Question 1

Which of the following should an auditor do when control risk is assessed at the maximum level?

Accepted Answer

A)  Perform fewer substantive tests of details 
B)  Perform more tests of controls 
C)  Document the assessment 
D)  Document the control structure more extensively 
A)  Perform fewer substantive tests of details 
B)  Perform more tests of controls 
C)  Document the assessment 
D)  Document the control structure more extensively

Question 2

When an auditor plans to rely on controls that have changed since they were last tested,which of the following courses of action would be most appropriate?

Accepted Answer

A)  Test the operating effectiveness of such controls in the current audit. 
B)  Document that reliance and proceed with the original audit strategy. 
C)  Inquire of management as to the effectiveness of the controls. 
D)  Report the reliance in the report on internal controls. 
A)  Test the operating effectiveness of such controls in the current audit. 
B)  Document that reliance and proceed with the original audit strategy. 
C)  Inquire of management as to the effectiveness of the controls. 
D)  Report the reliance in the report on internal controls.

Question 3

After obtaining an understanding of a client's financial reporting control activities,the auditor would next

Accepted Answer

A)  test the client's control activities. 
B)  assess the final control risk. 
C)  document the understanding obtained. 
D)  plan the remainder of the audit work. 
A)  test the client's control activities. 
B)  assess the final control risk. 
C)  document the understanding obtained. 
D)  plan the remainder of the audit work.

Question 4

The "obtaining an understanding" work phase (Phase 1)of internal control evaluation would not give auditors an overall acquaintance with the client's

Accepted Answer

A)  control environment. 
B)  information and communication system. 
C)  control activity effectiveness. 
D)  monitoring activities. 
A)  control environment. 
B)  information and communication system. 
C)  control activity effectiveness. 
D)  monitoring activities.

Question 5

When obtaining an understanding of an entity's internal control in a financial statement audit at a non-public company,an auditor is not obligated to

Accepted Answer

A)  determine whether the control activities have been placed in operation. 
B)  perform procedures to understand the design of the internal control system. 
C)  document the understanding of the company's internal control system. 
D)  search for significant deficiencies in the operation of the internal control system. 
A)  determine whether the control activities have been placed in operation. 
B)  perform procedures to understand the design of the internal control system. 
C)  document the understanding of the company's internal control system. 
D)  search for significant deficiencies in the operation of the internal control system.

Question 6

Control activities intended to ensure that transactions are recorded in the right period are designed to achieve the ASB assertion of

Accepted Answer

A)  occurrence. 
B)  accuracy. 
C)  valuation or allocation. 
D)  cutoff. 
A)  occurrence. 
B)  accuracy. 
C)  valuation or allocation. 
D)  cutoff.

Question 7

Which of the following statements is correct regarding internal control?

Accepted Answer

A)  A well-designed internal control environment ensures the achievement of an entity's control objectives. 
B)  An inherent limitation to internal control is the fact that controls can be circumvented by management override. 
C)  A well-designed and operated internal control environment should detect collusion perpetrated by two people. 
D)  Internal control is a necessary business function and should be designed and operated to detect all errors and fraud. 
A)  A well-designed internal control environment ensures the achievement of an entity's control objectives. 
B)  An inherent limitation to internal control is the fact that controls can be circumvented by management override. 
C)  A well-designed and operated internal control environment should detect collusion perpetrated by two people. 
D)  Internal control is a necessary business function and should be designed and operated to detect all errors and fraud.

Question 8

What are the six steps auditors of public companies should use to audit internal control over financial reporting (ICOFR)?

Accepted Answer

1.Planning the engagement
2.Using a top-

Question 9

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as

Accepted Answer

A)  management assertions. 
B)  the control environment. 
C)  control risk assessment. 
D)  functional responsibilities. 
A)  management assertions. 
B)  the control environment. 
C)  control risk assessment. 
D)  functional responsibilities.

Question 10

What constitutes a material weakness?

Accepted Answer

A material weakness in internal control

Question 11

Generally accepted auditing standards (GAAS)give auditors considerable discretion to decide the amount of work required to satisfy auditing standards guiding internal control evaluation and related audit planning.Which of the descriptions below best expresses the minimum amount of work permitted by GAAS for nonpublic companies?

Accepted Answer

A)  Do not obtain an understanding of client environment, accounting, or control activities. Do not document the decision to assess control risk at maximum. Perform 100% substantive audit on all financial statement transactions and balances. 
B)  Obtain an understanding of client environment, accounting, and control activities. Document the decision to assess control risk at maximum. Perform an extensive but not 100% substantive audit on financial statement transactions and balances. 
C)  Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk below the maximum. Perform restricted substantive audit on financial statement transactions and balances, considering the control risk assessment. 
D)  Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk at zero. Perform no substantive audit on financial statement transactions and balances, since zero control risk means that no errors or fraud can reach the accounts. 
A)  Do not obtain an understanding of client environment, accounting, or control activities. Do not document the decision to assess control risk at maximum. Perform 100% substantive audit on all financial statement transactions and balances. 
B)  Obtain an understanding of client environment, accounting, and control activities. Document the decision to assess control risk at maximum. Perform an extensive but not 100% substantive audit on financial statement transactions and balances. 
C)  Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk below the maximum. Perform restricted substantive audit on financial statement transactions and balances, considering the control risk assessment. 
D)  Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk at zero. Perform no substantive audit on financial statement transactions and balances, since zero control risk means that no errors or fraud can reach the accounts.

Question 12

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the

Accepted Answer

A)  factors that raise doubts about the auditability of the financial statements. 
B)  operating effectiveness of internal control policies and procedures. 
C)  risk that material misstatements exist in the financial statements. 
D)  possibility that the nature and extent of substantive tests may be reduced. 
A)  factors that raise doubts about the auditability of the financial statements. 
B)  operating effectiveness of internal control policies and procedures. 
C)  risk that material misstatements exist in the financial statements. 
D)  possibility that the nature and extent of substantive tests may be reduced.

Question 13

The appropriate separation of duties does not include

Accepted Answer

A)  authorization to execute transactions. 
B)  recording of transactions. 
C)  custody of assets involved in the transactions. 
D)  data preparation. 
A)  authorization to execute transactions. 
B)  recording of transactions. 
C)  custody of assets involved in the transactions. 
D)  data preparation.

Question 14

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

Accepted Answer

A)  Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls. 
B)  Perform tests of details of transactions and account balances to identify potential errors and fraud. 
C)  Identify specific internal control policies and activities that are likely to detect or prevent material misstatements. 
D)  Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing. 
A)  Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls. 
B)  Perform tests of details of transactions and account balances to identify potential errors and fraud. 
C)  Identify specific internal control policies and activities that are likely to detect or prevent material misstatements. 
D)  Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing.

Question 15

Regardless of the assessed level of control risk,an auditor of a non-public company would perform some

Accepted Answer

A)  tests of controls to determine the effectiveness of internal control policies. 
B)  analytical procedures to verify the design of internal control activities. 
C)  substantive tests to restrict detection risk for significant transaction classes. 
D)  dual purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk. 
A)  tests of controls to determine the effectiveness of internal control policies. 
B)  analytical procedures to verify the design of internal control activities. 
C)  substantive tests to restrict detection risk for significant transaction classes. 
D)  dual purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

Question 16

If a control total were to be computed on each of the following data items,which would best be identified as a hash total for a payroll IT application?

Accepted Answer

A)  Hours worked 
B)  Total debits and total credits 
C)  Net pay 
D)  Department numbers 
A)  Hours worked 
B)  Total debits and total credits 
C)  Net pay 
D)  Department numbers

Question 17

Which of the following would most likely be classified as a material weakness?

Accepted Answer

A)  Absence of appropriate separation of duties 
B)  Absence of appropriate reviews and approvals of transactions 
C)  Evidence of failure of control activities 
D)  Ineffective oversight of the financial reporting process by the company's audit committee 
A)  Absence of appropriate separation of duties 
B)  Absence of appropriate reviews and approvals of transactions 
C)  Evidence of failure of control activities 
D)  Ineffective oversight of the financial reporting process by the company's audit committee

Question 18

An audit team's responsibility would not include

Accepted Answer

A)  designing client's internal controls. 
B)  documentation of understanding of a client's internal controls. 
C)  communicating internal control deficiencies. 
D)  assessing the effectiveness a client's internal controls. 
A)  designing client's internal controls. 
B)  documentation of understanding of a client's internal controls. 
C)  communicating internal control deficiencies. 
D)  assessing the effectiveness a client's internal controls.

Question 19

Which of the following is an Information Technology General Control?

Accepted Answer

A)  Check digit 
B)  Run-to-run totals 
C)  Distribution of computerized output 
D)  Separation of duties in the IT department 
A)  Check digit 
B)  Run-to-run totals 
C)  Distribution of computerized output 
D)  Separation of duties in the IT department

Question 20

Which of the following factors is most likely to affect the extent of the documentation of the auditor's understanding of a client's system of internal controls?

Accepted Answer

A)  The industry and the business and regulatory environments in which the client operates 
B)  The degree to which information technology is used in the accounting function 
C)  The relationship between management, the board of directors, and external stakeholders 
D)  The degree to which the auditor intends to use internal audit personnel to perform substantive tests 
A)  The industry and the business and regulatory environments in which the client operates 
B)  The degree to which information technology is used in the accounting function 
C)  The relationship between management, the board of directors, and external stakeholders 
D)  The degree to which the auditor intends to use internal audit personnel to perform substantive tests

Which of the following should an auditor do when control risk is assessed at the maximum level?

When an auditor plans to rely on controls that have changed since they were last tested,which of the following courses of action would be most appropriate?

After obtaining an understanding of a client's financial reporting control activities,the auditor would next

The "obtaining an understanding" work phase (Phase 1)of internal control evaluation would not give auditors an overall acquaintance with the client's

When obtaining an understanding of an entity's internal control in a financial statement audit at a non-public company,an auditor is not obligated to

Control activities intended to ensure that transactions are recorded in the right period are designed to achieve the ASB assertion of

Which of the following statements is correct regarding internal control?

What are the six steps auditors of public companies should use to audit internal control over financial reporting (ICOFR)?

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as

What constitutes a material weakness?

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the

The appropriate separation of duties does not include

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

Regardless of the assessed level of control risk,an auditor of a non-public company would perform some

If a control total were to be computed on each of the following data items,which would best be identified as a hash total for a payroll IT application?

Which of the following would most likely be classified as a material weakness?

An audit team's responsibility would not include

Which of the following is an Information Technology General Control?

Which of the following factors is most likely to affect the extent of the documentation of the auditor's understanding of a client's system of internal controls?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 5: Risk Assessment: Internal Control Evaluation

Which of the following should an auditor do when control risk is assessed at the maximum level?

When an auditor plans to rely on controls that have changed since they were last tested,which of the following courses of action would be most appropriate?

After obtaining an understanding of a client's financial reporting control activities,the auditor would next

The "obtaining an understanding" work phase (Phase 1)of internal control evaluation would not give auditors an overall acquaintance with the client's

When obtaining an understanding of an entity's internal control in a financial statement audit at a non-public company,an auditor is not obligated to

Control activities intended to ensure that transactions are recorded in the right period are designed to achieve the ASB assertion of

Which of the following statements is correct regarding internal control?

What are the six steps auditors of public companies should use to audit internal control over financial reporting (ICOFR)?

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as

What constitutes a material weakness?

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the

The appropriate separation of duties does not include

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

Regardless of the assessed level of control risk,an auditor of a non-public company would perform some

If a control total were to be computed on each of the following data items,which would best be identified as a hash total for a payroll IT application?

Which of the following would most likely be classified as a material weakness?

An audit team's responsibility would not include

Which of the following is an Information Technology General Control?

Which of the following factors is most likely to affect the extent of the documentation of the auditor's understanding of a client's system of internal controls?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters