Question 1

Auditors are most likely to gather audit evidence solely using substantive procedures

Accepted Answer

A)  If transactions are recurring. 
B)  For non-recurring, unusual transactions. 
C)  If control risk is very low. 
D)  If the entity has a well-designed automated system. 
A)  If transactions are recurring. 
B)  For non-recurring, unusual transactions. 
C)  If control risk is very low. 
D)  If the entity has a well-designed automated system.

Question 2

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 3

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 client'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 client's internal controls. 
C)  Use of statistical sampling in performing an audit. 
D)  Performance of analytical procedures of account balances.

Question 4

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 is 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 is compared with the actual existing assets at reasonable intervals.

Question 5

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

Accepted Answer

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

Question 6

The auditor must understand internal control before assessing inherent risk.

Accepted Answer

A) True 
 B)False

Question 7

For certain controls,such as segregation of duties,documentary evidence may not exist.An auditor would most likely test the procedures by

Accepted Answer

A)  Reperformance and corroboration. 
B)  Observation and inquiry. 
C)  Inspection and vouching. 
D)  Confirmation and recomputation. 
A)  Reperformance and corroboration. 
B)  Observation and inquiry. 
C)  Inspection and vouching. 
D)  Confirmation and recomputation.

Question 8

While performing an audit on the internal controls over financial reporting for AirWaves Corporation,your audit team finds what it considers to be a significant deficiency.AirWaves is a large,private company.What steps would you take to communicate this finding?

Accepted Answer

Auditing standards require that the audi

Question 9

Internal control has become a very important focus for publicly traded and privately-held companies alike.Internal control is intended to accomplish at least four objectives and consists of five components of internal control.List the four objectives and five components of internal control.

Accepted Answer

Objectives of internal control include r

Question 10

Management philosophy and operating style most likely would have a significant influence on an entity's control environment when

Accepted Answer

A)  The internal auditor reports directly to management. 
B)  Management is dominated by one individual. 
C)  Accurate management job descriptions delineate specific duties. 
D)  The audit committee actively oversees the financial reporting process. 
A)  The internal auditor reports directly to management. 
B)  Management is dominated by one individual. 
C)  Accurate management job descriptions delineate specific duties. 
D)  The audit committee actively oversees the financial reporting process.

Question 11

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

Accepted Answer

A document flowchart represents the flow

Question 12

What are some typical types of evidence that may be collected in testing a client's internal controls?

Accepted Answer

Applicable procedures include inquiry of

Question 13

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Accepted Answer

A)  Incompatible duties. 
B)  Management override. 
C)  Mistakes in judgment. 
D)  Collusion among employees. 
A)  Incompatible duties. 
B)  Management override. 
C)  Mistakes in judgment. 
D)  Collusion among employees.

Question 14

Internal control includes monitoring of controls.

Accepted Answer

A) True 
 B)False

Question 15

Assessing control risk below maximum 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 16

Data capture occurs through source documentation,direct data entry,or a combination of the two.List three purposes of data capture controls.

Accepted Answer

Data capture controls ensure that (1)all

Question 17

Which of the following statements is correct concerning an auditor's communication of internal control related matters (significant deficiencies)noted in an audit?

Accepted Answer

A)  The auditor may issue a written report to the audit committee representing that no significant deficiencies were noted during the audit. 
B)  Significant deficiencies should be recommunicated each year, even if the audit committee has acknowledged its understanding of such deficiencies. 
C)  Significant deficiencies that are material weaknesses should be reported separately from other significant deficiencies. 
D)  The auditor may choose to communicate significant internal control-related matters either during the course of the audit or after the audit is concluded. 
A)  The auditor may issue a written report to the audit committee representing that no significant deficiencies were noted during the audit. 
B)  Significant deficiencies should be recommunicated each year, even if the audit committee has acknowledged its understanding of such deficiencies. 
C)  Significant deficiencies that are material weaknesses should be reported separately from other significant deficiencies. 
D)  The auditor may choose to communicate significant internal control-related matters either during the course of the audit or after the audit is concluded.

Question 18

The independent auditor should acquire an understanding of the internal audit function as it relates to the assessment of control risk because

Accepted Answer

A)  Internal auditors' audit programs, audit documents, and reports can eliminate the need for the independent auditor's staff. 
B)  The procedures performed by the internal audit staff may eliminate the independent auditor's need for an extensive study and evaluation of internal control. 
C)  The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures. 
D)  The understanding of the internal audit function is an important substantive procedure to be performed by the independent auditor. 
A)  Internal auditors' audit programs, audit documents, and reports can eliminate the need for the independent auditor's staff. 
B)  The procedures performed by the internal audit staff may eliminate the independent auditor's need for an extensive study and evaluation of internal control. 
C)  The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures. 
D)  The understanding of the internal audit function is an important substantive procedure to be performed by the independent auditor.

Question 19

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 20

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.

Exam 6: Internal Control in a Financial Statement Audit

Auditors are most likely to gather audit evidence solely using substantive procedures

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?

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

Internal controls are not designed to provide reasonable assurance that

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

The auditor must understand internal control before assessing inherent risk.

For certain controls,such as segregation of duties,documentary evidence may not exist.An auditor would most likely test the procedures by

While performing an audit on the internal controls over financial reporting for AirWaves Corporation,your audit team finds what it considers to be a significant deficiency.AirWaves is a large,private company.What steps would you take to communicate this finding?

Internal control has become a very important focus for publicly traded and privately-held companies alike.Internal control is intended to accomplish at least four objectives and consists of five components of internal control.List the four objectives and five components of internal control.

Management philosophy and operating style most likely would have a significant influence on an entity's control environment when

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

What are some typical types of evidence that may be collected in testing a client's internal controls?

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Internal control includes monitoring of controls.

Assessing control risk below maximum involves all of the following except:

Data capture occurs through source documentation,direct data entry,or a combination of the two.List three purposes of data capture controls.

Which of the following statements is correct concerning an auditor's communication of internal control related matters (significant deficiencies)noted in an audit?

The independent auditor should acquire an understanding of the internal audit function as it relates to the assessment of control risk because

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

Information and communication includes all of the following except:

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

Assurance,Attestation,and Internal Auditing Services

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting 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