Question 1

In a public company, management's report on internal control must be signed by the members of the audit committee.

Accepted Answer

A) True 
 B)False  False

Question 2

Discuss the differences between a control deficiency, a significant deficiency, a material weakness, and the two dimensions of the control deficiency-likelihood and magnitude.

Accepted Answer

Control Deficiency. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A design deficiency exists when: (1)a control necessary to meet the relevant control objective is missing or (2)an existing control is not properly designed so that, even if the control operates as designed, the control objective is not always met. A deficiency in operation exists when a control is designed effectively, but is not effectively implemented.
Significant Deficiency. A significant deficiency is a control deficiency, or combination of control deficiencies, in ICFR that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the entity's financial reporting.
Material Weakness. A material weakness is a deficiency, or combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Likelihood and Magnitude. According to the above definitions, in judging the significance of a control deficiency, management and the auditor must consider two dimensions of the deficiency: likelihood and magnitude. The definition of material weakness includes the phrase "reasonable possibility." This term is to be interpreted using the guidance in ASC Topic 450, Contingencies. Accordingly, the likelihood of an event is a "reasonable possibility" if it is either reasonably possible or probable. Magnitude refers to the size of the potential misstatement that could occur due to the deficiency. In determining whether it is reasonably possible that a financial statement misstatement resulting from a deficiency is material, the auditor relies on the same concept of materiality as is used in determining financial statement materiality.

Question 3

An "integrated audit":

Accepted Answer

A) will, in most cases, lead to a substantive audit strategy. 
B) denies the auditor access to information about the entity's controls. 
C) may be performed by two separate audit firms. 
D) is comprised of audits of internal control over financial reporting and of financial statements. 
A) will, in most cases, lead to a substantive audit strategy. 
B) denies the auditor access to information about the entity's controls. 
C) may be performed by two separate audit firms. 
D) is comprised of audits of internal control over financial reporting and of financial statements. D

Question 4

When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

Accepted Answer

A) Test data are processed by the entity's computer programs under the auditor's control. 
B) Test data must consist of all possible valid and invalid conditions. 
C) Testing a program at year end provides assurance that the entity's processing was accurate for the entire year. 
D) Several transactions of each type must be tested. 
A) Test data are processed by the entity's computer programs under the auditor's control. 
B) Test data must consist of all possible valid and invalid conditions. 
C) Testing a program at year end provides assurance that the entity's processing was accurate for the entire year. 
D) Several transactions of each type must be tested.

Question 5

Examples of entity-level controls include:

Accepted Answer

A) management's risk assessment process. 
B) controls to monitor results of operations. 
C) the period-end financial reporting process. 
D) All of these are examples of entity-level controls. 
A) management's risk assessment process. 
B) controls to monitor results of operations. 
C) the period-end financial reporting process. 
D) All of these are examples of entity-level controls.

Question 6

Which of the following is true regarding management's documentation of internal controls?

Accepted Answer

A) Some documentation should focus on controls management has placed in operation to adequately address identified financial reporting risks. 
B) Documentation should focus on controls over the interim financial reporting process. 
C) Documentation must be done on paper. 
D) Inadequate documentation is usually considered an insignificant deficiency in internal control. 
A) Some documentation should focus on controls management has placed in operation to adequately address identified financial reporting risks. 
B) Documentation should focus on controls over the interim financial reporting process. 
C) Documentation must be done on paper. 
D) Inadequate documentation is usually considered an insignificant deficiency in internal control.

Question 7

Which of the following is least likely to represent a material weakness in internal control for Flynt Corporation?

Accepted Answer

A) Flynt Corporation's computer systems were not working properly for two days; consequently, employees needed to do all reconciliations manually. 
B) Flynt Corporation's CFO was arrested last year for embezzling money from the entity. 
C) For the current year, the auditor found a material misstatement in Flynt's sales recognition that was undetected by the internal controls. 
D) Flynt's audit committee is deemed to be ineffective. 
A) Flynt Corporation's computer systems were not working properly for two days; consequently, employees needed to do all reconciliations manually. 
B) Flynt Corporation's CFO was arrested last year for embezzling money from the entity. 
C) For the current year, the auditor found a material misstatement in Flynt's sales recognition that was undetected by the internal controls. 
D) Flynt's audit committee is deemed to be ineffective.

Question 8

The advantages of generalized audit software include all of the following except:

Accepted Answer

A) it involves auditing while the data are being processed (real-time). 
B) it is easy to use. 
C) the time to develop the application is usually short. 
D) an entire population can be examined in some instances. 
A) it involves auditing while the data are being processed (real-time). 
B) it is easy to use. 
C) the time to develop the application is usually short. 
D) an entire population can be examined in some instances.

Question 9

What is wrong with the following report on internal control over financial reporting for AB Corporation? The auditor believes an unqualified opinion on the effectiveness of internal control over financial reporting is warranted.
Report of Registered Public Accounting Firm
We have audited AB Corporation's internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). AB's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the entity's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
An entity's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. An entity's internal control over financial reporting includes those policies and procedures that (1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity's assets that could have a material effect on the financial statements.
In our opinion, AB Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of AB Corporation, and our report dated February 20, 2014 expressed an unqualified opinion.
Protzman & Hull
Morgan Hill, CA
February 10, 2014

Accepted Answer

First, the title of the report should in

Question 10

In the context of an audit of internal controls, the auditor must document all of the following except:

Accepted Answer

A) the extent to which he or she relied upon work performed by others. 
B) the auditor's understanding and evaluation of the design of each of the components of the entity's internal control over financial reporting. 
C) transcripts of the auditor's discussion with management concerning the points at which misstatements could occur. 
D) the evaluation of any deficiencies discovered that could result in a modification of the auditor's report. 
A) the extent to which he or she relied upon work performed by others. 
B) the auditor's understanding and evaluation of the design of each of the components of the entity's internal control over financial reporting. 
C) transcripts of the auditor's discussion with management concerning the points at which misstatements could occur. 
D) the evaluation of any deficiencies discovered that could result in a modification of the auditor's report.

Question 11

The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.

Accepted Answer

A) True 
 B)False

Question 12

IDEA is an example of:

Accepted Answer

A) an EDI software package. 
B) custom Audit Software. 
C) a GAS program that is widely used in practice. 
D) a type of networking. 
A) an EDI software package. 
B) custom Audit Software. 
C) a GAS program that is widely used in practice. 
D) a type of networking.

Question 13

Which of the following is an advantage of generalized audit software?

Accepted Answer

A) They are all written in one identical computer language. 
B) They can be used for audits of entities that use differing IT equipment and file formats. 
C) They have reduced the need for the auditor to study input controls for IT-related procedures. 
D) Their use can be substituted for a relatively large part of the required compliance testing. 
A) They are all written in one identical computer language. 
B) They can be used for audits of entities that use differing IT equipment and file formats. 
C) They have reduced the need for the auditor to study input controls for IT-related procedures. 
D) Their use can be substituted for a relatively large part of the required compliance testing.

Question 14

Which of the following statements is false?

Accepted Answer

A) Management identifies controls that are in place to address the financial reporting risks. 
B) Management is required to base internal controls on a recognized control framework. 
C) Nearly all reporting companies use the internal control framework developed by COSO. 
D) All controls relevant to financial reporting are accounting controls. 
A) Management identifies controls that are in place to address the financial reporting risks. 
B) Management is required to base internal controls on a recognized control framework. 
C) Nearly all reporting companies use the internal control framework developed by COSO. 
D) All controls relevant to financial reporting are accounting controls.

Question 15

Which of the following is not a primary objective of internal control as established by COSO?

Accepted Answer

A) Efficiency and effectiveness of operations. 
B) Effective purchasing systems. 
C) Compliance with laws and regulations. 
D) Reliable financial reporting. 
A) Efficiency and effectiveness of operations. 
B) Effective purchasing systems. 
C) Compliance with laws and regulations. 
D) Reliable financial reporting.

Question 16

When auditing a public company, the auditor must form an opinion on the effectiveness of internal control over financial reporting, or issue a disclaimer in the event of a scope limitation.

Accepted Answer

A) True 
 B)False

Question 17

An auditor performing an audit of internal control over financial reporting would be required to:

Accepted Answer

A) rely on the work of internal auditors. 
B) test all of the entity's internal controls. 
C) form an opinion on the effectiveness of internal control. 
D) randomly identify accounts for an audit of internal control. 
A) rely on the work of internal auditors. 
B) test all of the entity's internal controls. 
C) form an opinion on the effectiveness of internal control. 
D) randomly identify accounts for an audit of internal control.

Question 18

Public reporting on the effectiveness of internal control over financial reporting, as required by the Sarbanes-Oxley Act, includes:

Accepted Answer

A) a statement that the public accounting firm that audited the financial statements has provided input on the design of internal controls. 
B) the auditor provides an opinion on whether the entity maintained, in all material respects, effective ICFR as of the specified date, based on the control criteria. 
C) an explicit statement as to whether management agrees with the public accounting firm's assessment of internal controls. 
D) a detailed statement describing changes or additions to the internal control environment that occurred in the current year. 
A) a statement that the public accounting firm that audited the financial statements has provided input on the design of internal controls. 
B) the auditor provides an opinion on whether the entity maintained, in all material respects, effective ICFR as of the specified date, based on the control criteria. 
C) an explicit statement as to whether management agrees with the public accounting firm's assessment of internal controls. 
D) a detailed statement describing changes or additions to the internal control environment that occurred in the current year.

Question 19

Discuss entity-level controls and provide examples of these types of controls.

Accepted Answer

Entity-level controls can have a pervasi

Question 20

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:

Accepted Answer

A) accept responsibility for the effectiveness of the entity's internal control over financial reporting. 
B) evaluate the effectiveness of the entity's internal control over financial reporting using suitable control criteria. 
C) support its evaluation with sufficient evidence, including documentation. 
D) present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year. 
A) accept responsibility for the effectiveness of the entity's internal control over financial reporting. 
B) evaluate the effectiveness of the entity's internal control over financial reporting using suitable control criteria. 
C) support its evaluation with sufficient evidence, including documentation. 
D) present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year.

In a public company, management's report on internal control must be signed by the members of the audit committee.

Discuss the differences between a control deficiency, a significant deficiency, a material weakness, and the two dimensions of the control deficiency-likelihood and magnitude.

An "integrated audit":

When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

Examples of entity-level controls include:

Which of the following is true regarding management's documentation of internal controls?

Which of the following is least likely to represent a material weakness in internal control for Flynt Corporation?

The advantages of generalized audit software include all of the following except:

In the context of an audit of internal controls, the auditor must document all of the following except:

The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.

IDEA is an example of:

Which of the following is an advantage of generalized audit software?

Which of the following statements is false?

Which of the following is not a primary objective of internal control as established by COSO?

When auditing a public company, the auditor must form an opinion on the effectiveness of internal control over financial reporting, or issue a disclaimer in the event of a scope limitation.

An auditor performing an audit of internal control over financial reporting would be required to:

Public reporting on the effectiveness of internal control over financial reporting, as required by the Sarbanes-Oxley Act, includes:

Discuss entity-level controls and provide examples of these types of controls.

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:

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

Internal Control in a Financial Statement Audit

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

Filters

Exam 7: Auditing Internal Control Over Financial Reporting

In a public company, management's report on internal control must be signed by the members of the audit committee.

Discuss the differences between a control deficiency, a significant deficiency, a material weakness, and the two dimensions of the control deficiency-likelihood and magnitude.

An "integrated audit":

When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

Examples of entity-level controls include:

Which of the following is true regarding management's documentation of internal controls?

Which of the following is least likely to represent a material weakness in internal control for Flynt Corporation?

The advantages of generalized audit software include all of the following except:

In the context of an audit of internal controls, the auditor must document all of the following except:

The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.

IDEA is an example of:

Which of the following is an advantage of generalized audit software?

Which of the following statements is false?

Which of the following is not a primary objective of internal control as established by COSO?

When auditing a public company, the auditor must form an opinion on the effectiveness of internal control over financial reporting, or issue a disclaimer in the event of a scope limitation.

An auditor performing an audit of internal control over financial reporting would be required to:

Public reporting on the effectiveness of internal control over financial reporting, as required by the Sarbanes-Oxley Act, includes:

Discuss entity-level controls and provide examples of these types of controls.

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:

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

Internal Control in a Financial Statement Audit

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

Filters