Question 1

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

Accepted Answer

A)  Inspection. 
B)  Reconciliation. 
C)  Confirmation. 
D)  Analytical procedures. 
A)  Inspection. 
B)  Reconciliation. 
C)  Confirmation. 
D)  Analytical procedures.

Question 2

To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including

Accepted Answer

A)  Inquiry. 
B)  Analytical procedures. 
C)  Calculation. 
D)  Confirmation. 
A)  Inquiry. 
B)  Analytical procedures. 
C)  Calculation. 
D)  Confirmation.

Question 3

Internal controls are not designed to provide reasonable assurance that

Accepted Answer

A)  Transactions are executed in accordance with management's authorization. 
B)  Embezzlement will be eliminated. 
C)  Access to assets is permitted only in accordance with management's authorization. 
D)  Amounts recorded for assets are compared with the actual existing assets at reasonable intervals. 
A)  Transactions are executed in accordance with management's authorization. 
B)  Embezzlement will be eliminated. 
C)  Access to assets is permitted only in accordance with management's authorization. 
D)  Amounts recorded for assets are compared with the actual existing assets at reasonable intervals.

Question 4

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods

Accepted Answer

A)  Influence the design of internal controls. 
B)  Affect the auditor's overall materiality levels. 
C)  Assist in evaluating the planned audit assertions. 
D)  Determine the auditor's acceptable level of audit risk. 
A)  Influence the design of internal controls. 
B)  Affect the auditor's overall materiality levels. 
C)  Assist in evaluating the planned audit assertions. 
D)  Determine the auditor's acceptable level of audit risk.

Question 5

As part of gaining an initial understanding of internal control, an auditor is required to do all of the following except:

Accepted Answer

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

Question 6

Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of

Accepted Answer

A)  Authorization, execution, and payment. 
B)  Authorization, recording, and custody. 
C)  Custody, execution, and reporting. 
D)  Authorization, payment, and recording. 
A)  Authorization, execution, and payment. 
B)  Authorization, recording, and custody. 
C)  Custody, execution, and reporting. 
D)  Authorization, payment, and recording.

Question 7

An organizational structure is important for all of the following reasons except:

Accepted Answer

A)  Ensuring proper accountability. 
B)  Defining areas of authority. 
C)  Creating clear lines of reporting. 
D)  Ensuring a proper commitment to controls. 
A)  Ensuring proper accountability. 
B)  Defining areas of authority. 
C)  Creating clear lines of reporting. 
D)  Ensuring a proper commitment to controls.

Question 8

The auditor should consider all of the following when deciding whether substantive procedures will be performed at an interim date except:

Accepted Answer

A)  The level of control risk. 
B)  Scheduling conflicts in the audit firm that make interim testing more convenient. 
C)  Whether business conditions will change after the interim date. 
D)  The ability to examine the remaining period. 
A)  The level of control risk. 
B)  Scheduling conflicts in the audit firm that make interim testing more convenient. 
C)  Whether business conditions will change after the interim date. 
D)  The ability to examine the remaining period.

Question 9

The auditor's communication of material weaknesses in internal control for a nonpublic company is

Accepted Answer

A)  Required to enable the auditor to state that the examination has been made in accordance with generally accepted auditing standards. 
B)  The principle reason for studying and evaluating the system of internal controls. 
C)  Incidental to the auditor's objective of forming an opinion as to the fair presentation of the financial statements. 
D)  Required to be included as part of the audit opinion. 
A)  Required to enable the auditor to state that the examination has been made in accordance with generally accepted auditing standards. 
B)  The principle reason for studying and evaluating the system of internal controls. 
C)  Incidental to the auditor's objective of forming an opinion as to the fair presentation of the financial statements. 
D)  Required to be included as part of the audit opinion.

Question 10

The normal sequence of documents and operations on a well-prepared systems flowchart is

Accepted Answer

A)  Top to bottom and left to right. 
B)  Bottom to top and left to right. 
C)  Top to bottom and right to left. 
D)  Bottom to top and right to left. 
A)  Top to bottom and left to right. 
B)  Bottom to top and left to right. 
C)  Top to bottom and right to left. 
D)  Bottom to top and right to left.

Question 11

Which of the following audit tests would be regarded as a test of controls?

Accepted Answer

A)  Tests of the specific items making up the balance in a given general ledger account. 
B)  Tests comparing inventory pricing to vendors' invoices. 
C)  Tests of the signatures on canceled checks to the board of directors' authorizations. 
D)  Tests of the additions to property, plant, and equipment by physical inspections. 
A)  Tests of the specific items making up the balance in a given general ledger account. 
B)  Tests comparing inventory pricing to vendors' invoices. 
C)  Tests of the signatures on canceled checks to the board of directors' authorizations. 
D)  Tests of the additions to property, plant, and equipment by physical inspections.

Question 12

The program flowcharting symbol representing a decision is a

Accepted Answer

A)  Triangle. 
B)  Circle. 
C)  Rectangle. 
D)  Diamond.
Short Answer Questions 
A)  Triangle. 
B)  Circle. 
C)  Rectangle. 
D)  Diamond.
Short Answer Questions

Question 13

Describe the limitations of internal control. Why do limitations on internal control exist?

Accepted Answer

The effectiveness of any internal contro

Question 14

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

Accepted Answer

A)  Preparation of a flowchart of duties performed by available personnel. 
B)  Inquiring whether control activities operated consistently throughout the period. 
C)  Reviewing job descriptions prepared by the Personnel Department. 
D)  Direct personal observation of the employees who apply the control activities. 
A)  Preparation of a flowchart of duties performed by available personnel. 
B)  Inquiring whether control activities operated consistently throughout the period. 
C)  Reviewing job descriptions prepared by the Personnel Department. 
D)  Direct personal observation of the employees who apply the control activities.

Question 15

An IT specialist is least likely to be necessary when

Accepted Answer

A)  Data are shared extensively among systems. 
B)  The entity participates heavily in electronic commerce. 
C)  The system has not changed from the prior year. 
D)  Significant audit evidence is in electronic form. 
A)  Data are shared extensively among systems. 
B)  The entity participates heavily in electronic commerce. 
C)  The system has not changed from the prior year. 
D)  Significant audit evidence is in electronic form.

Question 16

After obtaining an understanding of internal controls and assessing control risk of an entity, an auditor decided not to perform tests of controls for purposes of the audit. The auditor most likely decided that

Accepted Answer

A)  The available evidential matter obtained through tests of controls would not support an increased level of control risk. 
B)  A reduction in the assessed level of control risk is justified for certain financial statement assertions. 
C)  It would be inefficient to perform tests of controls that would result in a reduction in planned substantive procedures. 
D)  The assessed level of inherent risk exceeded the assessed level of control risk. 
A)  The available evidential matter obtained through tests of controls would not support an increased level of control risk. 
B)  A reduction in the assessed level of control risk is justified for certain financial statement assertions. 
C)  It would be inefficient to perform tests of controls that would result in a reduction in planned substantive procedures. 
D)  The assessed level of inherent risk exceeded the assessed level of control risk.

Question 17

Internal control has become a very important focus for publicly traded and privately-held companies alike. Internal control is intended to accomplish at least three objectives and consists of five components of internal control. List the three objectives and five components of internal control.
Objectives of internal control include:
1. reliability, timeliness, and transparency of internal and external, nonfinancial and financial reporting,
2. effectiveness and efficiency of operations, including safeguarding of assets, and
3. compliance with applicable laws and regulations.

Accepted Answer

The five components of internal control

Question 18

A reliance strategy is used when control risk has been set at high.

Accepted Answer

A) True 
 B)False

Question 19

An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts

Accepted Answer

A)  Identify whether segregation of duties prevent collusion. 
B)  Provide a visual depiction of the entity's activities. 
C)  Indicate whether controls are operating effectively. 
D)  Reduce the need to observe the entity's employees performing routine tasks. 
A)  Identify whether segregation of duties prevent collusion. 
B)  Provide a visual depiction of the entity's activities. 
C)  Indicate whether controls are operating effectively. 
D)  Reduce the need to observe the entity's employees performing routine tasks.

Question 20

In a properly designed internal control system, the same employee may be permitted to

Accepted Answer

A)  Receive and deposit checks and also approve write-offs of customer accounts. 
B)  Approve vouchers for payment and also sign checks. 
C)  Reconcile the bank statements and also receive and deposit cash. 
D)  Sign checks and also cancel supporting documents. 
A)  Receive and deposit checks and also approve write-offs of customer accounts. 
B)  Approve vouchers for payment and also sign checks. 
C)  Reconcile the bank statements and also receive and deposit cash. 
D)  Sign checks and also cancel supporting documents.

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including

Internal controls are not designed to provide reasonable assurance that

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods

As part of gaining an initial understanding of internal control, an auditor is required to do all of the following except:

Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of

An organizational structure is important for all of the following reasons except:

The auditor should consider all of the following when deciding whether substantive procedures will be performed at an interim date except:

The auditor's communication of material weaknesses in internal control for a nonpublic company is

The normal sequence of documents and operations on a well-prepared systems flowchart is

Which of the following audit tests would be regarded as a test of controls?

The program flowcharting symbol representing a decision is a

Describe the limitations of internal control. Why do limitations on internal control exist?

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

An IT specialist is least likely to be necessary when

After obtaining an understanding of internal controls and assessing control risk of an entity, an auditor decided not to perform tests of controls for purposes of the audit. The auditor most likely decided that

A reliance strategy is used when control risk has been set at high.

An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts

In a properly designed internal control system, the same employee may be permitted to

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 6: Internal Control in a Financial Statement Audit

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including

Internal controls are not designed to provide reasonable assurance that

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods

As part of gaining an initial understanding of internal control, an auditor is required to do all of the following except:

Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of

An organizational structure is important for all of the following reasons except:

The auditor should consider all of the following when deciding whether substantive procedures will be performed at an interim date except:

The auditor's communication of material weaknesses in internal control for a nonpublic company is

The normal sequence of documents and operations on a well-prepared systems flowchart is

Which of the following audit tests would be regarded as a test of controls?

The program flowcharting symbol representing a decision is a

Describe the limitations of internal control. Why do limitations on internal control exist?

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

An IT specialist is least likely to be necessary when

After obtaining an understanding of internal controls and assessing control risk of an entity, an auditor decided not to perform tests of controls for purposes of the audit. The auditor most likely decided that

A reliance strategy is used when control risk has been set at high.

An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts

In a properly designed internal control system, the same employee may be permitted to

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters