Question 1

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

Accepted Answer

A)  collusion. 
B)  a material weakness. 
C)  a control deficiency. 
D)  a significant deficiency. 
A)  collusion. 
B)  a material weakness. 
C)  a control deficiency. 
D)  a significant deficiency.

Question 2

When management is evaluating the design of internal control, management evaluates whether the control can do which of the following?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

In developing an understanding of the client's accounting information system the auditor follows a sequential process. Describe the process below:

Accepted Answer

1. Major classes of transactions of the

Question 4

The criterion that is most likely to be used as a framework in evaluating a company's internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act is the Enterprise Risk Management framework.

Accepted Answer

A) True 
 B)False

Question 5

Auditing standards prohibit reliance on the work of internal auditors due to the lack of independence of the internal auditors.

Accepted Answer

A) True 
 B)False

Question 6

To promote operational efficiency, the internal audit department would ideally report to:

Accepted Answer

A)  line management. 
B)  senior management. 
C)  Chief Accounting Officer. 
D)  audit committee. 
A)  line management. 
B)  senior management. 
C)  Chief Accounting Officer. 
D)  audit committee.

Question 7

Which of the following best describes an entity's accounting information and communication system?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 8

Audit evidence regarding the separation of duties is normally best obtained by:

Accepted Answer

A)  preparing flowcharts of operational processes. 
B)  preparing narratives of operational processes. 
C)  observation of employees applying control activities. 
D)  inquiries of employees applying control activities. 
A)  preparing flowcharts of operational processes. 
B)  preparing narratives of operational processes. 
C)  observation of employees applying control activities. 
D)  inquiries of employees applying control activities.

Question 9

Which of the following may represent the biggest challenge smaller public companies face in implementing effective internal control?

Accepted Answer

A)  a lack of expertise 
B)  reduced importance 
C)  limited resources 
D)  limited available guidance 
A)  a lack of expertise 
B)  reduced importance 
C)  limited resources 
D)  limited available guidance

Question 10

The person responsible for reconciling sales invoices to customer orders does not access to the company's master price list in order to correctly compute sales. This is an example of a(n):

Accepted Answer

A)  operating deficiency. 
B)  design deficiency. 
C)  training deficiency. 
D)  management deficiency. 
A)  operating deficiency. 
B)  design deficiency. 
C)  training deficiency. 
D)  management deficiency.

Question 11

How must significant deficiencies and material weaknesses be communicated to those charged with governance?

Accepted Answer

A)  Either oral or written communication is acceptable. 
B)  Oral communication is required. 
C)  Written communication is required. 
D)  Written communication is required for material weaknesses, but oral communication is allowed for significant deficiencies. 
A)  Either oral or written communication is acceptable. 
B)  Oral communication is required. 
C)  Written communication is required. 
D)  Written communication is required for material weaknesses, but oral communication is allowed for significant deficiencies.

Question 12

In performing an audit of internal control over financial reporting which of the following is the auditor required to do?

Accepted Answer

A)  Test routine and nonroutine transactions equally. 
B)  Form an opinion on the effectiveness of internal for financial reporting. 
C)  Rely on the work on internal auditors in order to promote audit efficiency. 
D)  Use the audit conclusions before starting the audit of financial statements. 
A)  Test routine and nonroutine transactions equally. 
B)  Form an opinion on the effectiveness of internal for financial reporting. 
C)  Rely on the work on internal auditors in order to promote audit efficiency. 
D)  Use the audit conclusions before starting the audit of financial statements.

Question 13

Authorizations can be either general or specific. Which of the following is not an example of a general authorization?

Accepted Answer

A)  Automatic reorder points for raw materials inventory. 
B)  A sales manager's authorization for a sales return. 
C)  Credit limits for various classes of customers. 
D)  A sales price list for merchandise. 
A)  Automatic reorder points for raw materials inventory. 
B)  A sales manager's authorization for a sales return. 
C)  Credit limits for various classes of customers. 
D)  A sales price list for merchandise.

Question 14

The auditors primary purpose in auditing the client's system of internal control over financial reporting is:

Accepted Answer

A)  to prevent fraudulent financial statements from being issued to the public. 
B)  to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements. 
C)  to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements. 
D)  to efficiently conduct the Audit of Financial Statements. 
A)  to prevent fraudulent financial statements from being issued to the public. 
B)  to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements. 
C)  to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements. 
D)  to efficiently conduct the Audit of Financial Statements.

Question 15

The Public Company Accounting Oversight Board states that reasonable assurance allows a:

Accepted Answer

A)  small likelihood of ineffective internal controls. 
B)  remote likelihood that material misstatements will not be prevented or detected by internal control. 
C)  likelihood that material misstatements will not be prevented or detected by internal control. 
D)  high likelihood that material misstatements will not be prevented or detected by internal control. 
A)  small likelihood of ineffective internal controls. 
B)  remote likelihood that material misstatements will not be prevented or detected by internal control. 
C)  likelihood that material misstatements will not be prevented or detected by internal control. 
D)  high likelihood that material misstatements will not be prevented or detected by internal control.

Question 16

An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls. Which of the following would generally NOT be used?

Accepted Answer

A)  make inquiries of appropriate client personnel 
B)  examine documents, records, and reports 
C)  reperform client procedures 
D)  inspect design documents 
A)  make inquiries of appropriate client personnel 
B)  examine documents, records, and reports 
C)  reperform client procedures 
D)  inspect design documents

Exam 10: Section 404 Audits of Internal Control and Control Risk

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

When management is evaluating the design of internal control, management evaluates whether the control can do which of the following?

In developing an understanding of the client's accounting information system the auditor follows a sequential process. Describe the process below:

The criterion that is most likely to be used as a framework in evaluating a company's internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act is the Enterprise Risk Management framework.

Auditing standards prohibit reliance on the work of internal auditors due to the lack of independence of the internal auditors.

To promote operational efficiency, the internal audit department would ideally report to:

Which of the following best describes an entity's accounting information and communication system?

Audit evidence regarding the separation of duties is normally best obtained by:

Which of the following may represent the biggest challenge smaller public companies face in implementing effective internal control?

The person responsible for reconciling sales invoices to customer orders does not access to the company's master price list in order to correctly compute sales. This is an example of a(n):

How must significant deficiencies and material weaknesses be communicated to those charged with governance?

In performing an audit of internal control over financial reporting which of the following is the auditor required to do?

Authorizations can be either general or specific. Which of the following is not an example of a general authorization?

The auditors primary purpose in auditing the client's system of internal control over financial reporting is:

The Public Company Accounting Oversight Board states that reasonable assurance allows a:

An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls. Which of the following would generally NOT be used?

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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