Question 1

A five-step approach can be used to identify deficiencies,significant deficiencies,and material weaknesses.The first step in this approach is:

Accepted Answer

A)  identify the absence of key controls. 
B)  consider the possibility of compensating controls. 
C)  determine potential misstatements that could result. 
D)  identify existing controls. 
A)  identify the absence of key controls. 
B)  consider the possibility of compensating controls. 
C)  determine potential misstatements that could result. 
D)  identify existing controls.

Question 2

The auditors primary purpose in auditing the client's system of internal control over financial reporting is:

Accepted Answer

A)  to prevent fraudulent financial statements from being issued to the public. 
B)  to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements. 
C)  to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements. 
D)  to efficiently conduct the Audit of Financial Statements. 
A)  to prevent fraudulent financial statements from being issued to the public. 
B)  to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements. 
C)  to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements. 
D)  to efficiently conduct the Audit of Financial Statements.

Question 3

Without an effective ________,the other components of the COSO framework are unlikely to result in effective internal control,regardless of their quality.

Accepted Answer

A)  risk assessment policy 
B)  monitoring policy 
C)  control environment 
D)  system of control activities 
A)  risk assessment policy 
B)  monitoring policy 
C)  control environment 
D)  system of control activities

Question 4

When one material weakness is present at the end of the year,management of a public company must conclude that internal control over financial reporting is:

Accepted Answer

A)  insufficient. 
B)  inadequate. 
C)  ineffective. 
D)  inefficient. 
A)  insufficient. 
B)  inadequate. 
C)  ineffective. 
D)  inefficient.

Question 5

Management has a legal and professional responsibility to be sure that the financial statements are prepared in accordance with reporting requirements of applicable accounting frameworks.

Accepted Answer

A) True 
 B)False

Question 6

External financial statement auditors must obtain evidence regarding what attributes of an internal audit (IA)department if the external auditors intend to rely on IA's work?

Accepted Answer

A)  Integrity 
B)  Objectivity 
C)  Competence 
D)  All of the above 
A)  Integrity 
B)  Objectivity 
C)  Competence 
D)  All of the above

Question 7

To determine if significant internal control deficiencies are material weaknesses,they must be evaluated on their:

Accepted Answer

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

Question 8

Management must disclose material weaknesses in internal control in its audit report:

Accepted Answer

A)  whenever the weakness is deemed significant to a single class of transactions. 
B)  whenever the weakness is significant to overall financial reporting objectives. 
C)  if the weakness exists at the end of the year. 
D)  only if the auditor identifies the weakness as significant. 
A)  whenever the weakness is deemed significant to a single class of transactions. 
B)  whenever the weakness is significant to overall financial reporting objectives. 
C)  if the weakness exists at the end of the year. 
D)  only if the auditor identifies the weakness as significant.

Question 9

Which of the following may represent the biggest challenge smaller public companies face in implementing effective internal control?

Accepted Answer

A)  A lack of expertise 
B)  Reduced importance 
C)  Limited resources 
D)  Limited available guidance 
A)  A lack of expertise 
B)  Reduced importance 
C)  Limited resources 
D)  Limited available guidance

Question 10

Control activities help assure that the necessary actions are taken to address risks to the achievement of the company's objectives.List the five types of control activities.

Accepted Answer

1.Adequate separation of dutie

Question 11

Hanlon Corp.maintains a large internal audit staff that reports directly to the accounting department.Audit reports prepared by the internal auditors indicate that the system is functioning as it should and that the accounting records are reliable.An independent auditor will probably:

Accepted Answer

A)  eliminate tests of controls. 
B)  increase the depth of the study and evaluation of administrative controls. 
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 study and evaluation of administrative controls. 
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 12

When a company designs and implements internal controls,cost of the controls is not a valid consideration.

Accepted Answer

A) True 
 B)False

Question 13

Adequate documents and records is a subcomponent of the control environment.

Accepted Answer

A) True 
 B)False

Question 14

You are the audit manager for a new audit client.Your staff auditors are unsure of what constitutes a control deficiency.Discuss the terms control deficiency,design deficiency,and operating deficiency.

Accepted Answer

A control deficiency exists if the desig

Question 15

To promote operational efficiency,the internal audit department would ideally report to:

Accepted Answer

A)  line management. 
B)  PCAOB. 
C)  Chief Accounting Officer. 
D)  audit committee. 
A)  line management. 
B)  PCAOB. 
C)  Chief Accounting Officer. 
D)  audit committee.

Question 16

Which of the following deficiency exists if a necessary control is missing or not properly formulated?

Accepted Answer

A)  Control 
B)  Significant 
C)  Design 
D)  Operating 
A)  Control 
B)  Significant 
C)  Design 
D)  Operating

Exam 10: Considering Internal Control

A five-step approach can be used to identify deficiencies,significant deficiencies,and material weaknesses.The first step in this approach is:

The auditors primary purpose in auditing the client's system of internal control over financial reporting is:

Without an effective ________,the other components of the COSO framework are unlikely to result in effective internal control,regardless of their quality.

When one material weakness is present at the end of the year,management of a public company must conclude that internal control over financial reporting is:

Management has a legal and professional responsibility to be sure that the financial statements are prepared in accordance with reporting requirements of applicable accounting frameworks.

External financial statement auditors must obtain evidence regarding what attributes of an internal audit (IA)department if the external auditors intend to rely on IA's work?

To determine if significant internal control deficiencies are material weaknesses,they must be evaluated on their:

Management must disclose material weaknesses in internal control in its audit report:

Which of the following may represent the biggest challenge smaller public companies face in implementing effective internal control?

Control activities help assure that the necessary actions are taken to address risks to the achievement of the company's objectives.List the five types of control activities.

Hanlon Corp.maintains a large internal audit staff that reports directly to the accounting department.Audit reports prepared by the internal auditors indicate that the system is functioning as it should and that the accounting records are reliable.An independent auditor will probably:

When a company designs and implements internal controls,cost of the controls is not a valid consideration.

Adequate documents and records is a subcomponent of the control environment.

You are the audit manager for a new audit client.Your staff auditors are unsure of what constitutes a control deficiency.Discuss the terms control deficiency,design deficiency,and operating deficiency.

To promote operational efficiency,the internal audit department would ideally report to:

Which of the following deficiency exists if a necessary control is missing or not properly formulated?

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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