Question 1

It is generally possible for small companies to have all of the following except for

Accepted Answer

A)  adequate documents and records. 
B)  physical controls over assets. 
C)  competent, trustworthy personnel. 
D)  internal auditors. 
A)  adequate documents and records. 
B)  physical controls over assets. 
C)  competent, trustworthy personnel. 
D)  internal auditors.

Question 2

A ________ exists if one or more control deficiencies exist that are less severe than a material weakness, but are important enough to merit attention by those responsible for oversight of the company's financial reporting.

Accepted Answer

A)  potential misstatement 
B)  significant weakness 
C)  significant deficiency 
D)  fraud symptom 
A)  potential misstatement 
B)  significant weakness 
C)  significant deficiency 
D)  fraud symptom

Question 3

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 4

Flowcharts are harder to read and update than narratives.

Accepted Answer

A) True 
 B)False

Question 5

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 6

When making a preliminary assessment of control risk, the starting point for most auditors is

Accepted Answer

A)  IT assessment controls. 
B)  assessment of entity level controls. 
C)  transaction-related controls. 
D)  fraud controls. 
A)  IT assessment controls. 
B)  assessment of entity level controls. 
C)  transaction-related controls. 
D)  fraud controls.

Question 7

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

Accepted Answer

A)  tracing. 
B)  vouching. 
C)  performing a walkthrough. 
D)  testing controls. 
A)  tracing. 
B)  vouching. 
C)  performing a walkthrough. 
D)  testing controls.

Question 8

The level of understanding of a client's internal controls required is less than what is required for an audit of only the financial statements.

Accepted Answer

A) True 
 B)False

Question 9

For integrated audits of large, publicly traded companies, the level of understanding of internal controls and the extent of testing of those controls need to be sufficient for the auditor to issue an opinion on the effectiveness of internal controls over financial reporting.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 appropriat

Question 13

The auditor assesses control risk for each related audit objective and supports control risk assessments with tests of controls.

Accepted Answer

A) True 
 B)False

Question 14

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 d

Question 15

The scope of the auditor's report on internal control is limited to obtaining reasonable assurance that significant weaknesses in internal control are identified.

Accepted Answer

A) True 
 B)False

Question 16

A company requires the controller's e-approval for all fixed asset purchases in excess of $50,000. Audit software can be used to identify if there are any instances where a fixed asset purchase in excess of $50,000 lacked the controller's e-approval, instead of manual checking.

Accepted Answer

A) True 
 B)False

Question 17

Walkthroughs combine observation, inspection, and inquiry to assure that the controls designed by management have been implemented.

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

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 20

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.

Exam 12: Assessing Control Risk and Reporting on Internal Controls

It is generally possible for small companies to have all of the following except for

A ________ exists if one or more control deficiencies exist that are less severe than a material weakness, but are important enough to merit attention by those responsible for oversight of the company's financial reporting.

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

Flowcharts are harder to read and update than narratives.

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.

When making a preliminary assessment of control risk, the starting point for most auditors is

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

The level of understanding of a client's internal controls required is less than what is required for an audit of only the financial statements.

For integrated audits of large, publicly traded companies, the level of understanding of internal controls and the extent of testing of those controls need to be sufficient for the auditor to issue an opinion on the effectiveness of internal controls over financial reporting.

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

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

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

The auditor assesses control risk for each related audit objective and supports control risk assessments with tests of controls.

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

The scope of the auditor's report on internal control is limited to obtaining reasonable assurance that significant weaknesses in internal control are identified.

A company requires the controller's e-approval for all fixed asset purchases in excess of $50,000. Audit software can be used to identify if there are any instances where a fixed asset purchase in excess of $50,000 lacked the controller's e-approval, instead of manual checking.

Walkthroughs combine observation, inspection, and inquiry to assure that the controls designed by management have been implemented.

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

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

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

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 Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

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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