Question 1

Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for public companies?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 2

In developing an understanding of the client's accounting information system the auditor follows a sequential process.Describe the process below:

Accepted Answer

1.Major classes of transactions of the e

Question 3

Which of the following components of the control environment define the existing lines of responsibility and authority?

Accepted Answer

A)  Organizational structure 
B)  Management philosophy and operating style 
C)  Human resource policies and practices 
D)  Management integrity and ethical values 
A)  Organizational structure 
B)  Management philosophy and operating style 
C)  Human resource policies and practices 
D)  Management integrity and ethical values

Question 4

Auditing standards prohibit reliance on the work of internal auditors due to the lack of independence of the internal auditors.

Accepted Answer

A) True 
 B)False

Question 5

The Sarbanes-Oxley Act requires:

Accepted Answer

A)  all public companies to issue reports on internal controls. 
B)  all public companies to define adequate internal controls. 
C)  the auditor of public companies to design effective internal controls. 
D)  the auditor of public companies to withdraw from an engagement if internal controls are weak. 
A)  all public companies to issue reports on internal controls. 
B)  all public companies to define adequate internal controls. 
C)  the auditor of public companies to design effective internal controls. 
D)  the auditor of public companies to withdraw from an engagement if internal controls are weak.

Question 6

Sarbanes-Oxley requires management to issue an internal control report that includes two specific items.Which of the following is one of these two requirements?

Accepted Answer

A)  A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting 
B)  A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting 
C)  A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting 
D)  A statement that the external auditors are solely responsible 
A)  A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting 
B)  A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting 
C)  A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting 
D)  A statement that the external auditors are solely responsible

Question 7

Certain principles dictate the proper design and use of documents and records.Briefly describe several of these principles.

Accepted Answer

•Documents should be prenumbered consecu

Question 8

Which of the following is the correct definition of "control deficiency"?

Accepted Answer

A)  A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis. 
B)  A control deficiency exists if one or more deficiencies exist that adversely affect a company's ability to prepare external financial statements reliably. 
C)  A control deficiency exists if the design or operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements. 
D)  A control deficiency exists if the design or operation of controls results in a more than probable likelihood that controls will prevent or detect misstatements. 
A)  A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis. 
B)  A control deficiency exists if one or more deficiencies exist that adversely affect a company's ability to prepare external financial statements reliably. 
C)  A control deficiency exists if the design or operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements. 
D)  A control deficiency exists if the design or operation of controls results in a more than probable likelihood that controls will prevent or detect misstatements.

Question 9

The internal control framework developed by COSO includes five so-called "components" of internal control.Discuss each of these five components.

Accepted Answer

Five components of internal control are:

Question 10

In an audit of a non-public company,the less control risk there is,the smaller the amount of planned substantive evidence that is required.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following best describes an entity's accounting information and communication system?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 12

You are performing the audit of internal control for Clifton Company.Which of the following would represent a material weakness in internal control?

Accepted Answer

A)  The company's audit committee has experienced unusual turnover of members. 
B)  The company's CFO was indicted for embezzling from the company. 
C)  Bank reconciliations are done monthly. 
D)  The CEO retired after twenty years of service to the company. 
A)  The company's audit committee has experienced unusual turnover of members. 
B)  The company's CFO was indicted for embezzling from the company. 
C)  Bank reconciliations are done monthly. 
D)  The CEO retired after twenty years of service to the company.

Question 13

An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls.Which of the following would generally not be used?

Accepted Answer

A)  Make inquiries of appropriate client personnel 
B)  Examine documents, records, and reports 
C)  Reperform client procedures 
D)  Inspect design documents 
A)  Make inquiries of appropriate client personnel 
B)  Examine documents, records, and reports 
C)  Reperform client procedures 
D)  Inspect design documents

Question 14

Authorizations can be either general or specific.Which of the following is not an example of a general authorization?

Accepted Answer

A)  Automatic reorder points for raw materials inventory 
B)  A sales manager's authorization for a sales return 
C)  Credit limits for various classes of customers 
D)  A sales price list for merchandise 
A)  Automatic reorder points for raw materials inventory 
B)  A sales manager's authorization for a sales return 
C)  Credit limits for various classes of customers 
D)  A sales price list for merchandise

Question 15

Which of the following is responsible for establishing a private company's internal control?

Accepted Answer

A)  Senior Management 
B)  Internal Auditors 
C)  FASB 
D)  Audit committee 
A)  Senior Management 
B)  Internal Auditors 
C)  FASB 
D)  Audit committee

Question 16

Which of the following is not one of the three primary objectives of effective internal control?

Accepted Answer

A)  Reliability of financial reporting 
B)  Efficiency and effectiveness of operations 
C)  Compliance with laws and regulations 
D)  Assurance of elimination of business risk 
A)  Reliability of financial reporting 
B)  Efficiency and effectiveness of operations 
C)  Compliance with laws and regulations 
D)  Assurance of elimination of business risk

Question 17

For most uses,flowcharts are superior to narratives as a method of communicating the characteristics of internal control.

Accepted Answer

A) True 
 B)False

Question 18

The primary emphasis by auditors is on controls over:

Accepted Answer

A)  classes of transactions. 
B)  account balances. 
C)  both A and B, because they are equally important. 
D)  both A and B, because they vary from client to client. 
A)  classes of transactions. 
B)  account balances. 
C)  both A and B, because they are equally important. 
D)  both A and B, because they vary from client to client.

Question 19

Two key concepts that underlie management's design and implementation of internal control are:

Accepted Answer

A)  costs and materiality. 
B)  absolute assurance and costs. 
C)  inherent limitations and reasonable assurance. 
D)  collusion and materiality. 
A)  costs and materiality. 
B)  absolute assurance and costs. 
C)  inherent limitations and reasonable assurance. 
D)  collusion and materiality.

Question 20

If,when obtaining an understanding of control activities of a relatively small client,the auditor identified no control activities,the auditor would probably set a high assessment of control risk.

Accepted Answer

A) True 
 B)False

Exam 10: Considering Internal Control

Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for public companies?

In developing an understanding of the client's accounting information system the auditor follows a sequential process.Describe the process below:

Which of the following components of the control environment define the existing lines of responsibility and authority?

Auditing standards prohibit reliance on the work of internal auditors due to the lack of independence of the internal auditors.

The Sarbanes-Oxley Act requires:

Sarbanes-Oxley requires management to issue an internal control report that includes two specific items.Which of the following is one of these two requirements?

Certain principles dictate the proper design and use of documents and records.Briefly describe several of these principles.

Which of the following is the correct definition of "control deficiency"?

The internal control framework developed by COSO includes five so-called "components" of internal control.Discuss each of these five components.

In an audit of a non-public company,the less control risk there is,the smaller the amount of planned substantive evidence that is required.

Which of the following best describes an entity's accounting information and communication system?

You are performing the audit of internal control for Clifton Company.Which of the following would represent a material weakness in internal control?

An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls.Which of the following would generally not be used?

Authorizations can be either general or specific.Which of the following is not an example of a general authorization?

Which of the following is responsible for establishing a private company's internal control?

Which of the following is not one of the three primary objectives of effective internal control?

For most uses,flowcharts are superior to narratives as a method of communicating the characteristics of internal control.

The primary emphasis by auditors is on controls over:

Two key concepts that underlie management's design and implementation of internal control are:

If,when obtaining an understanding of control activities of a relatively small client,the auditor identified no control activities,the auditor would probably set a high assessment of control risk.

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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 Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

Filters