Question 1

Before applying substantive procedures to the details of asset and liability accounts at an interim date, the auditor should

Accepted Answer

A)  Assess the difficulty in controlling achieved audit risk for the remainder of the period. 
B)  Investigate significant fluctuations that have occurred in the asset and liability accounts since the previous balance sheet date. 
C)  Select only those accounts which can effectively be sampled during year-end audit work. 
D)  Consider the compliance tests that must be applied at the balance sheet date to extend the audit conclusions reached at the interim date. 
A)  Assess the difficulty in controlling achieved audit risk for the remainder of the period. 
B)  Investigate significant fluctuations that have occurred in the asset and liability accounts since the previous balance sheet date. 
C)  Select only those accounts which can effectively be sampled during year-end audit work. 
D)  Consider the compliance tests that must be applied at the balance sheet date to extend the audit conclusions reached at the interim date.

Question 2

A flowchart is most frequently used by an auditor in connection with the

Accepted Answer

A)  Preparation of generalized computer audit programs. 
B)  Review of the entity's internal controls. 
C)  Use of statistical sampling in performing an audit. 
D)  Performance of analytical procedures of account balances. 
A)  Preparation of generalized computer audit programs. 
B)  Review of the entity's internal controls. 
C)  Use of statistical sampling in performing an audit. 
D)  Performance of analytical procedures of account balances.

Question 3

Which of the following is a general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project?

Accepted Answer

A)  Grandfather-father-son record retention. 
B)  Input and output validation routines. 
C)  Systems documentation. 
D)  Check digit verification. 
A)  Grandfather-father-son record retention. 
B)  Input and output validation routines. 
C)  Systems documentation. 
D)  Check digit verification.

Question 4

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control is suitably designed to prevent or detect material misstatements?

Accepted Answer

A)  Scanning the journals produced by the internal control system. 
B)  Performing analytical procedures using data aggregated at a high level. 
C)  Vouching a sample of transactions directly related to the controls. 
D)  Observing the entity's personnel applying the controls. 
A)  Scanning the journals produced by the internal control system. 
B)  Performing analytical procedures using data aggregated at a high level. 
C)  Vouching a sample of transactions directly related to the controls. 
D)  Observing the entity's personnel applying the controls.

Question 5

The auditor must understand internal control before assessing inherent risk.

Accepted Answer

A) True 
 B)False

Question 6

Based on a study and evaluation completed at an interim date, the auditor concludes that no significant internal control weaknesses exist. The records and procedures would most likely be tested again at year-end if

Accepted Answer

A)  Compliance tests were not performed by the internal audit staff during the remaining period. 
B)  The internal control system provides a basis for reliance in reducing the extent of substantive procedures. 
C)  The auditor used nonstatistical sampling during interim compliance testing. 
D)  Inquiries and observations lead the auditor to believe that conditions within the internal control system have changed. 
A)  Compliance tests were not performed by the internal audit staff during the remaining period. 
B)  The internal control system provides a basis for reliance in reducing the extent of substantive procedures. 
C)  The auditor used nonstatistical sampling during interim compliance testing. 
D)  Inquiries and observations lead the auditor to believe that conditions within the internal control system have changed.

Question 7

Assessing control risk at a lower level involves all of the following except:

Accepted Answer

A)  Identifying specific controls to rely on. 
B)  Concluding that controls are ineffective. 
C)  Performing tests of controls. 
D)  Analyzing the achieved level of control risk after performing tests of controls. 
A)  Identifying specific controls to rely on. 
B)  Concluding that controls are ineffective. 
C)  Performing tests of controls. 
D)  Analyzing the achieved level of control risk after performing tests of controls.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Potential benefits of an entity's controls in an IT environment include all of the following except:

Accepted Answer

A)  Reduction in the risk that controls will be circumvented. 
B)  More accurate accounting estimates. 
C)  Consistent application of predefined business rules. 
D)  More timely information. 
A)  Reduction in the risk that controls will be circumvented. 
B)  More accurate accounting estimates. 
C)  Consistent application of predefined business rules. 
D)  More timely information.

Question 10

The control environment component of internal control includes all of the following except:

Accepted Answer

A)  Management's operating style. 
B)  Access to computer programs. 
C)  Organizational structure. 
D)  Human resource policies and practices. 
A)  Management's operating style. 
B)  Access to computer programs. 
C)  Organizational structure. 
D)  Human resource policies and practices.

Question 11

Reports on service organizations typically

Accepted Answer

A)  Provide reasonable assurance that their financial statements are free of material misstatements. 
B)  Ensure that the entity will not have any misstatements in areas related to the service organization's activities. 
C)  Ensure that the auditee is billed correctly. 
D)  Assess whether the service organization's controls are suitably designed to achieve internal control objectives. 
A)  Provide reasonable assurance that their financial statements are free of material misstatements. 
B)  Ensure that the entity will not have any misstatements in areas related to the service organization's activities. 
C)  Ensure that the auditee is billed correctly. 
D)  Assess whether the service organization's controls are suitably designed to achieve internal control objectives.

Question 12

Information and communication includes all of the following except:

Accepted Answer

A)  Identifying and recording all valid transactions. 
B)  Determining the time period in which transactions occurred. 
C)  Communicating price changes to customers. 
D)  Properly presenting transactions and related disclosures in the financial statements. 
A)  Identifying and recording all valid transactions. 
B)  Determining the time period in which transactions occurred. 
C)  Communicating price changes to customers. 
D)  Properly presenting transactions and related disclosures in the financial statements.

Question 13

Before applying substantive procedures to the details of accounts at an interim date (a date prior to the balance sheet date), an auditor should

Accepted Answer

A)  Assess control risk at high for the assertions embodied in the accounts selected for interim testing. 
B)  Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole. 
C)  Consider the availability of information at a later date that will be necessary for the auditor's procedures (e.g., electronic data). 
D)  Obtain written representations from management that all financial records and related data will be made available. 
A)  Assess control risk at high for the assertions embodied in the accounts selected for interim testing. 
B)  Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole. 
C)  Consider the availability of information at a later date that will be necessary for the auditor's procedures (e.g., electronic data). 
D)  Obtain written representations from management that all financial records and related data will be made available.

Question 14

What are the differences between document flowcharts, system flowcharts, and program flowcharts?

Accepted Answer

A document flowchart represents the flow

Question 15

One of the risks associated with internal control from IT is potential loss of data.

Accepted Answer

A) True 
 B)False

Question 16

Internal control consists of six components.

Accepted Answer

A) True 
 B)False

Question 17

The extent of an entity's use of IT can affect any of the components of internal control.

Accepted Answer

A) True 
 B)False

Question 18

In an audit of financial statements of a private company in accordance with generally accepted auditing standards, an auditor is required to

Accepted Answer

A)  Identify specific internal control activities relevant to management's financial statement assertions. 
B)  Perform tests of controls to evaluate the effectiveness of the entity's accounting system. 
C)  Determine whether procedures are suitably designed to prevent or detect material misstatements. 
D)  Document the auditor's understanding of the entity's internal control. 
A)  Identify specific internal control activities relevant to management's financial statement assertions. 
B)  Perform tests of controls to evaluate the effectiveness of the entity's accounting system. 
C)  Determine whether procedures are suitably designed to prevent or detect material misstatements. 
D)  Document the auditor's understanding of the entity's internal control.

Question 19

General controls include all of the following except:

Accepted Answer

A)  Organizational controls. 
B)  Data validation controls. 
C)  Access security controls. 
D)  Application system acquisition controls. 
A)  Organizational controls. 
B)  Data validation controls. 
C)  Access security controls. 
D)  Application system acquisition controls.

Question 20

In terms of an audit, define substantive strategy and reliance strategy. Include in your definition how the different strategies relate to internal control. Which strategy would best relate to a lower control risk?

Accepted Answer

A substantive strategy means that the au

Exam 6: Internal Control in a Financial Statement Audit

Before applying substantive procedures to the details of asset and liability accounts at an interim date, the auditor should

A flowchart is most frequently used by an auditor in connection with the

Which of the following is a general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project?

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control is suitably designed to prevent or detect material misstatements?

The auditor must understand internal control before assessing inherent risk.

Based on a study and evaluation completed at an interim date, the auditor concludes that no significant internal control weaknesses exist. The records and procedures would most likely be tested again at year-end if

Assessing control risk at a lower level involves all of the following except:

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

Potential benefits of an entity's controls in an IT environment include all of the following except:

The control environment component of internal control includes all of the following except:

Reports on service organizations typically

Information and communication includes all of the following except:

Before applying substantive procedures to the details of accounts at an interim date (a date prior to the balance sheet date), an auditor should

What are the differences between document flowcharts, system flowcharts, and program flowcharts?

One of the risks associated with internal control from IT is potential loss of data.

Internal control consists of six components.

The extent of an entity's use of IT can affect any of the components of internal control.

In an audit of financial statements of a private company in accordance with generally accepted auditing standards, an auditor is required to

General controls include all of the following except:

In terms of an audit, define substantive strategy and reliance strategy. Include in your definition how the different strategies relate to internal control. Which strategy would best relate to a lower control risk?

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

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