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

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If, when obtaining an understanding of control activities of a relatively small client, the auditor identified no control activities, the auditor would probably reassess whether the client is auditable.

(True/False)
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Significant deficiencies and material weaknesses in internal control of a public company must be reported in writing to which of the following?

(Multiple Choice)
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Describe each of the three broad objectives management typically has for internal control.With which of these objectives is the auditor primarily concerned?

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Control activities are a subcomponent of the information and communication component of internal control.

(True/False)
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When auditing a private company, the auditor should obtain an understanding of internal control sufficient to:

(Multiple Choice)
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Which of the following represents a correct statement regarding internal control testing?

(Multiple Choice)
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An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls.Which of the following would generally not be used?

(Multiple Choice)
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Management's identification and analysis of risk is an ongoing process and is a critical component of effective internal control.An important first step is for management to identify factors that may increase risk.Identify at least five factors, observable by management, which may lead to increased risk in a typical business organization.

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In an audit of a non-public company, the less control risk there is, the smaller the amount of planned substantive evidence that is required.

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Of the following statements about internal controls, which one is least likely to be correct?

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For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of internal control.

(True/False)
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Proper segregation of functional responsibilities calls for separation of:

(Multiple Choice)
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Match seven of the terms (a-i)with the definitions provided below (1-7):
Management's identification and analysis of risks relevant to the preparation of financial statements in accordance with an applicable accounting framework.
Independent checks on performance
Segregation of the following activities in an organization: custody of assets, accounting, authorization, and operational responsibility.
Control environment
A process designed to provide reasonable assurance regarding the achievement of management's objectives in the following categories: (1)reliability of financial reporting, (2)effectiveness and efficiency of operations, and (3)compliance with applicable laws and regulations.
Specific authorization
Correct Answer:
Verified
Premises:
Responses:
Management's identification and analysis of risks relevant to the preparation of financial statements in accordance with an applicable accounting framework.
Independent checks on performance
Segregation of the following activities in an organization: custody of assets, accounting, authorization, and operational responsibility.
Control environment
A process designed to provide reasonable assurance regarding the achievement of management's objectives in the following categories: (1)reliability of financial reporting, (2)effectiveness and efficiency of operations, and (3)compliance with applicable laws and regulations.
Specific authorization
Company-wide policies for the approval of all transactions within stated limits.
Monitoring
Policies and procedures that help ensure that necessary actions are taken to address risks in the achievement of the entity's objectives.
Control activities
Management's ongoing and periodic assessment of the quality of internal control performance to determine that controls are operating as intended and are modified when needed.
Separation of duties
The actions, policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about internal control and its importance to the entity.
Internal control
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The auditor of a private company is not required by auditing standards to issue a written report on significant deficiencies in internal control.

(True/False)
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When assessing whether the financial statements are auditable, the auditor must consider:

(Multiple Choice)
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The primary emphasis by auditors is on controls over:

(Multiple Choice)
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Management has a legal and professional responsibility to be sure that the financial statements are prepared in accordance with reporting requirements of applicable accounting frameworks.

(True/False)
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When management is evaluating the design of internal control, management evaluates whether the control can do which of the following?

(Multiple Choice)
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When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be:

(Multiple Choice)
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Audit evidence regarding the separation of duties is normally best obtained by:

(Multiple Choice)
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