Question 1

What is a management letter and what are its major purposes?

Accepted Answer

A management letter (sometimes referred

Question 2

Checklists and preformatted questionnairare particularly helpful in industrithat the auditor may not personally be familiar with auditing.

Accepted Answer

A) True 
 B)False

Question 3

The purpose of preventive controls is to discover fraud or errors that may have occurred during transaction processing and to rectify those errors.

Accepted Answer

A) True 
 B)False

Question 4

An internal control exception is:

Accepted Answer

A)  only expected to exist when internal controls are effective. 
B)  an observed condition that provides evidence that the control being tested did not operate as indicated. 
C)  both a and b. 
D)  an observed condition that provides evidence that the control being tested did operate as indicated. 
A)  only expected to exist when internal controls are effective. 
B)  an observed condition that provides evidence that the control being tested did not operate as indicated. 
C)  both a and b. 
D)  an observed condition that provides evidence that the control being tested did operate as indicated.

Question 5

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 6

In trying to determine whether there is a need for additional detailed tests of controls, which of the following factors are considered?

Accepted Answer

A)  evidence provided by other tests 
B)  changes in the overall control environment 
C)  results of enquiries and observations 
D)  all of the above 
A)  evidence provided by other tests 
B)  changes in the overall control environment 
C)  results of enquiries and observations 
D)  all of the above

Question 7

Discuss the factors that relate to the likelihood that an internal control operatas intended.

Accepted Answer

Several factors affect the perception of

Question 8

Susan Struthers will be reviewing those controls that stop fraud or errors from occurring. This is an example of a review of

Accepted Answer

A)  detective controls. 
B)  preventive controls. 
C)  entity-level controls. 
D)  transaction-level controls. 
A)  detective controls. 
B)  preventive controls. 
C)  entity-level controls. 
D)  transaction-level controls.

Question 9

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 10

IT general controls are driven by the particular software application being used.

Accepted Answer

A) True 
 B)False

Question 11

If the tests of controls confirm the auditor's preliminary evaluation of controls, the planned substantive audit procedurare:

Accepted Answer

A)  increased. 
B)  not modified. 
C)  reduced. 
D)  changed. 
A)  increased. 
B)  not modified. 
C)  reduced. 
D)  changed.

Question 12

The internal control objective of 'classified' means there are controls in place to ensure that:

Accepted Answer

A)  fictitious or duplicate transactions are not included in the books of an organization. 
B)  correct amounts are assigned to transactions. 
C)  transactions are recorded in the correct accounting period. 
D)  transactions are charged and allocated to the correct general ledger account. 
A)  fictitious or duplicate transactions are not included in the books of an organization. 
B)  correct amounts are assigned to transactions. 
C)  transactions are recorded in the correct accounting period. 
D)  transactions are charged and allocated to the correct general ledger account.

Question 13

Explain the differencbetween preventive controls and detective controls.

Accepted Answer

Tests of controls (or controls testing)

Question 14

If inherent risk is low and a reasonable level of assurance has been gained from controls testing, extensive substantive procedurneed to be performed to estimate the dollar value of any error in an account balance.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is an example of a detective control?

Accepted Answer

A)  account coding on purchase orders being checked by the computer to a table of valid account numbers 
B)  quarterly reviews of credit balances in accounts receivable to determine their causes 
C)  amounts are not able to be paid to employees without first matching a valid tax file number to the employee master file 
D)  none of the above 
A)  account coding on purchase orders being checked by the computer to a table of valid account numbers 
B)  quarterly reviews of credit balances in accounts receivable to determine their causes 
C)  amounts are not able to be paid to employees without first matching a valid tax file number to the employee master file 
D)  none of the above

Question 16

Detection risk refers to:

Accepted Answer

A)  the susceptibility of an assertion to a material misstatement, assuming there are no related controls. 
B)  the risk that the auditor's testing procedures will not be effective in detecting a material misstatement. 
C)  the risk that a client's system of internal controls will not prevent or detect a material misstatement. 
D)  none of the above. 
A)  the susceptibility of an assertion to a material misstatement, assuming there are no related controls. 
B)  the risk that the auditor's testing procedures will not be effective in detecting a material misstatement. 
C)  the risk that a client's system of internal controls will not prevent or detect a material misstatement. 
D)  none of the above.

Question 17

The two main objectivof internal controls are:

Accepted Answer

A)  to support the automated parts of the business in the functioning of the controls in place. 
B)  to prevent or detect misstatements in the financial statements. 
C)  both a and b. 
D)  none of the above. 
A)  to support the automated parts of the business in the functioning of the controls in place. 
B)  to prevent or detect misstatements in the financial statements. 
C)  both a and b. 
D)  none of the above.

Question 18

What are control activitiand explain the major categoriof them?

Accepted Answer

Control activities are policies and proc

Question 19

In understanding the client's control activitiat the entity level, consideration is given to factors such as:

Accepted Answer

A)  the extent to which performance of control activities relies on IT. 
B)  the extent to which controls included in the organization's policies are being applied. 
C)  whether adequate safeguards are in place to prevent unauthorized access to or destruction of documents, records and assets. 
D)  all of the above. 
A)  the extent to which performance of control activities relies on IT. 
B)  the extent to which controls included in the organization's policies are being applied. 
C)  whether adequate safeguards are in place to prevent unauthorized access to or destruction of documents, records and assets. 
D)  all of the above.

Question 20

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 continuto function. These activitiare 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.

What is a management letter and what are its major purposes?

Checklists and preformatted questionnairare particularly helpful in industrithat the auditor may not personally be familiar with auditing.

The purpose of preventive controls is to discover fraud or errors that may have occurred during transaction processing and to rectify those errors.

An internal control exception is:

Which assertion is not specifically addressed by internal control objectives?

In trying to determine whether there is a need for additional detailed tests of controls, which of the following factors are considered?

Discuss the factors that relate to the likelihood that an internal control operatas intended.

Susan Struthers will be reviewing those controls that stop fraud or errors from occurring. This is an example of a review of

IT general controls are driven by the particular software application being used.

If the tests of controls confirm the auditor's preliminary evaluation of controls, the planned substantive audit procedurare:

The internal control objective of 'classified' means there are controls in place to ensure that:

Explain the differencbetween preventive controls and detective controls.

If inherent risk is low and a reasonable level of assurance has been gained from controls testing, extensive substantive procedurneed to be performed to estimate the dollar value of any error in an account balance.

Which of the following is an example of a detective control?

Detection risk refers to:

The two main objectivof internal controls are:

What are control activitiand explain the major categoriof them?

In understanding the client's control activitiat the entity level, consideration is given to factors such as:

Introduction and Review 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 Audit Performing Substantive Procedur

Auditing Saland Receivabl

Auditing Purchases, Payabland Payroll

Auditing Inventoriand PPE

Auditing Cash and Investments

Completing and Reporting on the Audit

Filters

Exam 7: Understanding and Testing the Clients System of Internal Controls

What is a management letter and what are its major purposes?

Checklists and preformatted questionnairare particularly helpful in industrithat the auditor may not personally be familiar with auditing.

The purpose of preventive controls is to discover fraud or errors that may have occurred during transaction processing and to rectify those errors.

An internal control exception is:

Which assertion is not specifically addressed by internal control objectives?

In trying to determine whether there is a need for additional detailed tests of controls, which of the following factors are considered?

Discuss the factors that relate to the likelihood that an internal control operatas intended.

Susan Struthers will be reviewing those controls that stop fraud or errors from occurring. This is an example of a review of

IT general controls are driven by the particular software application being used.

If the tests of controls confirm the auditor's preliminary evaluation of controls, the planned substantive audit procedurare:

The internal control objective of 'classified' means there are controls in place to ensure that:

Explain the differencbetween preventive controls and detective controls.

If inherent risk is low and a reasonable level of assurance has been gained from controls testing, extensive substantive procedurneed to be performed to estimate the dollar value of any error in an account balance.

Which of the following is an example of a detective control?

Detection risk refers to:

The two main objectivof internal controls are:

What are control activitiand explain the major categoriof them?

In understanding the client's control activitiat the entity level, consideration is given to factors such as:

Introduction and Review 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 Audit Performing Substantive Procedur

Auditing Saland Receivabl

Auditing Purchases, Payabland Payroll

Auditing Inventoriand PPE

Auditing Cash and Investments

Completing and Reporting on the Audit

Filters