Question 1

Which of the following statements about internal control is incorrect?

Accepted Answer

A)  Internal control is a very broad concept. 
B)  Internal control eliminates the possibility of fraud and error. 
C)  Internal control encompasses all of the elements of an organization. 
D)  Internal control provides reasonable assurance about the achievement of the entity's objectives. 
A)  Internal control is a very broad concept. 
B)  Internal control eliminates the possibility of fraud and error. 
C)  Internal control encompasses all of the elements of an organization. 
D)  Internal control provides reasonable assurance about the achievement of the entity's objectives.

Question 2

Audit risk is the risk that an entity's internal control system will not prevent or detect material
misstatements.

Accepted Answer

A) True 
 B)False

Question 3

As part of her yearly audit plan activities, Krystyne Sliz reviews audit working papers of previous years to determine the risk that a client's system of internal controls will not prevent or
Detect a material misstatement. This review refers to:

Accepted Answer

A)  audit risk. 
B)  inherent risk. 
C)  control risk. 
D)  detection risk. 
A)  audit risk. 
B)  inherent risk. 
C)  control risk. 
D)  detection risk.

Question 4

Performance reviews are control activities that include:

Accepted Answer

A)  authorization for access to computer programs. 
B)  segregating incompatible duties. 
C)  reviews of actual performance versus budgets. 
D)  periodic counting and comparison with amounts shown on control records. 
A)  authorization for access to computer programs. 
B)  segregating incompatible duties. 
C)  reviews of actual performance versus budgets. 
D)  periodic counting and comparison with amounts shown on control records.

Question 5

When internal controls are effective:

Accepted Answer

A)  there will be an increased reliance on substantive tests of transactions and account balances. 
B)  control risk will also be high. 
C)  the organization is more likely to achieve its strategic and operating objectives. 
D)  the organization is less likely to achieve its strategic and operating objectives. 
A)  there will be an increased reliance on substantive tests of transactions and account balances. 
B)  control risk will also be high. 
C)  the organization is more likely to achieve its strategic and operating objectives. 
D)  the organization is less likely to achieve its strategic and operating objectives.

Question 6

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) During her career as a public accountant, Carolina Doukas has performed audits of large and medium sized clients. When she visited a small business client, a food wholesaler that has had a history of poor controls, she gave a lot of thought to performing her planned audit approach. She decided to use the combined audit approach.
b) Tanya Konczynski was discussing with her audit manager how she could assess whether controls are being monitored. Her audit manager mentioned that the internal audit function is a primary source of assessing and monitoring control activities.
c) The audit senior has been reviewing the key controls in the purchasing and payables process. She has been asked by a junior auditor: "When should the client set up the payable?" She answers: "The company can set up the payable when the goods are received in good order, and then the client can make the payment when the invoice is received."
d) The auditor decided to review transaction-level controls at year-end.

Accepted Answer

a) Disagree. When a client's internal co

Question 7

When Melissa Lee, a senior auditor, performed an audit of an electronics firm, she reviewed the control environment, performed a risk assessment, and reviewed the key business
Processes and control activities. These activities are part of:

Accepted Answer

A)  a review of entity-level controls. 
B)  a review of the internal control system. 
C)  establishing audit risk. 
D)  none of the above. 
A)  a review of entity-level controls. 
B)  a review of the internal control system. 
C)  establishing audit risk. 
D)  none of the above.

Question 8

Checklists and preformatted questionnaires are particularly helpful:

Accepted Answer

A)  in industries that the auditor may not personally be familiar with auditing. 
B)  when control risk is high. 
C)  when less experienced auditors find it difficult to identify which are the critical controls. 
D)  both a and c. 
A)  in industries that the auditor may not personally be familiar with auditing. 
B)  when control risk is high. 
C)  when less experienced auditors find it difficult to identify which are the critical controls. 
D)  both a and c.

Question 9

A partner and his team performed an audit and issued an unqualified audit report. A year later his firm was sued when a shareholder found out the financial statements were misstated.
This situation best describes:

Accepted Answer

A)  poor internal controls. 
B)  human error. 
C)  unethical behaviour. 
D)  audit risk. 
A)  poor internal controls. 
B)  human error. 
C)  unethical behaviour. 
D)  audit risk.

Question 10

Which assertion is not specifically addressed by internal control objectives?

Accepted Answer

A)  cut-off 
B)  presentation and disclosure 
C)  completeness 
D)  existence 
A)  cut-off 
B)  presentation and disclosure 
C)  completeness 
D)  existence

Question 11

The inherent limitations of internal control include the possibility of collusion by two or more
individuals to circumvent a control.

Accepted Answer

A) True 
 B)False

Question 12

Harry Karas was involved in getting a big picture of his client's entity controls. He went about finding out whether periodic evaluations of internal control are made and determining
The extent to which personnel, in carrying out their regular duties, obtain evidence as to
Whether the system of internal controls continues to function. These activities are part of:

Accepted Answer

A)  internal control activities. 
B)  documentation controls. 
C)  monitoring of controls. 
D)  none of the above. 
A)  internal control activities. 
B)  documentation controls. 
C)  monitoring of controls. 
D)  none of the above.

Question 13

Which of the following is an element of the control environment?

Accepted Answer

A)  participation by those charged with governance 
B)  commitment to competence 
C)  segregation of duties 
D)  both a and b 
A)  participation by those charged with governance 
B)  commitment to competence 
C)  segregation of duties 
D)  both a and b

Question 14

Which of the following is not an example of an internal control for the sales process?

Accepted Answer

A)  credit committee review of credit limits on a quarterly basis 
B)  approved purchase order is reconciled to invoice 
C)  application control that only allows orders to be processed against existing approved customers with enough unused credit limit 
D)  invoices automatically generated from order documents 
A)  credit committee review of credit limits on a quarterly basis 
B)  approved purchase order is reconciled to invoice 
C)  application control that only allows orders to be processed against existing approved customers with enough unused credit limit 
D)  invoices automatically generated from order documents

Question 15

What are control activities and explain the major categories of them?

Accepted Answer

Control activities are policies and proc

Question 16

In larger entities, there are often limitations surrounding the entity's ability to put effective
internal controls in place.

Accepted Answer

A) True 
 B)False

Question 17

Narratives involve the auditor describing in words each step of the flow of transactions from
start to finish.

Accepted Answer

A) True 
 B)False

Question 18

Rina Glickstein is unsure about the best way to evaluate her audit staff. She decides to look at their professional characteristics such as their expertise, experience, knowledge and training.
What best describes what she is looking for?

Accepted Answer

A)  their independence 
B)  their professional judgment 
C)  their due care 
D)  none of the above 
A)  their independence 
B)  their professional judgment 
C)  their due care 
D)  none of the above

Question 19

As part of her annual review Roma Lazor reviews her client's draft financial statements for proper disclosures and compliance to accounting standards. This best describes which control
Objective(s)?

Accepted Answer

A)  posting 
B)  classification and understandability 
C)  valuation 
D)  timeliness 
A)  posting 
B)  classification and understandability 
C)  valuation 
D)  timeliness

Question 20

The purpose of an auditor's management letter is to inform the client of the auditor's
recommendations for improving its internal controls.

Accepted Answer

A) True 
 B)False

Which of the following statements about internal control is incorrect?

Audit risk is the risk that an entity's internal control system will not prevent or detect material misstatements.

As part of her yearly audit plan activities, Krystyne Sliz reviews audit working papers of previous years to determine the risk that a client's system of internal controls will not prevent or Detect a material misstatement. This review refers to:

Performance reviews are control activities that include:

When internal controls are effective:

When Melissa Lee, a senior auditor, performed an audit of an electronics firm, she reviewed the control environment, performed a risk assessment, and reviewed the key business Processes and control activities. These activities are part of:

Checklists and preformatted questionnaires are particularly helpful:

A partner and his team performed an audit and issued an unqualified audit report. A year later his firm was sued when a shareholder found out the financial statements were misstated. This situation best describes:

Which assertion is not specifically addressed by internal control objectives?

The inherent limitations of internal control include the possibility of collusion by two or more individuals to circumvent a control.

Which of the following is an element of the control environment?

Which of the following is not an example of an internal control for the sales process?

What are control activities and explain the major categories of them?

In larger entities, there are often limitations surrounding the entity's ability to put effective internal controls in place.

Narratives involve the auditor describing in words each step of the flow of transactions from start to finish.

Rina Glickstein is unsure about the best way to evaluate her audit staff. She decides to look at their professional characteristics such as their expertise, experience, knowledge and training. What best describes what she is looking for?

As part of her annual review Roma Lazor reviews her client's draft financial statements for proper disclosures and compliance to accounting standards. This best describes which control Objective(s)?

The purpose of an auditor's management letter is to inform the client of the auditor's recommendations for improving its internal controls.

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Audit Planning I

Audit Planning II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audittesting of Controls

Execution of the Auditperforming Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

Filters

Exam 7: Gaining an Understanding of the Clients System of Internal Controls

Which of the following statements about internal control is incorrect?

Audit risk is the risk that an entity's internal control system will not prevent or detect material misstatements.

As part of her yearly audit plan activities, Krystyne Sliz reviews audit working papers of previous years to determine the risk that a client's system of internal controls will not prevent or Detect a material misstatement. This review refers to:

Performance reviews are control activities that include:

When internal controls are effective:

When Melissa Lee, a senior auditor, performed an audit of an electronics firm, she reviewed the control environment, performed a risk assessment, and reviewed the key business Processes and control activities. These activities are part of:

Checklists and preformatted questionnaires are particularly helpful:

A partner and his team performed an audit and issued an unqualified audit report. A year later his firm was sued when a shareholder found out the financial statements were misstated. This situation best describes:

Which assertion is not specifically addressed by internal control objectives?

The inherent limitations of internal control include the possibility of collusion by two or more individuals to circumvent a control.

Which of the following is an element of the control environment?

Which of the following is not an example of an internal control for the sales process?

What are control activities and explain the major categories of them?

In larger entities, there are often limitations surrounding the entity's ability to put effective internal controls in place.

Narratives involve the auditor describing in words each step of the flow of transactions from start to finish.

Rina Glickstein is unsure about the best way to evaluate her audit staff. She decides to look at their professional characteristics such as their expertise, experience, knowledge and training. What best describes what she is looking for?

As part of her annual review Roma Lazor reviews her client's draft financial statements for proper disclosures and compliance to accounting standards. This best describes which control Objective(s)?

The purpose of an auditor's management letter is to inform the client of the auditor's recommendations for improving its internal controls.

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Audit Planning I

Audit Planning II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audittesting of Controls

Execution of the Auditperforming Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

Filters