Question 1

The control environment consists of actions, policies, and procedures that

Accepted Answer

A)  reflect the overall attitudes of top management, the directors, and the owners of an entity about control and its importance. 
B)  govern access to particular applications, such as how employees use passwords to change master file payroll rates. 
C)  are recorded on the web site (for example, access policies to data). 
D)  help implement the ethical attitudes at the organization, such as a computer usage policy. 
A)  reflect the overall attitudes of top management, the directors, and the owners of an entity about control and its importance. 
B)  govern access to particular applications, such as how employees use passwords to change master file payroll rates. 
C)  are recorded on the web site (for example, access policies to data). 
D)  help implement the ethical attitudes at the organization, such as a computer usage policy. A

Question 2

Once an understanding of internal controls is obtained that is sufficient for audit planning, then the auditor must first assess

Accepted Answer

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

Question 3

Which of the following best describes the inherent limitations that should be recognized by an auditor when considering the potential effectiveness of an accounting system?

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)  Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against irregularities perpetrated by management. 
D)  The benefits expected to be derived from an effective accounting system usually do not exceed the costs of such control. 
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)  Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against irregularities perpetrated by management. 
D)  The benefits expected to be derived from an effective accounting system usually do not exceed the costs of such control. A

Question 4

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

Question 5

An example of general computer control systems that provide reasonable assurance of authorization of application systems is

Accepted Answer

A)  operations and information systems support. 
B)  systems, acquisition, development, and maintenance controls. 
C)  organization and management controls. 
D)  application system control procedures. 
A)  operations and information systems support. 
B)  systems, acquisition, development, and maintenance controls. 
C)  organization and management controls. 
D)  application system control procedures.

Question 6

HomeTown Tanning Company is the largest leather tanning operation in Canada. Hides from various animals are stretched and treated, then cut into shapes for shipment to wholesalers.
Computer-assisted operations are important in maintaining temperature, humidity, and proper mix proportions in chemical solutions used for the tanning process. Computer assistance has helped improve the quality of the tanning process, as well as provide a safer environment for employees. Computer operations and backup are supported by the warehouse manager, Joe.
Individual hides are tagged with a bar code and tracked for quality control purposes. The HomeTown Tanning Company uses a centralized microcomputer-based system for its manufacturing and accounting operations. The two owners of the company are active in the business and approve all new hardware and software acquisitions.
The controller is responsible for network upgrades as well as for maintaining passwords and user identification codes on the network. Accounting transactions are entered by accounting staff, although the controller has the ability to review and correct transactions.
Required:
List the six categories of functions that need to be separated from each other. Does HomeTown Tanning have these functions separated? For any functions that are not separated, indicate the potential impact upon controls and upon the audit.

Accepted Answer

1.Separation of custody of assets from a

Question 7

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 (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 (transactions). 
D)  training provided to the personnel.

Question 8

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 th

Question 9

External auditor Mary Smith may not rely on the work of internal auditor Ray Jones unless

Accepted Answer

A)  Jones is certified (CA, CGA, or CM
A) . 
B)  Jones is independent of the client. 
C)  Jones is supervised by Smith. 
D)  Smith obtains evidence that supports the competence, integrity, and objectivity of Jones. 
A)  Jones is certified (CA, CGA, or CM
A) . 
B)  Jones is independent of the client. 
C)  Jones is supervised by Smith. 
D)  Smith obtains evidence that supports the competence, integrity, and objectivity of Jones.

Question 10

FiddleWare Limited uses a purchased software package to handle the processing of its transactions. An important control that management should implement with respect to information systems is the

Accepted Answer

A)  use of a formal systems development methodology. 
B)  evaluation of potential new systems against organizational objectives. 
C)  use of appropriate checkpoints and milestones during development. 
D)  tracking of routine program maintenance changes. 
A)  use of a formal systems development methodology. 
B)  evaluation of potential new systems against organizational objectives. 
C)  use of appropriate checkpoints and milestones during development. 
D)  tracking of routine program maintenance changes.

Question 11

To help with corporate governance and a positive "tone at the top," the board of directors and its committees, such as the audit committee, should

Accepted Answer

A)  rubber-stamp the financial statements once per year. 
B)  consist of all members of executive management. 
C)  follow the policies and procedures approved by management. 
D)  take an active role in overseeing the company. 
A)  rubber-stamp the financial statements once per year. 
B)  consist of all members of executive management. 
C)  follow the policies and procedures approved by management. 
D)  take an active role in overseeing the company.

Question 12

Management assesses risks as a part of designing and operating internal controls to minimize fraud and errors. Auditors assess risks to

Accepted Answer

A)  decide the evidence needed in the audit. 
B)  fully implement the audit risk model. 
C)  enable them to assess the completeness of internal controls. 
D)  make sure that the company will continue to operate over the next year. 
A)  decide the evidence needed in the audit. 
B)  fully implement the audit risk model. 
C)  enable them to assess the completeness of internal controls. 
D)  make sure that the company will continue to operate over the next year.

Question 13

When the auditor attempts to determine the operation of the accounting system by tracing one or a few transactions through the accounting system, this is referred to as

Accepted Answer

A)  tracing. 
B)  vouching. 
C)  tests of controls. 
D)  a walk-through. 
A)  tracing. 
B)  vouching. 
C)  tests of controls. 
D)  a walk-through.

Question 14

The auditor may identify some risks that cannot be effectively tested by substantive tests alone. For example, when there are paperless transactions (perhaps using EDI - electronic data interchange). To address these risks, the auditor is required to

Accepted Answer

A)  assess the design effectiveness of relevant controls and test them. 
B)  obtain an understanding of the controls and test them if reliance is intended. 
C)  obtain an understanding of the controls and assess their design effectiveness. 
D)  test the controls that address the paperless aspects of the transactions. 
A)  assess the design effectiveness of relevant controls and test them. 
B)  obtain an understanding of the controls and test them if reliance is intended. 
C)  obtain an understanding of the controls and assess their design effectiveness. 
D)  test the controls that address the paperless aspects of the transactions.

Question 15

Carrie is the manager of the Bay Street Pharmacy. Carrie is considering implementing a security tag system to reduce the losses related to stolen goods at their store. The system Carrie is looking at currently costs $60 000 and is expected to be effective for 5 years. In order to justify the implementation of the security tag system, average theft per year should be at least

Accepted Answer

A)  $1000. 
B)  $12 000. 
C)  $60 000. 
D)  Theft should be prevented at all costs. 
A)  $1000. 
B)  $12 000. 
C)  $60 000. 
D)  Theft should be prevented at all costs.

Question 16

Ideally, tests of controls should be applied to controls

Accepted Answer

A)  at the balance sheet date. 
B)  at each quarterly interim period. 
C)  for the entire period under audit. 
D)  at the beginning of the fiscal period. 
A)  at the balance sheet date. 
B)  at each quarterly interim period. 
C)  for the entire period under audit. 
D)  at the beginning of the fiscal period.

Question 17

A) The first step in the auditor's study and evaluation of internal control is obtain understanding of internal control for audit planning purposes. List the remaining steps.
B) Once the auditor has an understanding of internal control, what two assessments must be made prior to testing controls?
C) Describe five common procedures an auditor can use to obtain an understanding of internal control design.

Accepted Answer

A)The remaining steps are:
2.Evaluate th

Question 18

Each key control that the auditor intends to rely on must be supported by sufficient

Accepted Answer

A)  tests of details of balances. 
B)  tests of controls. 
C)  analytical review procedures. 
D)  reperformance procedures. 
A)  tests of details of balances. 
B)  tests of controls. 
C)  analytical review procedures. 
D)  reperformance procedures.

Question 19

To comply with auditing standards, the auditor need not be concerned with all areas of internal control that apply to management. The auditor's primary concerns are with the system's ability to

Accepted Answer

A)  maintain reliable control systems pertaining to financial transactions. 
B)  promote efficiency and encourage adherence to policy. 
C)  prevent and detect financial statement fraud and error. 
D)  provide reliable data and safeguard assets. 
A)  maintain reliable control systems pertaining to financial transactions. 
B)  promote efficiency and encourage adherence to policy. 
C)  prevent and detect financial statement fraud and error. 
D)  provide reliable data and safeguard assets.

Question 20

When planning the audit, the auditor's decision on the appropriate assessed level of control risk to use is

Accepted Answer

A)  an economic issue, trading off the costs of testing controls against the cost of testing balances. 
B)  calculated by using the audit risk model. 
C)  calculated by using a standard formula. 
D)  determined by using actuarial tables. 
A)  an economic issue, trading off the costs of testing controls against the cost of testing balances. 
B)  calculated by using the audit risk model. 
C)  calculated by using a standard formula. 
D)  determined by using actuarial tables.

The control environment consists of actions, policies, and procedures that

Once an understanding of internal controls is obtained that is sufficient for audit planning, then the auditor must first assess

Which of the following best describes the inherent limitations that should be recognized by an auditor when considering the potential effectiveness of an accounting system?

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

An example of general computer control systems that provide reasonable assurance of authorization of application systems is

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

External auditor Mary Smith may not rely on the work of internal auditor Ray Jones unless

FiddleWare Limited uses a purchased software package to handle the processing of its transactions. An important control that management should implement with respect to information systems is the

To help with corporate governance and a positive "tone at the top," the board of directors and its committees, such as the audit committee, should

Management assesses risks as a part of designing and operating internal controls to minimize fraud and errors. Auditors assess risks to

When the auditor attempts to determine the operation of the accounting system by tracing one or a few transactions through the accounting system, this is referred to as

The auditor may identify some risks that cannot be effectively tested by substantive tests alone. For example, when there are paperless transactions (perhaps using EDI - electronic data interchange). To address these risks, the auditor is required to

Ideally, tests of controls should be applied to controls

Each key control that the auditor intends to rely on must be supported by sufficient

To comply with auditing standards, the auditor need not be concerned with all areas of internal control that apply to management. The auditor's primary concerns are with the system's ability to

When planning the audit, the auditor's decision on the appropriate assessed level of control risk to use is

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Audit Evidence

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 Controls and Control Risk

The control environment consists of actions, policies, and procedures that

Once an understanding of internal controls is obtained that is sufficient for audit planning, then the auditor must first assess

Which of the following best describes the inherent limitations that should be recognized by an auditor when considering the potential effectiveness of an accounting system?

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

An example of general computer control systems that provide reasonable assurance of authorization of application systems is

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

External auditor Mary Smith may not rely on the work of internal auditor Ray Jones unless

FiddleWare Limited uses a purchased software package to handle the processing of its transactions. An important control that management should implement with respect to information systems is the

To help with corporate governance and a positive "tone at the top," the board of directors and its committees, such as the audit committee, should

Management assesses risks as a part of designing and operating internal controls to minimize fraud and errors. Auditors assess risks to

When the auditor attempts to determine the operation of the accounting system by tracing one or a few transactions through the accounting system, this is referred to as

The auditor may identify some risks that cannot be effectively tested by substantive tests alone. For example, when there are paperless transactions (perhaps using EDI - electronic data interchange). To address these risks, the auditor is required to

Ideally, tests of controls should be applied to controls

Each key control that the auditor intends to rely on must be supported by sufficient

To comply with auditing standards, the auditor need not be concerned with all areas of internal control that apply to management. The auditor's primary concerns are with the system's ability to

When planning the audit, the auditor's decision on the appropriate assessed level of control risk to use is

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Audit Evidence

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