specific applications are known as:

What is the purpose of the preliminary assessment of control risk?

The audit test that would normally be regarded as a test of control is:

Testing the work of the internal auditors is least likely when the external auditor has decided that:

Assessing control risk at a level below high most likely would involve:

To determine whether the internal control structure policies and procedures operate effectively to minimise errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:

External auditors have a duty to communicate in writing significant deficiencies in internal control to those charged with governance.Which of the following is unlikely to be relevant when determining whether a 'significant deficiency' exists?

When tests of controls are not performed while obtaining an understanding under the predominantly substantive approach:

Which of the following statements is true?

'Enquiring' is a control test used by auditors.It requires the auditor to:

Which of the following is a limitation of using 'observation' for tests of controls?

When an auditor is designing tests of the operational effectiveness of controls they must decide their nature, timing and extent.Explain what each of these concepts mean and why they are important in designing these tests.

The statement that is accurate concerning audit testing is:

After performing additional tests of controls, the auditor reassesses control risk from the initial planning level of slightly below maximum to moderate.The auditor should now:

Discuss the test data approach to testing controls.

Which of the following is not an advantage of the test data approach?

Which of the following would be a necessary control to avoid an invoice being paid twice?

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Regulation and Liability

Quality and Standards of Assurance Engagements

Overview of the Audit Financial Reports

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Materiality and Audit Evidence

Designing Substantive Procedures

Managing Audit Data

Completing the Audit

Filters

Exam 10: Tests of Controls

At what stage during the audit is the existence of internal controls tested and how are these tests carried out?

Outline the factors that will determine whether the auditor has obtained sufficient appropriate evidence to support a particular risk assessment.

In a computer information system control procedures that provide reasonable assurance that the recording, processing and reporting of data are properly performed for specific applications are known as:

What is the purpose of the preliminary assessment of control risk?

The audit test that would normally be regarded as a test of control is:

Testing the work of the internal auditors is least likely when the external auditor has decided that:

Assessing control risk at a level below high most likely would involve:

To determine whether the internal control structure policies and procedures operate effectively to minimise errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:

External auditors have a duty to communicate in writing significant deficiencies in internal control to those charged with governance.Which of the following is unlikely to be relevant when determining whether a 'significant deficiency' exists?

When tests of controls are not performed while obtaining an understanding under the predominantly substantive approach:

Which of the following statements is true?

'Enquiring' is a control test used by auditors.It requires the auditor to:

Which of the following is a limitation of using 'observation' for tests of controls?

When an auditor is designing tests of the operational effectiveness of controls they must decide their nature, timing and extent.Explain what each of these concepts mean and why they are important in designing these tests.

The statement that is accurate concerning audit testing is:

After performing additional tests of controls, the auditor reassesses control risk from the initial planning level of slightly below maximum to moderate.The auditor should now:

Discuss the test data approach to testing controls.

Which of the following is not an advantage of the test data approach?

Which of the following would be a necessary control to avoid an invoice being paid twice?

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Regulation and Liability

Quality and Standards of Assurance Engagements

Overview of the Audit Financial Reports

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Materiality and Audit Evidence

Designing Substantive Procedures

Managing Audit Data

Completing the Audit

Filters