Question 1

How must significant deficiencies and material weaknesses be communicated to those charged with governance?

Accepted Answer

A) Either oral or written communication is acceptable. 
B) Oral communication is required. 
C) Written communication is required. 
D) Written communication is required for material weaknesses, but oral communication is allowed for significant deficiencies. 
A) Either oral or written communication is acceptable. 
B) Oral communication is required. 
C) Written communication is required. 
D) Written communication is required for material weaknesses, but oral communication is allowed for significant deficiencies.

Question 2

To determine if significant internal control deficiencies are material weaknesses, they must be evaluated on their:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

Which of the following is responsible for establishing a private company's internal control?

Accepted Answer

A) Senior Management 
B) Internal Auditors 
C) FASB 
D) Audit committee 
A) Senior Management 
B) Internal Auditors 
C) FASB 
D) Audit committee

Question 4

Adequate documents and records is a subcomponent of the control environment.

Accepted Answer

A) True 
 B)False

Question 5

The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk.This lack of knowledge would constitute:

Accepted Answer

A) a deficiency in operation of internal controls. 
B) a deficiency in design of internal controls. 
C) a deficiency of management. 
D) not constitute a deficiency. 
A) a deficiency in operation of internal controls. 
B) a deficiency in design of internal controls. 
C) a deficiency of management. 
D) not constitute a deficiency.

Question 6

External financial statement auditors must obtain evidence regarding what attributes of an internal audit (IA)department if the external auditors intend to rely on IA's work?

Accepted Answer

A) Integrity 
B) Objectivity 
C) Competence 
D) All of the above 
A) Integrity 
B) Objectivity 
C) Competence 
D) All of the above

Question 7

It is important for the CPA to consider the competence of the clients' personnel because their competence has a direct impact upon the:

Accepted Answer

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

Question 8

Internal controls can never be regarded as completely effective.Even if company 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 9

A narrative should describe the disposition of every document and record in the system.

Accepted Answer

A) True 
 B)False

Question 10

The financial statements may not correctly reflect accounting frameworks such as GAAP or IFRS if the:

Accepted Answer

A) controls affecting the reliability of financial reporting are inadequate. 
B) company's controls do not promote efficiency. 
C) company's controls do not promote effectiveness. 
D) company's controls do not promote compliance with applicable rules and regulations. 
A) controls affecting the reliability of financial reporting are inadequate. 
B) company's controls do not promote efficiency. 
C) company's controls do not promote effectiveness. 
D) company's controls do not promote compliance with applicable rules and regulations.

Question 11

Management must disclose material weaknesses in internal control in its audit report:

Accepted Answer

A) whenever the weakness is deemed significant to a single class of transactions. 
B) whenever the weakness is significant to overall financial reporting objectives. 
C) if the weakness exists at the end of the year. 
D) only if the auditor identifies the weakness as significant. 
A) whenever the weakness is deemed significant to a single class of transactions. 
B) whenever the weakness is significant to overall financial reporting objectives. 
C) if the weakness exists at the end of the year. 
D) only if the auditor identifies the weakness as significant.

Question 12

Which of the following best describes the purpose of control activities?

Accepted Answer

A) The actions, policies and procedures that reflect the overall attitudes of management 
B) The identification and analysis of risks relevant to the preparation of financial statements 
C) The policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives 
D) Activities that deal with the ongoing assessment of the quality of internal control by management 
A) The actions, policies and procedures that reflect the overall attitudes of management 
B) The identification and analysis of risks relevant to the preparation of financial statements 
C) The policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives 
D) Activities that deal with the ongoing assessment of the quality of internal control by management

Question 13

The procedures to obtain an understanding of internal control are only applied when the assessed control risk is high.

Accepted Answer

A) True 
 B)False

Question 14

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

Accepted Answer

A) collusion. 
B) a material weakness. 
C) a control deficiency. 
D) a significant deficiency. 
A) collusion. 
B) a material weakness. 
C) a control deficiency. 
D) a significant deficiency.

Question 15

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 a client's organizational 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 a client's organizational structure.

Question 16

Authorizations can be either general or specific.Which of the following is not an example of a general authorization?

Accepted Answer

A) Automatic reorder points for raw materials inventory 
B) A sales manager's authorization for a sales return 
C) Credit limits for various classes of customers 
D) A sales price list for merchandise 
A) Automatic reorder points for raw materials inventory 
B) A sales manager's authorization for a sales return 
C) Credit limits for various classes of customers 
D) A sales price list for merchandise

Question 17

When a company designs and implements internal controls, cost of the controls is not a valid consideration.

Accepted Answer

A) True 
 B)False

Question 18

A five-step approach can be used to identify deficiencies, significant deficiencies, and material weaknesses.The first step in this approach is:

Accepted Answer

A) identify the absence of key controls. 
B) consider the possibility of compensating controls. 
C) determine potential misstatements that could result. 
D)  identify existing controls. 
A) identify the absence of key controls. 
B) consider the possibility of compensating controls. 
C) determine potential misstatements that could result. 
D)  identify existing controls.

Question 19

In the audit of a private company, the auditor will test internal controls when control risk is initially assessed at:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 20

Separation of duties is essential in preventing errors and intentional misstatements on the financial statements.List below the four general guidelines.

Accepted Answer

1.Separation of custody of the assets fr

Exam 10: Internal Control, Control Risk, and Section 404 Audits

How must significant deficiencies and material weaknesses be communicated to those charged with governance?

To determine if significant internal control deficiencies are material weaknesses, they must be evaluated on their:

Which of the following is responsible for establishing a private company's internal control?

Adequate documents and records is a subcomponent of the control environment.

The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk.This lack of knowledge would constitute:

External financial statement auditors must obtain evidence regarding what attributes of an internal audit (IA)department if the external auditors intend to rely on IA's work?

It is important for the CPA to consider the competence of the clients' personnel because their competence has a direct impact upon the:

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

A narrative should describe the disposition of every document and record in the system.

The financial statements may not correctly reflect accounting frameworks such as GAAP or IFRS if the:

Management must disclose material weaknesses in internal control in its audit report:

Which of the following best describes the purpose of control activities?

The procedures to obtain an understanding of internal control are only applied when the assessed control risk is high.

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

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

Authorizations can be either general or specific.Which of the following is not an example of a general authorization?

When a company designs and implements internal controls, cost of the controls is not a valid consideration.

A five-step approach can be used to identify deficiencies, significant deficiencies, and material weaknesses.The first step in this approach is:

In the audit of a private company, the auditor will test internal controls when control risk is initially assessed at:

Separation of duties is essential in preventing errors and intentional misstatements on the financial statements.List below the four general guidelines.

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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