Question 1

Define the following terms: control deficiency, significant deficiency, and material weakness.

Accepted Answer

•A control deﬁciency exists if the desig

Question 2

Section 404 of the Sarbanes-Oxley Act requires that public companies issue an internal control report.

Accepted Answer

A) True 
 B)False

Question 3

In evaluating the operational effectiveness of internal controls the auditor is likely to use four types of audit procedures.List the procedures below.

Accepted Answer

•Make inquiries of appropriate

Question 4

Reasonable assurance allows for:

Accepted Answer

A) low likelihood that material misstatements will not be prevented or detected by internal controls. 
B) no likelihood that material misstatements will not be prevented or detected by internal control. 
C) moderate likelihood that material misstatements will not be prevented or detected by internal control. 
D) high likelihood that material misstatements will not be prevented or detected by internal control. 
A) low likelihood that material misstatements will not be prevented or detected by internal controls. 
B) no likelihood that material misstatements will not be prevented or detected by internal control. 
C) moderate likelihood that material misstatements will not be prevented or detected by internal control. 
D) high likelihood that material misstatements will not be prevented or detected by internal control.

Question 5

Control activities help assure that the necessary actions are taken to address risks to the achievement of the company's objectives.List the five types of control activities.

Accepted Answer

1.Adequate separation of dutie

Question 6

Once auditors determine that entity level controls are designed and placed in the operation they:

Accepted Answer

A) make a preliminary assessment for each transaction-related audit objective for each major type of transaction. 
B) make a preliminary assessment of control risk. 
C) obtain an understanding of the design and implementation of internal control. 
D) prepare audit documentation in order to opine on the company's internal control system. 
A) make a preliminary assessment for each transaction-related audit objective for each major type of transaction. 
B) make a preliminary assessment of control risk. 
C) obtain an understanding of the design and implementation of internal control. 
D) prepare audit documentation in order to opine on the company's internal control system.

Question 7

Before making the final assessment of internal control at the end of an integrated audit, the auditor must:

Accepted Answer

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

Question 8

Which of the following statements is most correct with respect to separation of duties?

Accepted Answer

A) A person who has temporary or permanent custody of an asset should account for that asset. 
B) Employees who authorize transactions should not have custody of related assets. 
C) Employees who open cash receipts should record the amounts in the subsidiary ledgers. 
D) Employees who authorize transactions should have recording responsibility for these transactions. 
A) A person who has temporary or permanent custody of an asset should account for that asset. 
B) Employees who authorize transactions should not have custody of related assets. 
C) Employees who open cash receipts should record the amounts in the subsidiary ledgers. 
D) Employees who authorize transactions should have recording responsibility for these transactions.

Question 9

The Sarbanes-Oxley Act requires:

Accepted Answer

A) all public companies to issue reports on internal controls. 
B) all public companies to define adequate internal controls. 
C) the auditor of public companies to design effective internal controls. 
D) the auditor of public companies to withdraw from an engagement if internal controls are weak. 
A) all public companies to issue reports on internal controls. 
B) all public companies to define adequate internal controls. 
C) the auditor of public companies to design effective internal controls. 
D) the auditor of public companies to withdraw from an engagement if internal controls are weak.

Question 10

Which of management's assertions with respect to implementing internal controls is the auditor primarily concerned?

Accepted Answer

A) Efficiency of operations 
B) Reliability of financial reporting 
C) Effectiveness of operations 
D) Compliance with applicable laws and regulations 
A) Efficiency of operations 
B) Reliability of financial reporting 
C) Effectiveness of operations 
D) Compliance with applicable laws and regulations

Question 11

The text suggested a five-step approach to identify deficiencies, significant deficiencies, and material weaknesses.Describe this approach.

Accepted Answer

1.Identify existing controls.Because deﬁ

Question 12

A control available in a small company, which may be necessitated because of lack of competent personnel, is:

Accepted Answer

A) a wider segregation of duties. 
B) a voucher system. 
C) fewer transactions to process. 
D) the owner-manager's direct involvement in the control process. 
A) a wider segregation of duties. 
B) a voucher system. 
C) fewer transactions to process. 
D) the owner-manager's direct involvement in the control process.

Question 13

To issue an unqualified opinion on internal control over financial reporting, there must be no identified material weaknesses and no restrictions on the scope of the audit.

Accepted Answer

A) True 
 B)False

Question 14

The assessment of control risk is the measure of the auditor's expectation that internal controls will prevent material misstatements from occurring or detect and correct them if they have occurred.

Accepted Answer

A) True 
 B)False

Question 15

When assessing control risk:

Accepted Answer

A) many auditors use actuarial tables to assist in the control risk assessment process. 
B) each control can be used to satisfy only one audit objective. 
C) many auditors use a control risk matrix to assist in the control risk assessment process. 
D) all controls, including key controls, should be considered. 
A) many auditors use actuarial tables to assist in the control risk assessment process. 
B) each control can be used to satisfy only one audit objective. 
C) many auditors use a control risk matrix to assist in the control risk assessment process. 
D) all controls, including key controls, should be considered.

Question 16

Which of the following is the correct definition of "control deficiency"?

Accepted Answer

A) A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis. 
B) A control deficiency exists if one or more deficiencies exist that adversely affect a company's ability to prepare external financial statements reliably. 
C) A control deficiency exists if the design or operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements. 
D) A control deficiency exists if the design or operation of controls results in a more than probable likelihood that controls will prevent or detect misstatements. 
A) A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis. 
B) A control deficiency exists if one or more deficiencies exist that adversely affect a company's ability to prepare external financial statements reliably. 
C) A control deficiency exists if the design or operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements. 
D) A control deficiency exists if the design or operation of controls results in a more than probable likelihood that controls will prevent or detect misstatements.

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

Define the following terms: control deficiency, significant deficiency, and material weakness.

Section 404 of the Sarbanes-Oxley Act requires that public companies issue an internal control report.

In evaluating the operational effectiveness of internal controls the auditor is likely to use four types of audit procedures.List the procedures below.

Reasonable assurance allows for:

Control activities help assure that the necessary actions are taken to address risks to the achievement of the company's objectives.List the five types of control activities.

Once auditors determine that entity level controls are designed and placed in the operation they:

Before making the final assessment of internal control at the end of an integrated audit, the auditor must:

Which of the following statements is most correct with respect to separation of duties?

The Sarbanes-Oxley Act requires:

Which of management's assertions with respect to implementing internal controls is the auditor primarily concerned?

The text suggested a five-step approach to identify deficiencies, significant deficiencies, and material weaknesses.Describe this approach.

A control available in a small company, which may be necessitated because of lack of competent personnel, is:

To issue an unqualified opinion on internal control over financial reporting, there must be no identified material weaknesses and no restrictions on the scope of the audit.

The assessment of control risk is the measure of the auditor's expectation that internal controls will prevent material misstatements from occurring or detect and correct them if they have occurred.

When assessing control risk:

Which of the following is the correct definition of "control deficiency"?

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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