Question 1

For identified risks, management:

Accepted Answer

A)  assesses the likelihood of their occurrence 
B)  decides upon actions to manage them 
C)  estimates their significance 
D)  all of the above 
A)  assesses the likelihood of their occurrence 
B)  decides upon actions to manage them 
C)  estimates their significance 
D)  all of the above

Question 2

An internal control exception is an observed condition that provides evidence that the control being tested did not operate as intended.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an inherent limitation of internal control?

Accepted Answer

A)  A control within a software program being overridden or disabled 
B)  Human error that results in a breakdown in internal control 
C)  Collusion by two or more individuals to circumvent a control 
D)  All of the above 
A)  A control within a software program being overridden or disabled 
B)  Human error that results in a breakdown in internal control 
C)  Collusion by two or more individuals to circumvent a control 
D)  All of the above

Question 4

Why are internal controls so important to companies? What are the implications for companies if their internal controls are not operating effectively?

Accepted Answer

Internal controls are important to compa

Question 5

The internal control objective of 'real' refers to controls in place to ensure that fictitious or duplicate transactions are not included in the books and records of the organisation.

Accepted Answer

A) True 
 B)False

Question 6

What are the most common forms of documentation used by auditors to document their understanding of internal controls?

Accepted Answer

The most common forms of documentation i

Question 7

Which of the following statements relating to control activities is in?

Accepted Answer

A)  They include management's philosophy and operating style 
B)  They are policies and procedures that help make sure management's directives are carried out 
C)  They help guarantee that necessary actions are taken to address risks impacting the achievement of the organisation's objectives 
D)  They have various objectives and are applied at various organisational and functional levels 
A)  They include management's philosophy and operating style 
B)  They are policies and procedures that help make sure management's directives are carried out 
C)  They help guarantee that necessary actions are taken to address risks impacting the achievement of the organisation's objectives 
D)  They have various objectives and are applied at various organisational and functional levels

Question 8

For purchasing inventory transactions, an example of a risk that arises is:

Accepted Answer

A)  goods that have been sold and invoiced are included in the inventory on hand 
B)  the wrong quantities are recorded during the stocktake 
C)  the wrong labour costs are added to the cost of individual inventory items 
D)  the wrong amount is paid against an invoice 
A)  goods that have been sold and invoiced are included in the inventory on hand 
B)  the wrong quantities are recorded during the stocktake 
C)  the wrong labour costs are added to the cost of individual inventory items 
D)  the wrong amount is paid against an invoice

Question 9

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 and dispatch document 
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 and dispatch document

Question 10

Performance reviews are control activities that include:

Accepted Answer

A)  authorisation 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)  authorisation 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 11

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

Question 12

If controls are in place to ensure that transactions are recorded in the accounting period, this satisfies which internal control objective?

Accepted Answer

A)  Timely 
B)  Real 
C)  Valued 
D)  Posted 
A)  Timely 
B)  Real 
C)  Valued 
D)  Posted

Question 13

Control risk refers to the risk that the auditor's testing procedures will not be effective in detecting a material misstatement.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A management letter (sometimes referred

Question 15

The control environment does not:

Accepted Answer

A)  set the tone of an entity 
B)  set the foundation for all other components of internal control 
C)  refer to the policies and procedures that help make sure management's directives are carried out 
D)  influence the control consciousness of employees 
A)  set the tone of an entity 
B)  set the foundation for all other components of internal control 
C)  refer to the policies and procedures that help make sure management's directives are carried out 
D)  influence the control consciousness of employees

Question 16

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 17

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

Question 18

The purpose of the management letter is to inform:

Accepted Answer

A)  the auditor with concerns held by the client's management about the audit fee 
B)  the client's management of the auditor's opinion on the company's financial statements 
C)  the client's audit committee of disagreements with management 
D)  the client of the auditor's recommendations for improving its internal controls 
A)  the auditor with concerns held by the client's management about the audit fee 
B)  the client's management of the auditor's opinion on the company's financial statements 
C)  the client's audit committee of disagreements with management 
D)  the client of the auditor's recommendations for improving its internal controls

Question 19

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 organisation is more likely to achieve its strategic and operating objectives 
D)  the organisation 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 organisation is more likely to achieve its strategic and operating objectives 
D)  the organisation is less likely to achieve its strategic and operating objectives

For identified risks, management:

An internal control exception is an observed condition that provides evidence that the control being tested did not operate as intended.

Which of the following is an inherent limitation of internal control?

Why are internal controls so important to companies? What are the implications for companies if their internal controls are not operating effectively?

The internal control objective of 'real' refers to controls in place to ensure that fictitious or duplicate transactions are not included in the books and records of the organisation.

What are the most common forms of documentation used by auditors to document their understanding of internal controls?

Which of the following statements relating to control activities is in?

For purchasing inventory transactions, an example of a risk that arises is:

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

Performance reviews are control activities that include:

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

If controls are in place to ensure that transactions are recorded in the accounting period, this satisfies which internal control objective?

Control risk refers to the risk that the auditor's testing procedures will not be effective in detecting a material misstatement.

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

The control environment does not:

An internal control exception is:

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

The purpose of the management letter is to inform:

When internal controls are effective:

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment 1

Risk Assessment II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

Filters

Exam 6: Gaining an Understanding of the Clients System of Internal Controls

For identified risks, management:

An internal control exception is an observed condition that provides evidence that the control being tested did not operate as intended.

Which of the following is an inherent limitation of internal control?

Why are internal controls so important to companies? What are the implications for companies if their internal controls are not operating effectively?

The internal control objective of 'real' refers to controls in place to ensure that fictitious or duplicate transactions are not included in the books and records of the organisation.

What are the most common forms of documentation used by auditors to document their understanding of internal controls?

Which of the following statements relating to control activities is in?

For purchasing inventory transactions, an example of a risk that arises is:

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

Performance reviews are control activities that include:

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

If controls are in place to ensure that transactions are recorded in the accounting period, this satisfies which internal control objective?

Control risk refers to the risk that the auditor's testing procedures will not be effective in detecting a material misstatement.

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

The control environment does not:

An internal control exception is:

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

The purpose of the management letter is to inform:

When internal controls are effective:

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment 1

Risk Assessment II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

Filters