Question 1

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 2

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 documented in a formal written report to the board of directors or the board's audit committee. 
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 documented in a formal written report to the board of directors or the board's audit committee.

Question 3

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 the maximum 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 the maximum 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 4

When preparing a record of a client's internal control,the independent auditor sometimes uses a systems flowchart,which can best be described as a

Accepted Answer

A)  Pictorial presentation of the flow of instructions in a client's internal computer system. 
B)  Diagram which clearly indicates an organization's internal reporting structure. 
C)  Graphic illustration of the flow of operations which is used to replace the auditor's internal control questionnaire. 
D)  Symbolic representation of a system or series of sequential processes. 
A)  Pictorial presentation of the flow of instructions in a client's internal computer system. 
B)  Diagram which clearly indicates an organization's internal reporting structure. 
C)  Graphic illustration of the flow of operations which is used to replace the auditor's internal control questionnaire. 
D)  Symbolic representation of a system or series of sequential processes.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

The independent auditor selects several transactions in each functional area and traces them through the entire system,paying special attention to evidence about whether or not the control activities are in operation.This is an example of a(n)

Accepted Answer

A)  Analytical procedure. 
B)  Test of controls. 
C)  Substantive procedure. 
D)  Functional test. 
A)  Analytical procedure. 
B)  Test of controls. 
C)  Substantive procedure. 
D)  Functional test.

Question 8

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 9

The concept of reasonable assurance in the context of an entity's internal controls recognizes that

Accepted Answer

A)  Auditors may fail to detect material misstatements. 
B)  Proper internal controls guarantee that material misstatements will not occur. 
C)  Proper internal controls preclude fraud. 
D)  The costs of some controls may be too high to implement in relation to potential benefits. 
A)  Auditors may fail to detect material misstatements. 
B)  Proper internal controls guarantee that material misstatements will not occur. 
C)  Proper internal controls preclude fraud. 
D)  The costs of some controls may be too high to implement in relation to potential benefits.

Question 10

An effective control environment

Accepted Answer

A)  Allows management to identify all relevant risks. 
B)  Creates a commitment to competence. 
C)  Guarantees that all controls are followed as prescribed. 
D)  Requires an internal audit department. 
A)  Allows management to identify all relevant risks. 
B)  Creates a commitment to competence. 
C)  Guarantees that all controls are followed as prescribed. 
D)  Requires an internal audit department.

Question 11

As opposed to a manual control,an automated control

Accepted Answer

A)  Can never be circumvented. 
B)  Should function consistently in the absence of program changes. 
C)  Need not be tested by the auditor. 
D)  Must be tested using the same techniques as a manual control. 
A)  Can never be circumvented. 
B)  Should function consistently in the absence of program changes. 
C)  Need not be tested by the auditor. 
D)  Must be tested using the same techniques as a manual control.

Question 12

Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent

Accepted Answer

A)  Disclosures of information that significantly contradict the auditor's going concern assumption. 
B)  Material fraud or illegal acts perpetrated by high-level management. 
C)  Significant design flaws in internal controls or poor implementation of internal controls. 
D)  Manipulation or falsification of accounting records or documents from which financial statements are prepared. 
A)  Disclosures of information that significantly contradict the auditor's going concern assumption. 
B)  Material fraud or illegal acts perpetrated by high-level management. 
C)  Significant design flaws in internal controls or poor implementation of internal controls. 
D)  Manipulation or falsification of accounting records or documents from which financial statements are prepared.

Question 13

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 auditor 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 auditor 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 14

Of the following statements about an internal control system,which one is correct?

Accepted Answer

A)  The maintenance of the system of internal control is an important responsibility of the internal auditor. 
B)  Administrative controls relate directly to the safeguarding of assets. 
C)  Because of the cost/benefit relationship, tests of controls may be applied on a test basis in some circumstances. 
D)  Well designed internal control activities always prevent collusion among employees. 
A)  The maintenance of the system of internal control is an important responsibility of the internal auditor. 
B)  Administrative controls relate directly to the safeguarding of assets. 
C)  Because of the cost/benefit relationship, tests of controls may be applied on a test basis in some circumstances. 
D)  Well designed internal control activities always prevent collusion among employees.

Question 15

Why might an auditor decide to test controls at an interim date?

Accepted Answer

An auditor might test controls at an int

Question 16

A field test is a

Accepted Answer

A)  Test to ensure that a numerical value in a field 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 in a field 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 17

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

Accepted Answer

The effectiveness of any internal contro

Question 18

As the acceptable level of detection risk increases,an auditor may change the

Accepted Answer

A)  Assessed level of control risk from below the maximum to the maximum level. 
B)  Assurance provided by tests of controls by using a larger sample size than planned. 
C)  Timing of substantive procedures from year-end to an interim date. 
D)  Nature of substantive procedures from less effective to more effective procedures. 
A)  Assessed level of control risk from below the maximum to the maximum level. 
B)  Assurance provided by tests of controls by using a larger sample size than planned. 
C)  Timing of substantive procedures from year-end to an interim date. 
D)  Nature of substantive procedures from less effective to more effective procedures.

Question 19

An entity's IT infrastructure refers to

Accepted Answer

A)  Hardware components. 
B)  Programmers. 
C)  Software. 
D)  Data provided by the system. 
A)  Hardware components. 
B)  Programmers. 
C)  Software. 
D)  Data provided by the system.

Question 20

In evaluating internal control,the auditor is basically concerned that the system provides reasonable assurance that

Accepted Answer

A)  Operational efficiency has been achieved in accordance with management plans. 
B)  Errors and fraud have been prevented or detected. 
C)  Controls have not been circumvented by collusion. 
D)  Management can not override the system. 
A)  Operational efficiency has been achieved in accordance with management plans. 
B)  Errors and fraud have been prevented or detected. 
C)  Controls have not been circumvented by collusion. 
D)  Management can not override the system.

Exam 6: Internal Control in a Financial Statement Audit

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

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

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

When preparing a record of a client's internal control,the independent auditor sometimes uses a systems flowchart,which can best be described as a

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

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

The independent auditor selects several transactions in each functional area and traces them through the entire system,paying special attention to evidence about whether or not the control activities are in operation.This is an example of a(n)

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

The concept of reasonable assurance in the context of an entity's internal controls recognizes that

An effective control environment

As opposed to a manual control,an automated control

Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent

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

Of the following statements about an internal control system,which one is correct?

Why might an auditor decide to test controls at an interim date?

A field test is a

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

As the acceptable level of detection risk increases,an auditor may change the

An entity's IT infrastructure refers to

In evaluating internal control,the auditor is basically concerned that the system provides reasonable assurance that

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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