Question 1

Which of the following is not one of the elements of the control environment?

Accepted Answer

A)  Process for recording transactions and preparing financial statements. 
B)  Presence of an internal auditing function. 
C)  A company's organizational structure. 
D)  Methods of assigning authority and responsibility. 
A)  Process for recording transactions and preparing financial statements. 
B)  Presence of an internal auditing function. 
C)  A company's organizational structure. 
D)  Methods of assigning authority and responsibility.

Question 2

Evaluation of internal control systems on a nonpublic entity should not be subject to cost-benefit considerations.

Accepted Answer

A) True 
 B)False

Question 3

After obtaining an understanding of the entity's internal control and assessing control risk,an auditor of a nonpublic company decided not to perform additional tests of controls.The auditor most likely concluded that the

Accepted Answer

A)  Additional evidence to support an additional reduction in control risk was not cost beneficial. 
B)  Assessed level of inherent risk exceeded the assessed level of control risk. 
C)  Internal control structure was properly designed and justifiably may be relied on. 
D)  Evidence obtainable through tests of controls would not support an increased level of control risk. 
A)  Additional evidence to support an additional reduction in control risk was not cost beneficial. 
B)  Assessed level of inherent risk exceeded the assessed level of control risk. 
C)  Internal control structure was properly designed and justifiably may be relied on. 
D)  Evidence obtainable through tests of controls would not support an increased level of control risk.

Question 4

Which of the following information would be included in the introductory paragraph of the auditors' report on internal control over financial reporting if the report is presented separately from the auditors' report on the entity's financial statements?

Accepted Answer

A)  The fact that the auditors conducted an audit of the entity's financial statements. 
B)  The definition of a material weakness in internal control over financial reporting. 
C)  Statements identifying the responsibility of the auditors and management for internal control over financial reporting. 
D)  A reference to the auditors' report and opinion on the entity's financial statements. 
A)  The fact that the auditors conducted an audit of the entity's financial statements. 
B)  The definition of a material weakness in internal control over financial reporting. 
C)  Statements identifying the responsibility of the auditors and management for internal control over financial reporting. 
D)  A reference to the auditors' report and opinion on the entity's financial statements.

Question 5

Assessing control risk at below the maximum level most likely would involve

Accepted Answer

A)  Performing more extensive substantive tests with larger sample sizes than originally planned. 
B)  Reducing inherent risk for most of the assertions relevant to significant account balances. 
C)  Changing the timing of substantive tests by omitting interim-date testing and performing the tests at year-end. 
D)  Identifying specific internal control activities that are relevant to specific financial statement assertions. 
A)  Performing more extensive substantive tests with larger sample sizes than originally planned. 
B)  Reducing inherent risk for most of the assertions relevant to significant account balances. 
C)  Changing the timing of substantive tests by omitting interim-date testing and performing the tests at year-end. 
D)  Identifying specific internal control activities that are relevant to specific financial statement assertions.

Question 6

Discuss the difference between an internal control's design effectiveness and its operating effectiveness.

Accepted Answer

Design effectiveness determines whether

Question 7

As part of understanding the internal control,an auditor is not required to

Accepted Answer

A)  Consider factors that affect the risk of material misstatement. 
B)  Ascertain whether internal control policies and activities have been placed in operation. 
C)  Identify the types of potential misstatements that can occur. 
D)  Obtain knowledge about the operating effectiveness of the client's internal control activities. 
A)  Consider factors that affect the risk of material misstatement. 
B)  Ascertain whether internal control policies and activities have been placed in operation. 
C)  Identify the types of potential misstatements that can occur. 
D)  Obtain knowledge about the operating effectiveness of the client's internal control activities.

Question 8

Sound internal control can be described as separating all of the following duties and responsibilities except for

Accepted Answer

A)  Transaction authorization. 
B)  Recordkeeping. 
C)  Custody of, or direct access to, assets. 
D)  Hiring of employees. 
A)  Transaction authorization. 
B)  Recordkeeping. 
C)  Custody of, or direct access to, assets. 
D)  Hiring of employees.

Question 9

List several elements of a company's control environment.

Accepted Answer

Some of the elements of a control enviro

Question 10

In gathering evidence about the client's internal control,auditors may use a(n)____________________________,which is a checklist of internal control-related questions.

Accepted Answer

internal c

Question 11

The strengths and weaknesses of a control system should be documented in bridge workpapers connecting the control evaluation to subsequent audit procedures.

Accepted Answer

A) True 
 B)False

Question 12

Internal control systems generally provide _____________________________ assurance that the objectives of internal control are satisfied.

Accepted Answer

The answer of Internal control systems generally provide _____________________________ assurance...

Question 13

Auditors are required to obtain a sufficient understanding of an entity's internal control.This understanding is required by the performance principle of GAAS.
Required:
A.What are some of the reasons (purposes)for evaluating an entity's internal control?
B.What is the impact on substantive testing procedures if the auditor assesses control risk at the "maximum" level? What is the impact on substantive testing procedures if the auditor assesses control risk below the "maximum" level?
C.Should auditors always try to obtain enough evidence to assess control risk below the "maximum" level? Explain.

Accepted Answer

A.The audit team has two primary reasons

Question 14

Explain the difference between a significant deficiency and a material weakness.

Accepted Answer

The difference between a signi

Question 15

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 16

Which of the following is not an objective of internal controls over financial reporting as defined by the Sarbanes-Oxley Act?

Accepted Answer

A)  Policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant. 
B)  Policies and procedures that provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant. 
C)  Policies and procedures that provide reasonable assurance regarding the compliance with applicable laws and regulations. 
D)  Policies and procedures that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the registrant's assets that could have a material effect on the financial statements. 
A)  Policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant. 
B)  Policies and procedures that provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant. 
C)  Policies and procedures that provide reasonable assurance regarding the compliance with applicable laws and regulations. 
D)  Policies and procedures that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the registrant's assets that could have a material effect on the financial statements.

Question 17

An audit team's responsibility would not include

Accepted Answer

A)  Designing client's internal controls. 
B)  Documenting an 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)  Documenting an understanding of a client's internal controls. 
C)  Communicating internal control deficiencies. 
D)  Assessing the effectiveness a client's internal controls.

Question 18

AS 5 requires the audit team to do all the following except

Accepted Answer

A)  Evaluate the severity of each control deficiency that comes to their attention. 
B)  Document the process used to determine significant accounts and disclosures and major classes of transactions. 
C)  Test all internal controls in the company. 
D)  All the above. 
A)  Evaluate the severity of each control deficiency that comes to their attention. 
B)  Document the process used to determine significant accounts and disclosures and major classes of transactions. 
C)  Test all internal controls in the company. 
D)  All the above.

Question 19

The COSO report identifies the objectives to be achieved by internal control as (1)effectiveness and efficiency of ____________________________,(2)reliability of ___________________________________,and (3)compliance with ____________________ and ____________________________.

Accepted Answer

operations; financia

Question 20

The internal control in small business is highly dependent on the

Accepted Answer

A)  Separation of functional responsibilities. 
B)  Complexity of the client's internal controls. 
C)  Owner-manager's competence as well as ethics and integrity. 
D)  Bonding of employees. 
A)  Separation of functional responsibilities. 
B)  Complexity of the client's internal controls. 
C)  Owner-manager's competence as well as ethics and integrity. 
D)  Bonding of employees.

Which of the following is not one of the elements of the control environment?

Evaluation of internal control systems on a nonpublic entity should not be subject to cost-benefit considerations.

After obtaining an understanding of the entity's internal control and assessing control risk,an auditor of a nonpublic company decided not to perform additional tests of controls.The auditor most likely concluded that the

Which of the following information would be included in the introductory paragraph of the auditors' report on internal control over financial reporting if the report is presented separately from the auditors' report on the entity's financial statements?

Assessing control risk at below the maximum level most likely would involve

Discuss the difference between an internal control's design effectiveness and its operating effectiveness.

As part of understanding the internal control,an auditor is not required to

Sound internal control can be described as separating all of the following duties and responsibilities except for

List several elements of a company's control environment.

In gathering evidence about the client's internal control,auditors may use a(n)____________________________,which is a checklist of internal control-related questions.

The strengths and weaknesses of a control system should be documented in bridge workpapers connecting the control evaluation to subsequent audit procedures.

Internal control systems generally provide _____________________________ assurance that the objectives of internal control are satisfied.

Explain the difference between a significant deficiency and a material weakness.

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 is not an objective of internal controls over financial reporting as defined by the Sarbanes-Oxley Act?

An audit team's responsibility would not include

AS 5 requires the audit team to do all the following except

The COSO report identifies the objectives to be achieved by internal control as (1)effectiveness and efficiency of __________,(2)reliability of _,and (3)compliance with and ____________.

The internal control in small business is highly dependent on the

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 Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters

Exam 5: Risk Assessment: Internal Control Evaluation

Which of the following is not one of the elements of the control environment?

Evaluation of internal control systems on a nonpublic entity should not be subject to cost-benefit considerations.

After obtaining an understanding of the entity's internal control and assessing control risk,an auditor of a nonpublic company decided not to perform additional tests of controls.The auditor most likely concluded that the

Which of the following information would be included in the introductory paragraph of the auditors' report on internal control over financial reporting if the report is presented separately from the auditors' report on the entity's financial statements?

Assessing control risk at below the maximum level most likely would involve

Discuss the difference between an internal control's design effectiveness and its operating effectiveness.

As part of understanding the internal control,an auditor is not required to

Sound internal control can be described as separating all of the following duties and responsibilities except for

List several elements of a company's control environment.

In gathering evidence about the client's internal control,auditors may use a(n)____________________________,which is a checklist of internal control-related questions.

The strengths and weaknesses of a control system should be documented in bridge workpapers connecting the control evaluation to subsequent audit procedures.

Internal control systems generally provide _____________________________ assurance that the objectives of internal control are satisfied.

Explain the difference between a significant deficiency and a material weakness.

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 is not an objective of internal controls over financial reporting as defined by the Sarbanes-Oxley Act?

An audit team's responsibility would not include

AS 5 requires the audit team to do all the following except

The COSO report identifies the objectives to be achieved by internal control as (1)effectiveness and efficiency of ____________________________,(2)reliability of ___________________________________,and (3)compliance with ____________________ and ____________________________.

The internal control in small business is highly dependent on the

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 Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters

The COSO report identifies the objectives to be achieved by internal control as (1)effectiveness and efficiency of __________,(2)reliability of _,and (3)compliance with and ____________.