Question 1

In performing the audit of internal control over financial reporting the auditor emphasizes internal control over class of transactions because:

Accepted Answer

A)  the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing. 
B)  the class of transaction is where most fraud schemes occur. 
C)  account balances are less important to the auditor then the changes in the account balances. 
D)  classes of transactions tests are the most efficient manner to compensate for inherent risk. 
A)  the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing. 
B)  the class of transaction is where most fraud schemes occur. 
C)  account balances are less important to the auditor then the changes in the account balances. 
D)  classes of transactions tests are the most efficient manner to compensate for inherent risk.

Question 2

Which of the following deal with ongoing or periodic assessment of the quality of internal control by management?

Accepted Answer

A)  Quality monitoring activities 
B)  Monitoring activities 
C)  Oversight activities 
D)  Management activities 
A)  Quality monitoring activities 
B)  Monitoring activities 
C)  Oversight activities 
D)  Management activities

Question 3

In evaluating the operational effectiveness of internal controls the auditor is likely to use four types of audit procedures.List the procedures below.

Accepted Answer

•Make inquiries of appropriate

Question 4

Separation of duties is essential in preventing errors and intentional misstatements on the financial statements.List below the four general guidelines.

Accepted Answer

1.Separation of custody of the assets fr

Question 5

To issue a report on internal control over financial reporting for a public company,an auditor must:

Accepted Answer

A)  evaluate management's assessment process. 
B)  independently assess the design and operating effectiveness of internal control. 
C)  evaluate management's assessment process and independently assess the design and operating effectiveness of internal control. 
D)  test controls over significant account balances. 
A)  evaluate management's assessment process. 
B)  independently assess the design and operating effectiveness of internal control. 
C)  evaluate management's assessment process and independently assess the design and operating effectiveness of internal control. 
D)  test controls over significant account balances.

Question 6

The auditor of a private company is not required by auditing standards to issue a written report on significant deficiencies in internal control.

Accepted Answer

A) True 
 B)False

Question 7

When determining what type of report to issue on internal control under Section 404:

Accepted Answer

A)  an adverse opinion on internal control must be given if any weaknesses in a key internal control is discovered. 
B)  a scope limitation requires the auditor to disclaim an opinion on internal controls. 
C)  if the auditor gives a qualified opinion on the financial statements, they must give a qualified opinion on internal controls. 
D)  a scope limitation requires the auditor to express a qualified opinion or a disclaimer of opinion on internal controls. 
A)  an adverse opinion on internal control must be given if any weaknesses in a key internal control is discovered. 
B)  a scope limitation requires the auditor to disclaim an opinion on internal controls. 
C)  if the auditor gives a qualified opinion on the financial statements, they must give a qualified opinion on internal controls. 
D)  a scope limitation requires the auditor to express a qualified opinion or a disclaimer of opinion on internal controls.

Question 8

Internal controls normally include procedures designed to provide reasonable assurance that:

Accepted Answer

A)  employees act with integrity when performing their assigned tasks. 
B)  transactions are executed in accordance with management's authorization. 
C)  decision processes leading to management's authorization of transactions are sound. 
D)  collusive activities would be detected by segregation of employee duties. 
A)  employees act with integrity when performing their assigned tasks. 
B)  transactions are executed in accordance with management's authorization. 
C)  decision processes leading to management's authorization of transactions are sound. 
D)  collusive activities would be detected by segregation of employee duties.

Question 9

Walkthroughs combine observation,inspection,and inquiry to assure that the controls designed by management have been implemented.

Accepted Answer

A) True 
 B)False

Question 10

When assessing whether the financial statements are auditable,the auditor must consider:

Accepted Answer

A)  that the integrity of management and the adequacy of accounting records are the two primary factors determining auditability. 
B)  that the integrity of management and the adequacy of risk management are the two primary factors determining auditability. 
C)  that if all of the transaction information is available only in electronic form without a visible audit trail, the company cannot be audited. 
D)  the control risk before determining if the entity is auditable. 
A)  that the integrity of management and the adequacy of accounting records are the two primary factors determining auditability. 
B)  that the integrity of management and the adequacy of risk management are the two primary factors determining auditability. 
C)  that if all of the transaction information is available only in electronic form without a visible audit trail, the company cannot be audited. 
D)  the control risk before determining if the entity is auditable.

Question 11

The procedures to obtain an understanding of internal control are only applied when the assessed control risk is high.

Accepted Answer

A) True 
 B)False

Question 12

The text suggested a five-step approach to identify deficiencies,significant deficiencies,and material weaknesses.Describe this approach.

Accepted Answer

1.Identify existing controls.Because deﬁ

Question 13

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

Accepted Answer

A)  collusion. 
B)  a material weakness. 
C)  a control deficiency. 
D)  a significant deficiency. 
A)  collusion. 
B)  a material weakness. 
C)  a control deficiency. 
D)  a significant deficiency.

Question 14

The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk.This lack of knowledge would constitute:

Accepted Answer

A)  a deficiency in operation of internal controls. 
B)  a deficiency in design of internal controls. 
C)  a deficiency of management. 
D)  not constitute a deficiency. 
A)  a deficiency in operation of internal controls. 
B)  a deficiency in design of internal controls. 
C)  a deficiency of management. 
D)  not constitute a deficiency.

Question 15

Describe each of the three broad objectives management typically has for internal control.With which of these objectives is the auditor primarily concerned?

Accepted Answer

The three objectives are:
•Reliability o

Question 16

When assessing control risk:

Accepted Answer

A)  many auditors use actuarial tables to assist in the control risk assessment process. 
B)  each control can be used to satisfy only one audit objective. 
C)  many auditors use a control risk matrix to assist in the control risk assessment process. 
D)  all controls, including key controls, should be considered. 
A)  many auditors use actuarial tables to assist in the control risk assessment process. 
B)  each control can be used to satisfy only one audit objective. 
C)  many auditors use a control risk matrix to assist in the control risk assessment process. 
D)  all controls, including key controls, should be considered.

Question 17

Internal controls are not designed to provide reasonable assurance that:

Accepted Answer

A)  all frauds will be detected. 
B)  transactions are executed in accordance with management's authorization. 
C)  the company's resources are used efficiently and effectively. 
D)  company personnel comply with applicable rules and regulations. 
A)  all frauds will be detected. 
B)  transactions are executed in accordance with management's authorization. 
C)  the company's resources are used efficiently and effectively. 
D)  company personnel comply with applicable rules and regulations.

Question 18

The auditor's consideration of a private company's internal control is:

Accepted Answer

A)  required by GAAP. 
B)  required by GAAS. 
C)  required by the IRS. 
D)  recommended by the SEC. 
A)  required by GAAP. 
B)  required by GAAS. 
C)  required by the IRS. 
D)  recommended by the SEC.

Question 19

Which of the following factors may increase risks to an organization?

Accepted Answer

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

Question 20

The PCAOB places responsibility for the reliability of internal controls over the financial reporting process on:

Accepted Answer

A)  the company's board of directors. 
B)  the audit committee of the board of directors. 
C)  management. 
D)  the CFO and the independent auditors. 
A)  the company's board of directors. 
B)  the audit committee of the board of directors. 
C)  management. 
D)  the CFO and the independent auditors.

Exam 10: Considering Internal Control

In performing the audit of internal control over financial reporting the auditor emphasizes internal control over class of transactions because:

Which of the following deal with ongoing or periodic assessment of the quality of internal control by management?

In evaluating the operational effectiveness of internal controls the auditor is likely to use four types of audit procedures.List the procedures below.

Separation of duties is essential in preventing errors and intentional misstatements on the financial statements.List below the four general guidelines.

To issue a report on internal control over financial reporting for a public company,an auditor must:

The auditor of a private company is not required by auditing standards to issue a written report on significant deficiencies in internal control.

When determining what type of report to issue on internal control under Section 404:

Internal controls normally include procedures designed to provide reasonable assurance that:

Walkthroughs combine observation,inspection,and inquiry to assure that the controls designed by management have been implemented.

When assessing whether the financial statements are auditable,the auditor must consider:

The procedures to obtain an understanding of internal control are only applied when the assessed control risk is high.

The text suggested a five-step approach to identify deficiencies,significant deficiencies,and material weaknesses.Describe this approach.

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk.This lack of knowledge would constitute:

Describe each of the three broad objectives management typically has for internal control.With which of these objectives is the auditor primarily concerned?

When assessing control risk:

Internal controls are not designed to provide reasonable assurance that:

The auditor's consideration of a private company's internal control is:

Which of the following factors may increase risks to an organization?

The PCAOB places responsibility for the reliability of internal controls over the financial reporting process on:

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

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