Question 1

An organizational structure is important for all of the following reasons except:

Accepted Answer

A) ensuring proper accountability. 
B) defining areas of authority. 
C) creating clear lines of reporting. 
D) ensuring a proper commitment to controls. 
A) ensuring proper accountability. 
B) defining areas of authority. 
C) creating clear lines of reporting. 
D) ensuring a proper commitment to controls. D

Question 2

Before applying substantive procedures to the details of accounts at an interim date (a date prior to the balance sheet date), an auditor should:

Accepted Answer

A) assess control risk at high for the assertions embodied in the accounts selected for interim testing. 
B) determine that the accounts selected for interim testing are not material to the financial statements taken as a whole. 
C) consider the availability of information at a later date that will be necessary for the auditor's procedures (e.g., electronic data). 
D) obtain written representations from management that all financial records and related data will be made available. 
A) assess control risk at high for the assertions embodied in the accounts selected for interim testing. 
B) determine that the accounts selected for interim testing are not material to the financial statements taken as a whole. 
C) consider the availability of information at a later date that will be necessary for the auditor's procedures (e.g., electronic data). 
D) obtain written representations from management that all financial records and related data will be made available. C

Question 3

After the auditor has prepared a flowchart of the internal controls surrounding sales and evaluated the design of the system, the auditor would perform tests of controls on all control activities:

Accepted Answer

A) documented in the flowchart. 
B) considered to be weaknesses that might allow errors to enter the accounting system. 
C) that the auditor plans to rely on. 
D) that would aid in preventing fraud. 
A) documented in the flowchart. 
B) considered to be weaknesses that might allow errors to enter the accounting system. 
C) that the auditor plans to rely on. 
D) that would aid in preventing fraud. C

Question 4

One of the risks associated with internal control from IT is potential loss of data.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is an IT general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project?

Accepted Answer

A) Processing controls. 
B) Input and output validation routines. 
C) Systems documentation. 
D) Error controls. 
A) Processing controls. 
B) Input and output validation routines. 
C) Systems documentation. 
D) Error controls.

Question 6

While performing an audit on the internal controls over financial reporting for AirWaves Corporation, your audit team finds what it considers to be a significant deficiency. AirWaves is a large, private company. What steps would you take to communicate this finding?

Accepted Answer

Auditing standards require that the audi

Question 7

After obtaining an understanding of internal controls and assessing control risk of an entity, an auditor decided not to perform tests of controls for purposes of the audit. The auditor most likely decided that:

Accepted Answer

A) the available evidential matter obtained through tests of controls would not support an increased level of control risk. 
B) a reduction in the assessed level of control risk is justified for certain financial statement assertions. 
C) it would be inefficient to perform tests of controls that would result in a reduction in planned substantive procedures. 
D) the assessed level of inherent risk exceeded the assessed level of control risk. 
A) the available evidential matter obtained through tests of controls would not support an increased level of control risk. 
B) a reduction in the assessed level of control risk is justified for certain financial statement assertions. 
C) it would be inefficient to perform tests of controls that would result in a reduction in planned substantive procedures. 
D) the assessed level of inherent risk exceeded the assessed level of control risk.

Question 8

Describe the limitations of internal control. Why do limitations on internal control exist?

Accepted Answer

The effectiveness of any internal contro

Question 9

Audit evidence concerning proper segregation of duties ordinarily is best obtained by:

Accepted Answer

A) preparation of a flowchart of duties performed by available personnel. 
B) inquiring whether control activities operated consistently throughout the period. 
C) reviewing job descriptions prepared by the Personnel Department. 
D) direct personal observation of the employees who apply the control activities. 
A) preparation of a flowchart of duties performed by available personnel. 
B) inquiring whether control activities operated consistently throughout the period. 
C) reviewing job descriptions prepared by the Personnel Department. 
D) direct personal observation of the employees who apply the control activities.

Question 10

In the audit of financial statements, an auditor's primary consideration regarding an internal control policy or procedure is whether the policy or procedure:

Accepted Answer

A) reflects management's philosophy and operating style. 
B) affects management's financial statement assertions. 
C) provides adequate safeguards over access to assets. 
D) enhances management's decision-making processes. 
A) reflects management's philosophy and operating style. 
B) affects management's financial statement assertions. 
C) provides adequate safeguards over access to assets. 
D) enhances management's decision-making processes.

Question 11

A well-prepared flowchart should make it easier for the auditor to:

Accepted Answer

A) prepare audit procedure manuals. 
B) prepare detailed job descriptions. 
C) perform walkthroughs. 
D) assess the degree of accuracy of financial data. 
A) prepare audit procedure manuals. 
B) prepare detailed job descriptions. 
C) perform walkthroughs. 
D) assess the degree of accuracy of financial data.

Question 12

Why might an auditor decide to test controls at an interim date?

Accepted Answer

An auditor might test controls at an int

Question 13

A customer intended to order 100 units of product Z96014, but incorrectly ordered 100 units of a nonexistent product Z96015. Which of the following controls most likely would detect this error?

Accepted Answer

A) Existence (validity)test. 
B) Limit test. 
C) Field test. 
D) Sign test. 
A) Existence (validity)test. 
B) Limit test. 
C) Field test. 
D) Sign test.

Question 14

Assessing control risk at a lower level involves all of the following except:

Accepted Answer

A) identifying specific controls to rely on. 
B) concluding that controls are ineffective. 
C) performing tests of controls. 
D) analyzing the achieved level of control risk after performing tests of controls. 
A) identifying specific controls to rely on. 
B) concluding that controls are ineffective. 
C) performing tests of controls. 
D) analyzing the achieved level of control risk after performing tests of controls.

Question 15

What are some typical types of evidence that may be collected in testing an entity's internal controls?

Accepted Answer

Applicable procedures include inquiry of

Question 16

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Accepted Answer

A) Incompatible duties. 
B) Management override. 
C) Mistakes in judgment. 
D) Collusion among employees. 
A) Incompatible duties. 
B) Management override. 
C) Mistakes in judgment. 
D) Collusion among employees.

Question 17

An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the:

Accepted Answer

A) efficiency of management's decision-making process. 
B) appropriate prices that the entity should charge for its products. 
C) methods of assigning production tasks to employees. 
D) entity's ability to accurately process and summarize financial data. 
A) efficiency of management's decision-making process. 
B) appropriate prices that the entity should charge for its products. 
C) methods of assigning production tasks to employees. 
D) entity's ability to accurately process and summarize financial data.

Question 18

The normal sequence of documents and operations on a well-prepared systems flowchart is:

Accepted Answer

A) top to bottom and left to right. 
B) bottom to top and left to right. 
C) top to bottom and right to left. 
D) bottom to top and right to left. 
A) top to bottom and left to right. 
B) bottom to top and left to right. 
C) top to bottom and right to left. 
D) bottom to top and right to left.

Question 19

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control is suitably designed to prevent or detect material misstatements?

Accepted Answer

A) Scanning the journals produced by the internal control system. 
B) Performing analytical procedures using data aggregated at a high level. 
C) Vouching a sample of transactions directly related to the controls. 
D) Observing the entity's personnel applying the controls. 
A) Scanning the journals produced by the internal control system. 
B) Performing analytical procedures using data aggregated at a high level. 
C) Vouching a sample of transactions directly related to the controls. 
D) Observing the entity's personnel applying the controls.

Question 20

As the acceptable level of detection risk increases, an auditor may change the:

Accepted Answer

A) assessed level of control risk from a lower level to a higher level. 
B) assurance provided by tests of controls by using a larger sample size than planned. 
C) timing of substantive procedures from year-end to an interim date. 
D) nature of substantive procedures from less effective to more effective procedures. 
A) assessed level of control risk from a lower level to a higher level. 
B) assurance provided by tests of controls by using a larger sample size than planned. 
C) timing of substantive procedures from year-end to an interim date. 
D) nature of substantive procedures from less effective to more effective procedures.

Exam 6: Internal Control in a Financial Statement Audit

An organizational structure is important for all of the following reasons except:

Before applying substantive procedures to the details of accounts at an interim date (a date prior to the balance sheet date), an auditor should:

After the auditor has prepared a flowchart of the internal controls surrounding sales and evaluated the design of the system, the auditor would perform tests of controls on all control activities:

One of the risks associated with internal control from IT is potential loss of data.

Which of the following is an IT general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project?

While performing an audit on the internal controls over financial reporting for AirWaves Corporation, your audit team finds what it considers to be a significant deficiency. AirWaves is a large, private company. What steps would you take to communicate this finding?

After obtaining an understanding of internal controls and assessing control risk of an entity, an auditor decided not to perform tests of controls for purposes of the audit. The auditor most likely decided that:

Describe the limitations of internal control. Why do limitations on internal control exist?

Audit evidence concerning proper segregation of duties ordinarily is best obtained by:

In the audit of financial statements, an auditor's primary consideration regarding an internal control policy or procedure is whether the policy or procedure:

A well-prepared flowchart should make it easier for the auditor to:

Why might an auditor decide to test controls at an interim date?

A customer intended to order 100 units of product Z96014, but incorrectly ordered 100 units of a nonexistent product Z96015. Which of the following controls most likely would detect this error?

Assessing control risk at a lower level involves all of the following except:

What are some typical types of evidence that may be collected in testing an entity's internal controls?

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the:

The normal sequence of documents and operations on a well-prepared systems flowchart is:

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control is suitably designed to prevent or detect material misstatements?

As the acceptable level of detection risk increases, an auditor may change the:

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

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