Question 1

According to the PCAOB,who is responsible for the reliability of the internal controls over financial reporting process of an entity?

Accepted Answer

A)  The entity's CEO and/or CFO. 
B)  The entity's board of directors. 
C)  An internal control specialist. 
D)  The external auditor. 
A)  The entity's CEO and/or CFO. 
B)  The entity's board of directors. 
C)  An internal control specialist. 
D)  The external auditor. A

Question 2

An "integrated audit"

Accepted Answer

A)  Will, in most cases, lead to a substantive audit strategy. 
B)  Denies the auditor access to information about the entity's controls. 
C)  May be performed by two separate audit firms. 
D)  Is comprised of audits of internal control over financial reporting and of financial statements. 
A)  Will, in most cases, lead to a substantive audit strategy. 
B)  Denies the auditor access to information about the entity's controls. 
C)  May be performed by two separate audit firms. 
D)  Is comprised of audits of internal control over financial reporting and of financial statements. D

Question 3

Which of the following statements is false?

Accepted Answer

A)  The PCAOB focuses on the financial reporting objective of internal controls. 
B)  Management is required to base internal controls on a recognized control framework. 
C)  Most U.S. companies use the internal control framework developed by COSO. 
D)  All controls relevant to financial reporting are accounting controls. 
A)  The PCAOB focuses on the financial reporting objective of internal controls. 
B)  Management is required to base internal controls on a recognized control framework. 
C)  Most U.S. companies use the internal control framework developed by COSO. 
D)  All controls relevant to financial reporting are accounting controls. D

Question 4

The PCAOB's definition of internal control over financial reporting specifically mentions all of the following control activities except:

Accepted Answer

A)  The maintenance of asset records. 
B)  The segregation of duties. 
C)  The authorization by management of receipts and expenditures. 
D)  The safeguarding of assets. 
A)  The maintenance of asset records. 
B)  The segregation of duties. 
C)  The authorization by management of receipts and expenditures. 
D)  The safeguarding of assets.

Question 5

Management documentation should include all of the following except:

Accepted Answer

A)  Documentation regarding the auditor's evaluation of internal controls. 
B)  Documentation regarding management's testing and evaluation of the controls. 
C)  Documentation regarding the safeguarding of assets. 
D)  Documentation on the controls designed in all five components of internal control. 
A)  Documentation regarding the auditor's evaluation of internal controls. 
B)  Documentation regarding management's testing and evaluation of the controls. 
C)  Documentation regarding the safeguarding of assets. 
D)  Documentation on the controls designed in all five components of internal control.

Question 6

The likelihood of an event is "more than remote" when it is "highly possible."

Accepted Answer

A) True 
 B)False

Question 7

In a public company,management's report on internal control must be signed by the members of the audit committee.

Accepted Answer

A) True 
 B)False

Question 8

Discuss the differences between a control deficiency,a significant deficiency,a material weakness,and the two dimensions of the control deficiency - likelihood and magnitude.

Accepted Answer

Control Deficiency.A control deficiency

Question 9

S&H Associates has just performed an audit of Bob's Bikes.S&H was unable to obtain a written representation from management about internal control.Which of the following is true?

Accepted Answer

A)  S&H must still assume that management has assessed the effectiveness of internal control. 
B)  Depending on other factors in the audit, S&H can still issue an unqualified opinion. 
C)  S&H should consider this situation a limitation on the scope of the audit. 
D)  Management does not need to give S&H a letter if it has disclosed all known internal control deficiencies. 
A)  S&H must still assume that management has assessed the effectiveness of internal control. 
B)  Depending on other factors in the audit, S&H can still issue an unqualified opinion. 
C)  S&H should consider this situation a limitation on the scope of the audit. 
D)  Management does not need to give S&H a letter if it has disclosed all known internal control deficiencies.

Question 10

The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.

Accepted Answer

A) True 
 B)False

Question 11

All companies must follow the guidelines of AS5.

Accepted Answer

A) True 
 B)False

Question 12

An auditor performing an audit of internal control over financial reporting would be required to

Accepted Answer

A)  Rely on the work of internal auditors. 
B)  Test all of the entity's internal controls. 
C)  Form an opinion on the effectiveness of internal control. 
D)  Randomly identify accounts for an audit of internal control. 
A)  Rely on the work of internal auditors. 
B)  Test all of the entity's internal controls. 
C)  Form an opinion on the effectiveness of internal control. 
D)  Randomly identify accounts for an audit of internal control.

Question 13

According to the COSO definition of safeguarding of assets

Accepted Answer

A)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur. 
B)  Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements. 
C)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur and that losses are properly reflected in the financial statements. 
D)  There is no way to create controls that will provide reasonable assurance that asset losses will not occur. 
A)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur. 
B)  Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements. 
C)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur and that losses are properly reflected in the financial statements. 
D)  There is no way to create controls that will provide reasonable assurance that asset losses will not occur.

Question 14

The five step process in the audit of ICFR includes

Accepted Answer

A)  Form an opinion on the safeguarding of the entity's assets. 
B)  Identify controls to test using a top-down, risk-based approach. 
C)  Form an opinion on the fairness of the presentation of the financial statements. 
D)  Form an opinion on the effectiveness of internal controls in meeting operational goals. 
A)  Form an opinion on the safeguarding of the entity's assets. 
B)  Identify controls to test using a top-down, risk-based approach. 
C)  Form an opinion on the fairness of the presentation of the financial statements. 
D)  Form an opinion on the effectiveness of internal controls in meeting operational goals.

Question 15

In determining the extent to which the auditor may use the work of others in the audit of ICFR,the auditor should do all of the following except:

Accepted Answer

A)  Test some of the work performed by others to evaluate the quality and effectiveness of their work. 
B)  Evaluate the nature of the controls subjected to the work of others. 
C)  Evaluate the competence and objectivity of the individuals who performed the work. 
D)  All of these are required. 
A)  Test some of the work performed by others to evaluate the quality and effectiveness of their work. 
B)  Evaluate the nature of the controls subjected to the work of others. 
C)  Evaluate the competence and objectivity of the individuals who performed the work. 
D)  All of these are required.

Question 16

Public reporting on the effectiveness of internal control over financial reporting,as required by the Sarbanes-Oxley Act,includes

Accepted Answer

A)  A statement that the public accounting firm that audited the financial statements has provided input on the design of internal controls. 
B)  A statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting. 
C)  An explicit statement as to whether management agrees with the public accounting firm's assessment of internal controls. 
D)  A detailed statement describing changes or additions to the internal control environment that occurred in the current year. 
A)  A statement that the public accounting firm that audited the financial statements has provided input on the design of internal controls. 
B)  A statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting. 
C)  An explicit statement as to whether management agrees with the public accounting firm's assessment of internal controls. 
D)  A detailed statement describing changes or additions to the internal control environment that occurred in the current year.

Question 17

Which of the following is not true?

Accepted Answer

A)  The auditor should not communicate with management until the audit of internal control over financial reporting is finished. 
B)  Written communication between the auditor and management about internal control over financial reporting should include the definitions of control deficiencies, significant deficiencies, and material weaknesses. 
C)  The auditor should not include in the audit report that no significant deficiencies were noted during an audit of internal control over financial reporting. 
D)  If fraud is discovered, the auditor must report it to the appropriate level of management. 
A)  The auditor should not communicate with management until the audit of internal control over financial reporting is finished. 
B)  Written communication between the auditor and management about internal control over financial reporting should include the definitions of control deficiencies, significant deficiencies, and material weaknesses. 
C)  The auditor should not include in the audit report that no significant deficiencies were noted during an audit of internal control over financial reporting. 
D)  If fraud is discovered, the auditor must report it to the appropriate level of management.

Question 18

An auditor will use the IT test data method in order to gain certain assurances with respect to the

Accepted Answer

A)  Input data. 
B)  Machine capacity. 
C)  Procedures contained within the program. 
D)  Degree of keypunching accuracy. 
A)  Input data. 
B)  Machine capacity. 
C)  Procedures contained within the program. 
D)  Degree of keypunching accuracy.

Question 19

Which of the following is not an element of management's assessment process for the effectiveness of internal control?

Accepted Answer

A)  Evaluating the likelihood that failure of a control could result in a misstatement. 
B)  Determining the locations and business units to include in the evaluation. 
C)  Determining significant deficiencies and material weaknesses in controls. 
D)  Obtaining the auditor's assessment of the internal control effectiveness. 
A)  Evaluating the likelihood that failure of a control could result in a misstatement. 
B)  Determining the locations and business units to include in the evaluation. 
C)  Determining significant deficiencies and material weaknesses in controls. 
D)  Obtaining the auditor's assessment of the internal control effectiveness.

Question 20

A modification of the standard report is required for all of the following conditions except:

Accepted Answer

A)  There is a restriction on the scope of the engagement. 
B)  There is other information contained in management's report on internal control. 
C)  Management has concluded that internal controls are not effective. 
D)  A significant subsequent event has occurred since the date being reported on. 
A)  There is a restriction on the scope of the engagement. 
B)  There is other information contained in management's report on internal control. 
C)  Management has concluded that internal controls are not effective. 
D)  A significant subsequent event has occurred since the date being reported on.

Exam 7: Auditing Internal Control Over Financial Reporting

According to the PCAOB,who is responsible for the reliability of the internal controls over financial reporting process of an entity?

An "integrated audit"

Which of the following statements is false?

The PCAOB's definition of internal control over financial reporting specifically mentions all of the following control activities except:

Management documentation should include all of the following except:

The likelihood of an event is "more than remote" when it is "highly possible."

In a public company,management's report on internal control must be signed by the members of the audit committee.

Discuss the differences between a control deficiency,a significant deficiency,a material weakness,and the two dimensions of the control deficiency - likelihood and magnitude.

S&H Associates has just performed an audit of Bob's Bikes.S&H was unable to obtain a written representation from management about internal control.Which of the following is true?

The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.

All companies must follow the guidelines of AS5.

An auditor performing an audit of internal control over financial reporting would be required to

According to the COSO definition of safeguarding of assets

The five step process in the audit of ICFR includes

In determining the extent to which the auditor may use the work of others in the audit of ICFR,the auditor should do all of the following except:

Public reporting on the effectiveness of internal control over financial reporting,as required by the Sarbanes-Oxley Act,includes

Which of the following is not true?

An auditor will use the IT test data method in order to gain certain assurances with respect to the

Which of the following is not an element of management's assessment process for the effectiveness of internal control?

A modification of the standard report is required for all of the following conditions 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

Internal Control in a Financial Statement Audit

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 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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

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