Question 1

Of the following statements about an internal control, which one is not valid?

Accepted Answer

A)  No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. 
B)  Transactions must be properly authorised before such transactions are processed. 
C)  Because of the cost-benefit relationship, a client may apply control procedures on a test basis. 
D)  Control procedures reasonably ensure that collusion among employees cannot occur. 
A)  No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. 
B)  Transactions must be properly authorised before such transactions are processed. 
C)  Because of the cost-benefit relationship, a client may apply control procedures on a test basis. 
D)  Control procedures reasonably ensure that collusion among employees cannot occur.

Question 2

A limit test is a:

Accepted Answer

A)  test to ensure that a numerical value does not exceed some predetermined value. 
B)  check to ensure that the value in a field falls within an allowable range of values. 
C)  check to ensure that the data in a field have the proper arithmetic sign. 
D)  check on a field to ensure that it contains either all numeric or alphabetic characters. 
A)  test to ensure that a numerical value does not exceed some predetermined value. 
B)  check to ensure that the value in a field falls within an allowable range of values. 
C)  check to ensure that the data in a field have the proper arithmetic sign. 
D)  check on a field to ensure that it contains either all numeric or alphabetic characters.

Question 3

When an independent auditor decides that the work performed by internal auditors may have a bearing on the nature, timing and extent of contemplated audit procedures, the independent auditor should plan to evaluate the objectivity of the internal auditors. Relative to objectivity, the independent auditor should:

Accepted Answer

A)  consider the organisation level to which internal auditors report the results of their work. 
B)  review the quality control program in effect for the internal audit staff. 
C)  examine the quality of the internal audit reports. 
D)  consider the qualifications of the internal audit staff. 
A)  consider the organisation level to which internal auditors report the results of their work. 
B)  review the quality control program in effect for the internal audit staff. 
C)  examine the quality of the internal audit reports. 
D)  consider the qualifications of the internal audit staff.

Question 4

The basic concept of internal control which recognises that the cost of internal control should not exceed the benefits expected to be derived is known as:

Accepted Answer

A)  reasonable assurance. 
B)  management responsibility. 
C)  limited liability. 
D)  management by exception. 
A)  reasonable assurance. 
B)  management responsibility. 
C)  limited liability. 
D)  management by exception.

Question 5

After the auditor has prepared a flowchart of the accounting system and control procedures surrounding sales, and assessed the design of the system, the auditor would perform tests of controls for all control procedures:

Accepted Answer

A)  documented in the flowchart. 
B)  considered to be deficiencies that might allow errors to enter the accounting system. 
C)  considered to be strengths that the auditor plans to use as a basis for an assessed level of control risk less than high. 
D)  that would aid in preventing irregularities. 
A)  documented in the flowchart. 
B)  considered to be deficiencies that might allow errors to enter the accounting system. 
C)  considered to be strengths that the auditor plans to use as a basis for an assessed level of control risk less than high. 
D)  that would aid in preventing irregularities.

Question 6

Maxi Sales Corp. maintains a large, full-time internal audit staff that reports directly to the chief accountant. Audit reports prepared by the internal auditors indicate that the structure is functioning as it should be and that the accounting records are reliable. The external auditor will probably:

Accepted Answer

A)  eliminate tests of controls. 
B)  increase the depth of the procedures to obtain an understanding of controls directed towards operating efficiency. 
C)  avoid duplicating the work performed by the internal audit staff. 
D)  place limited reliance on the work performed by the internal audit staff. 
A)  eliminate tests of controls. 
B)  increase the depth of the procedures to obtain an understanding of controls directed towards operating efficiency. 
C)  avoid duplicating the work performed by the internal audit staff. 
D)  place limited reliance on the work performed by the internal audit staff.

Question 7

Procedures directed towards obtaining evidence concerning the effectiveness of the design or operation of an internal control policy or procedure are referred to as:

Accepted Answer

A)  analytical procedures. 
B)  substantive tests. 
C)  tests of controls. 
D)  confirmations. 
A)  analytical procedures. 
B)  substantive tests. 
C)  tests of controls. 
D)  confirmations.

Question 8

In obtaining an understanding of the internal control policies and procedures that are relevant to audit planning, the auditor should perform procedures to provide sufficient knowledge of:

Accepted Answer

A)  design of the relevant policies, procedures and records and their operating effectiveness. 
B)  design of the relevant policies, procedures and records and their relationships to assertions. 
C)  the complexity of the entity and the sophistication of its systems and operations. 
D)  design of the relevant policies, procedures and records and whether they have been placed in operation. 
A)  design of the relevant policies, procedures and records and their operating effectiveness. 
B)  design of the relevant policies, procedures and records and their relationships to assertions. 
C)  the complexity of the entity and the sophistication of its systems and operations. 
D)  design of the relevant policies, procedures and records and whether they have been placed in operation.

Question 9

The auditor observes client employees in obtaining an understanding of the internal control in order to:

Accepted Answer

A)  prepare a flowchart. 
B)  update information contained in the organisation and procedure manuals. 
C)  corroborate the information obtained during the initial phases of obtaining an understanding of the internal control. 
D)  determine the extent of compliance with quality control standards. 
A)  prepare a flowchart. 
B)  update information contained in the organisation and procedure manuals. 
C)  corroborate the information obtained during the initial phases of obtaining an understanding of the internal control. 
D)  determine the extent of compliance with quality control standards.

Question 10

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 11

In updating a computerised accounts receivable file, which one of the following would be used as a batch control to verify the accuracy of the postings of cash receipts remittances?

Accepted Answer

A)  The sum of the cash deposits, plus the discounts, less the sales returns. 
B)  The sum of the cash deposits. 
C)  The sum of the cash deposits, less the discounts taken by customers. 
D)  The sum of the cash deposits, plus the discounts taken by customers. 
A)  The sum of the cash deposits, plus the discounts, less the sales returns. 
B)  The sum of the cash deposits. 
C)  The sum of the cash deposits, less the discounts taken by customers. 
D)  The sum of the cash deposits, plus the discounts taken by customers.

Question 12

A primary purpose of internal controls is to:

Accepted Answer

A)  form a basis for evaluating employees. 
B)  monitor production quality. 
C)  avoid clerical errors. 
D)  meet objectives of maintaining sound documents and records and accurate financial reporting. 
A)  form a basis for evaluating employees. 
B)  monitor production quality. 
C)  avoid clerical errors. 
D)  meet objectives of maintaining sound documents and records and accurate financial reporting.

Question 13

Assessing control risk at less than high 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)  analysing 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)  analysing the achieved level of control risk after performing tests of controls.

Question 14

Which of the following is likely to be of least importance to an auditor in obtaining an understanding of the internal control?

Accepted Answer

A)  The segregation of duties within the IT centre. 
B)  The control over source documents. 
C)  The documentation maintained for accounting applications. 
D)  The cost-benefit ratio of data processing operations. 
A)  The segregation of duties within the IT centre. 
B)  The control over source documents. 
C)  The documentation maintained for accounting applications. 
D)  The cost-benefit ratio of data processing operations.

Question 15

Which of the following activities would most likely be performed in the IT department?

Accepted Answer

A)  Initiation of changes to master records. 
B)  Conversion of information to machine-readable form. 
C)  Correction of transactional errors. 
D)  Initiation of changes to existing applications. 
A)  Initiation of changes to master records. 
B)  Conversion of information to machine-readable form. 
C)  Correction of transactional errors. 
D)  Initiation of changes to existing applications.

Question 16

The following are steps in the audit process:
I.prepare flowchart.
II.gather exhibits of all documents.
III.interview personnel.The most logical sequence of steps is:

Accepted Answer

A)  I, II, III. 
B)  I, III, II. 
C)  III, II, I. 
D)  II, I, III. 
A)  I, II, III. 
B)  I, III, II. 
C)  III, II, I. 
D)  II, I, III.

Question 17

To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should report to the:

Accepted Answer

A)  chief financial officer. 
B)  corporate controller. 
C)  audit committee. 
D)  shareholders. 
A)  chief financial officer. 
B)  corporate controller. 
C)  audit committee. 
D)  shareholders.

Question 18

Which of the following would be least likely to suggest to an auditor that the client's management may have overridden the internal control?

Accepted Answer

A)  Differences are always disclosed on a computer exception report. 
B)  Management does not correct internal control deficiencies that it knows about. 
C)  There have been two new controllers this year. 
D)  There are numerous delays in preparing timely internal financial reports. 
A)  Differences are always disclosed on a computer exception report. 
B)  Management does not correct internal control deficiencies that it knows about. 
C)  There have been two new controllers this year. 
D)  There are numerous delays in preparing timely internal financial reports.

Question 19

Which of the following internal control features would an auditor be least likely to review?

Accepted Answer

A)  Segregation of the asset-handling and record-keeping functions. 
B)  Company policy regarding credit and collection efforts. 
C)  Classification of sales and cost records by products. 
D)  Authorisation of additions to plant and equipment. 
A)  Segregation of the asset-handling and record-keeping functions. 
B)  Company policy regarding credit and collection efforts. 
C)  Classification of sales and cost records by products. 
D)  Authorisation of additions to plant and equipment.

Question 20

Obtaining an understanding of the internal control and assessing control risk:

Accepted Answer

A)  may be performed concurrently in an audit. 
B)  needs to be documented only if the assessed level is less than high. 
C)  is possible but not necessary in performing an audit. 
D)  is necessarily sequential audit steps. 
A)  may be performed concurrently in an audit. 
B)  needs to be documented only if the assessed level is less than high. 
C)  is possible but not necessary in performing an audit. 
D)  is necessarily sequential audit steps.

Of the following statements about an internal control, which one is not valid?

A limit test is a:

The basic concept of internal control which recognises that the cost of internal control should not exceed the benefits expected to be derived is known as:

After the auditor has prepared a flowchart of the accounting system and control procedures surrounding sales, and assessed the design of the system, the auditor would perform tests of controls for all control procedures:

Procedures directed towards obtaining evidence concerning the effectiveness of the design or operation of an internal control policy or procedure are referred to as:

In obtaining an understanding of the internal control policies and procedures that are relevant to audit planning, the auditor should perform procedures to provide sufficient knowledge of:

The auditor observes client employees in obtaining an understanding of the internal control in order to:

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

In updating a computerised accounts receivable file, which one of the following would be used as a batch control to verify the accuracy of the postings of cash receipts remittances?

A primary purpose of internal controls is to:

Assessing control risk at less than high involves all of the following except:

Which of the following is likely to be of least importance to an auditor in obtaining an understanding of the internal control?

Which of the following activities would most likely be performed in the IT department?

The following are steps in the audit process: I.prepare flowchart. II.gather exhibits of all documents. III.interview personnel.The most logical sequence of steps is:

To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should report to the:

Which of the following would be least likely to suggest to an auditor that the client's management may have overridden the internal control?

Which of the following internal control features would an auditor be least likely to review?

Obtaining an understanding of the internal control and assessing control risk:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Evaluating Business Risk

Assessing Specific Business Risk

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

Filters

Exam 8: Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details

Of the following statements about an internal control, which one is not valid?

A limit test is a:

The basic concept of internal control which recognises that the cost of internal control should not exceed the benefits expected to be derived is known as:

After the auditor has prepared a flowchart of the accounting system and control procedures surrounding sales, and assessed the design of the system, the auditor would perform tests of controls for all control procedures:

Procedures directed towards obtaining evidence concerning the effectiveness of the design or operation of an internal control policy or procedure are referred to as:

In obtaining an understanding of the internal control policies and procedures that are relevant to audit planning, the auditor should perform procedures to provide sufficient knowledge of:

The auditor observes client employees in obtaining an understanding of the internal control in order to:

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

In updating a computerised accounts receivable file, which one of the following would be used as a batch control to verify the accuracy of the postings of cash receipts remittances?

A primary purpose of internal controls is to:

Assessing control risk at less than high involves all of the following except:

Which of the following is likely to be of least importance to an auditor in obtaining an understanding of the internal control?

Which of the following activities would most likely be performed in the IT department?

The following are steps in the audit process: I.prepare flowchart. II.gather exhibits of all documents. III.interview personnel.The most logical sequence of steps is:

To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should report to the:

Which of the following would be least likely to suggest to an auditor that the client's management may have overridden the internal control?

Which of the following internal control features would an auditor be least likely to review?

Obtaining an understanding of the internal control and assessing control risk:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Evaluating Business Risk

Assessing Specific Business Risk

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

Filters