Question 1

Factors that the auditor should consider as increasing the effectiveness of the audit committee include all of the following except whether:

Accepted Answer

A)  It is independent of management 
B)  It is comprised almost exclusively of members of management, ensuring detailed knowledge of the company's operations. 
C)  It asks management difficult questions. 
D)  It interacts regularly with internal auditors. 
A)  It is independent of management 
B)  It is comprised almost exclusively of members of management, ensuring detailed knowledge of the company's operations. 
C)  It asks management difficult questions. 
D)  It interacts regularly with internal auditors.

Question 2

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 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 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 3

Assume that an auditor estimates that 10,000 checks were issued during the accounting period.If an IT application control which performs a limit check for each check request is to be subjected to the auditor's test data approach,the sample should include

Accepted Answer

A)  Approximately 1,000 test items. 
B)  A number of test items determined by the auditor to be sufficient under the circumstances. 
C)  A number of test items determined by the auditor's reference to the appropriate sampling tables. 
D)  One transaction. 
A)  Approximately 1,000 test items. 
B)  A number of test items determined by the auditor to be sufficient under the circumstances. 
C)  A number of test items determined by the auditor's reference to the appropriate sampling tables. 
D)  One transaction.

Question 4

A limit test is a

Accepted Answer

A)  Test to ensure that a numerical value does not exceed some predetermined value. 
B)  Check to ensure that the value in a field falls within an allowable range of values. 
C)  Check to ensure that the data in a field have the proper arithmetic sign. 
D)  Check on a field to ensure that it contains either all numeric or alphabetic characters. 
A)  Test to ensure that a numerical value does not exceed some predetermined value. 
B)  Check to ensure that the value in a field falls within an allowable range of values. 
C)  Check to ensure that the data in a field have the proper arithmetic sign. 
D)  Check on a field to ensure that it contains either all numeric or alphabetic characters.

Question 5

The documentation of an auditor's understanding of internal controls

Accepted Answer

A)  Is optional. 
B)  Must be exclusively in either narrative, questionnaire, or flowchart form. 
C)  Must include flowcharts. 
D)  Can include any combination of narratives, questionnaire, or flowcharts. 
A)  Is optional. 
B)  Must be exclusively in either narrative, questionnaire, or flowchart form. 
C)  Must include flowcharts. 
D)  Can include any combination of narratives, questionnaire, or flowcharts.

Question 6

In the audit of financial statements,an auditor's primary consideration regarding an internal control policy or procedure is whether the policy or procedure

Accepted Answer

A)  Reflects management's philosophy and operating style. 
B)  Affects management's financial statement assertions. 
C)  Provides adequate safeguards over access to assets. 
D)  Enhances management's decision-making processes. 
A)  Reflects management's philosophy and operating style. 
B)  Affects management's financial statement assertions. 
C)  Provides adequate safeguards over access to assets. 
D)  Enhances management's decision-making processes.

Question 7

A substantive strategy is used when control risk has been set at the maximum level.

Accepted Answer

A) True 
 B)False

Question 8

Walkthroughs usually involve all of the following audit procedures except:

Accepted Answer

A)  Reperformance. 
B)  Inquiry. 
C)  Observation. 
D)  Inspection. 
A)  Reperformance. 
B)  Inquiry. 
C)  Observation. 
D)  Inspection.

Question 9

Once a level of control risk has been established,it cannot be changed.

Accepted Answer

A) True 
 B)False

Question 10

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 11

An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the

Accepted Answer

A)  Efficiency of management's decision-making process. 
B)  Appropriate prices that the entity should charge for its products. 
C)  Methods of assigning production tasks to employees. 
D)  Entity's ability to accurately process and summarize financial data. 
A)  Efficiency of management's decision-making process. 
B)  Appropriate prices that the entity should charge for its products. 
C)  Methods of assigning production tasks to employees. 
D)  Entity's ability to accurately process and summarize financial data.

Question 12

After completing the preliminary phase of the review of internal control,the auditor decides not to rely on the system to restrict substantive procedures.Documentation may be limited to the auditor's

Accepted Answer

A)  Understanding of the internal control. 
B)  Reasons for deciding not to extend the review. 
C)  Basis for concluding that errors and fraud will be prevented. 
D)  Completed internal control questionnaire. 
A)  Understanding of the internal control. 
B)  Reasons for deciding not to extend the review. 
C)  Basis for concluding that errors and fraud will be prevented. 
D)  Completed internal control questionnaire.

Question 13

For a complex IT system,auditors are least likely to use which of the following when documenting their understanding of internal controls?

Accepted Answer

A)  Narratives. 
B)  Internal control questionnaires. 
C)  Flowcharts. 
D)  Organization charts. 
A)  Narratives. 
B)  Internal control questionnaires. 
C)  Flowcharts. 
D)  Organization charts.

Question 14

A primary purpose of internal controls is to

Accepted Answer

A)  Form a basis for evaluating employees. 
B)  Monitor production quality. 
C)  Avoid clerical errors. 
D)  Meet objectives of maintaining reliable documents and records and accurate financial reporting. 
A)  Form a basis for evaluating employees. 
B)  Monitor production quality. 
C)  Avoid clerical errors. 
D)  Meet objectives of maintaining reliable documents and records and accurate financial reporting.

Question 15

What are two potential benefits and two potential risks of using IT for an entity's internal control?

Accepted Answer

Student answers should include two benef

Question 16

A reliance strategy is used when control risk has been set at the maximum level.

Accepted Answer

A) True 
 B)False

Question 17

In obtaining an understanding of an entity's internal control in a financial statement audit of a non-public company,an auditor is not obligated to

Accepted Answer

A)  Determine whether the control activities have been placed in operation. 
B)  Perform procedures to understand the design of the internal control policies. 
C)  Document the understanding of the entity's internal control components. 
D)  Search for significant deficiencies in the operation of the internal control. 
A)  Determine whether the control activities have been placed in operation. 
B)  Perform procedures to understand the design of the internal control policies. 
C)  Document the understanding of the entity's internal control components. 
D)  Search for significant deficiencies in the operation of the internal control.

Question 18

A customer intended to order 100 units of product Z96014,but incorrectly ordered nonexistent product Z96015.Which of the following controls most likely would detect this error?

Accepted Answer

A)  Check digit verification. 
B)  Record count. 
C)  Hash total. 
D)  Redundant data check. 
A)  Check digit verification. 
B)  Record count. 
C)  Hash total. 
D)  Redundant data check.

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

Question 20

It is important for the CPA to consider the competence of the audit client's employees because their competence bears directly and importantly upon the

Accepted Answer

A)  Cost/benefit relationship of the system of internal control. 
B)  Achievement of the objectives of the system of internal control. 
C)  Comparison of recorded accountability with assets. 
D)  Timing of the tests to be performed. 
A)  Cost/benefit relationship of the system of internal control. 
B)  Achievement of the objectives of the system of internal control. 
C)  Comparison of recorded accountability with assets. 
D)  Timing of the tests to be performed.

Exam 6: Internal Control in a Financial Statement Audit

Factors that the auditor should consider as increasing the effectiveness of the audit committee include all of the following except whether:

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

Assume that an auditor estimates that 10,000 checks were issued during the accounting period.If an IT application control which performs a limit check for each check request is to be subjected to the auditor's test data approach,the sample should include

A limit test is a

The documentation of an auditor's understanding of internal controls

In the audit of financial statements,an auditor's primary consideration regarding an internal control policy or procedure is whether the policy or procedure

A substantive strategy is used when control risk has been set at the maximum level.

Walkthroughs usually involve all of the following audit procedures except:

Once a level of control risk has been established,it cannot be changed.

An IT specialist is least likely to be necessary when

An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the

After completing the preliminary phase of the review of internal control,the auditor decides not to rely on the system to restrict substantive procedures.Documentation may be limited to the auditor's

For a complex IT system,auditors are least likely to use which of the following when documenting their understanding of internal controls?

A primary purpose of internal controls is to

What are two potential benefits and two potential risks of using IT for an entity's internal control?

A reliance strategy is used when control risk has been set at the maximum level.

In obtaining an understanding of an entity's internal control in a financial statement audit of a non-public company,an auditor is not obligated to

A customer intended to order 100 units of product Z96014,but incorrectly ordered nonexistent product Z96015.Which of the following controls most likely would detect this error?

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

It is important for the CPA to consider the competence of the audit client's employees because their competence bears directly and importantly upon the

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

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