Question 1

An essential characteristic of the persons performing internal check procedures is

Accepted Answer

A)  independence from the original data preparer. 
B)  a thorough knowledge of accounting. 
C)  an analytical and inquisitive mind. 
D)  competence in data entry skills. 
A)  independence from the original data preparer. 
B)  a thorough knowledge of accounting. 
C)  an analytical and inquisitive mind. 
D)  competence in data entry skills.

Question 2

An act of two or more employees to work together to misstate records is called

Accepted Answer

A)  malfeasance. 
B)  collusion. 
C)  defalcation. 
D)  felony. 
A)  malfeasance. 
B)  collusion. 
C)  defalcation. 
D)  felony.

Question 3

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 4

Bravo Design had IMB consulting design a custom software system to record the job costs and sales in progress. What acquisition process did Bravo design follow?

Accepted Answer

A)  in-house development 
B)  systems acquisition 
C)  turnkey software development 
D)  outsourcing 
A)  in-house development 
B)  systems acquisition 
C)  turnkey software development 
D)  outsourcing

Question 5

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.

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

Management's objectives with respect to internal control include

Accepted Answer

A)  having reasonable assurance that the financial statements are in accordance with IFRS or ASPE. 
B)  ensuring that all policies and procedures are clearly documented to reduce employee training costs. 
C)  preventing fraud and illegal activities at all costs. 
D)  providing reasonable assurance that the goals and objectives important to the entity have been met. 
A)  having reasonable assurance that the financial statements are in accordance with IFRS or ASPE. 
B)  ensuring that all policies and procedures are clearly documented to reduce employee training costs. 
C)  preventing fraud and illegal activities at all costs. 
D)  providing reasonable assurance that the goals and objectives important to the entity have been met.

Question 8

The first step for management in the risk assessment process is to identify factors that may increase risk, for example failure to meet prior objectives. Then, management will

Accepted Answer

A)  assess the likelihood of the risk occurring. 
B)  make sure that procedures are developed to eliminate the risk. 
C)  estimate the significance of that risk. 
D)  develop specific actions to reduce the risk to an acceptable level. 
A)  assess the likelihood of the risk occurring. 
B)  make sure that procedures are developed to eliminate the risk. 
C)  estimate the significance of that risk. 
D)  develop specific actions to reduce the risk to an acceptable level.

Question 9

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 of the system of internal control. 
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 of the system of internal control. 
C)  comparison of recorded accountability with assets. 
D)  timing of the tests to be performed.

Question 10

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 11

A) List the four types of general computer control systems.
B) Adequate segregation of duties is an important control procedure. Describe the specific functions that should be separated for segregation of duties to prevent both intentional and unintentional misstatements that are of significance to auditors.
C) Adequate documents and records are important for effective internal control. Five principles dictate the proper design and use of documents and records. One principle is that documents and records should be prenumbered consecutively to facilitate control over missing documents and to aid in locating documents when they are needed at a later date. Discuss each of the other four principles of adequate documents and records.

Accepted Answer

A)The four types of general computer con

Question 12

Which of the following is an example of a general authorization?

Accepted Answer

A)  The highest credit limit allowed for accounts receivable is $50 000. 
B)  ABC Company has a credit limit of $25 000. 
C)  Each supervisory wage rate must be approved by the executive manager. 
D)  Grocery supervisors approve each transaction reversal over five dollars. 
A)  The highest credit limit allowed for accounts receivable is $50 000. 
B)  ABC Company has a credit limit of $25 000. 
C)  Each supervisory wage rate must be approved by the executive manager. 
D)  Grocery supervisors approve each transaction reversal over five dollars.

Question 13

A) The COSO internal control framework consists of five components. Describe each of these components.
B) Custody of assets and reconciliation should be separated to contribute to strong internal control. List the general categories of activities that should be separated.

Accepted Answer

A)The five components of internal contro

Question 14

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 15

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

Accepted Answer

A)  employment of temporary personnel to aid in the segregation of duties. 
B)  direct participation by the owner of the business in the record-keeping activities of the business. 
C)  engaging a public accountant to perform monthly "write-up" work. 
D)  delegation of full, clear-cut responsibility to each employee for the functions assigned to each. 
A)  employment of temporary personnel to aid in the segregation of duties. 
B)  direct participation by the owner of the business in the record-keeping activities of the business. 
C)  engaging a public accountant to perform monthly "write-up" work. 
D)  delegation of full, clear-cut responsibility to each employee for the functions assigned to each.

Question 16

When the auditor identifies opportunities for the client to make operational improvements in the internal control system, it will be communicated to the client's audit committee in the

Accepted Answer

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

Question 17

Narratives, flowcharts, and internal control questionnaires are three commonly used methods of

Accepted Answer

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

Question 18

A) Describe the three basic concepts (assumptions) underlying the study of internal control and assessment of control risk.
B) Describe the inherent limitations of internal control.

Accepted Answer

A)The three basic concepts that underlie

Question 19

Control risk is a measure of the auditor's expectation that internal controls will

Accepted Answer

A)  prevent material misstatements from occurring. 
B)  detect and correct material misstatements. 
C)  either prevent material misstatements or detect and correct them. 
D)  neither prevent material misstatements nor detect and correct them. 
A)  prevent material misstatements from occurring. 
B)  detect and correct material misstatements. 
C)  either prevent material misstatements or detect and correct them. 
D)  neither prevent material misstatements nor detect and correct them.

Question 20

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 the distribution of promotional information to potential clients 
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 the distribution of promotional information to potential clients 
D)  controls over the cost of inventory items as recorded in the perpetual inventory system

An essential characteristic of the persons performing internal check procedures is

An act of two or more employees to work together to misstate records is called

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

Bravo Design had IMB consulting design a custom software system to record the job costs and sales in progress. What acquisition process did Bravo design follow?

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

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

Management's objectives with respect to internal control include

The first step for management in the risk assessment process is to identify factors that may increase risk, for example failure to meet prior objectives. Then, management will

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

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?

Which of the following is an example of a general authorization?

A) The COSO internal control framework consists of five components. Describe each of these components. B) Custody of assets and reconciliation should be separated to contribute to strong internal control. List the general categories of activities that should be separated.

A well-designed organizational structure at an entity

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

When the auditor identifies opportunities for the client to make operational improvements in the internal control system, it will be communicated to the client's audit committee in the

Narratives, flowcharts, and internal control questionnaires are three commonly used methods of

A) Describe the three basic concepts (assumptions) underlying the study of internal control and assessment of control risk. B) Describe the inherent limitations of internal control.

Control risk is a measure of the auditor's expectation that internal controls will

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

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

An essential characteristic of the persons performing internal check procedures is

An act of two or more employees to work together to misstate records is called

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

Bravo Design had IMB consulting design a custom software system to record the job costs and sales in progress. What acquisition process did Bravo design follow?

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

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

Management's objectives with respect to internal control include

The first step for management in the risk assessment process is to identify factors that may increase risk, for example failure to meet prior objectives. Then, management will

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

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?

Which of the following is an example of a general authorization?

A) The COSO internal control framework consists of five components. Describe each of these components. B) Custody of assets and reconciliation should be separated to contribute to strong internal control. List the general categories of activities that should be separated.

A well-designed organizational structure at an entity

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

When the auditor identifies opportunities for the client to make operational improvements in the internal control system, it will be communicated to the client's audit committee in the

Narratives, flowcharts, and internal control questionnaires are three commonly used methods of

A) Describe the three basic concepts (assumptions) underlying the study of internal control and assessment of control risk. B) Describe the inherent limitations of internal control.

Control risk is a measure of the auditor's expectation that internal controls will

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

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