Question 1

Internal controls are considered to be part of corporate governance.

Accepted Answer

A) True 
 B)False

Question 2

Several significant deficiencies in internal controls may constitute a material weakness.

Accepted Answer

A) True 
 B)False

Question 3

In addition to controls being specific,they may be broad,such as policies regarding a code of ethics.

Accepted Answer

A) True 
 B)False

Question 4

Internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting,compliance with laws and regulations and ineffective and inefficient operations.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a way an auditor obtains evidence regarding the effectiveness of internal control over the accounting system?

Accepted Answer

A) Performing a walkthrough of the accounting system. 
B) Making inquiries of banks and attorneys. 
C) Reviewing system flowcharts. 
D) Taking plant and operational tours.

Question 6

Which of the following best represents a walkthrough?

Accepted Answer

A) The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries. 
B) The auditor walks the production line to find inefficiencies in the inventory process and reports them to management. 
C) The controller takes a sample of write-offs to ensure they have been adequately documented and recorded. 
D) The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding.

Question 7

In a large company,who usually monitors the internal control?

Accepted Answer

A) Internal auditors. 
B) PCAOB. 
C) CFO. 
D) External auditors.

Question 8

Which of the following is not true of the concepts that are embodied in the COSO framework of internal controls?

Accepted Answer

A) Internal controls relate to the organization's objectives. 
B) The six components of internal control are logically and operationally intertwined. 
C) Internal controls apply across all activities of the organization. 
D) All of the above are true.

Question 9

To support an assessment that controls are effective,what must an auditor do?

Accepted Answer

A) Achieve the same conclusion after appropriately testing internal control. 
B) Achieve the opposite conclusion after appropriately testing internal control. 
C) Perform increased substantive procedures. 
D) Perform limited substantive procedures as the assessment is justified.

Question 10

Monitoring of the internal controls involves assessment by appropriate personnel of the design and operation of controls on a timely basis and taking necessary actions.

Accepted Answer

A) True 
 B)False

Question 11

A company's internal auditing function should not be considered when assessing the effectiveness of internal controls.

Accepted Answer

A) True 
 B)False

Question 12

A transaction trail includes the documents and records that allow an auditor to trace a transaction from its origination through to its final disposition,or vice versa.

Accepted Answer

A) True 
 B)False

Question 13

Segregation of duties is a control activity that is designed to protect against the risk that an individual could both perpetrate and cover up a fraud.

Accepted Answer

A) True 
 B)False

Question 14

The PCAOB's requirement is that documentation must be able to be interpreted by an auditor not connected to the engagement.

Accepted Answer

A) True 
 B)False

Question 15

Control activities are the component of internal control that includes control actions that have been established by policies and procedures

Accepted Answer

A) True 
 B)False

Question 16

Which of the following types of evidence is an auditor most likely to consider in determining whether internal controls are operating as designed?

Accepted Answer

A) A letter from management corroborating inventory pricing. 
B) Questionnaires completed by employees in the receiving department concerning their duties and responsibilities. 
C) Attorneys' responses to the auditor's inquiries. 
D) Direct confirmations of receivables verifying account balances.

Question 17

An auditor will conclude an internal control is effective if he or she believes the control can be relied upon to prevent or detect material misstatements.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following procedures will an auditor use to better understand a client's internal control over accounting systems?

Accepted Answer

A) An auditor will look over subsequent year working papers. 
B) An auditor will review previous year working papers. 
C) An auditor will copy previous year working papers. 
D) An auditor will re-draft subsequent year working papers.

Question 19

Which one of the following is considered effective documentation of an internal control system?

Accepted Answer

A) Electronically pre-numbered records. 
B) A cathode ray screen used in input. 
C) Verbal authorization. 
D) The financial statements.

Question 20

Which of the following services does the PCAOB require auditors of public companies to perform?

Accepted Answer

A) A financial statement audit and an attest audit. 
B) A financial statement audit and an assurance audit. 
C) A financial statement audit and agreed upon procedures. 
D) A financial statement audit and an examination of the effectiveness of internal controls.

Exam 3: Internal Control Over Financial Reporting: Managements Responsibilities and Importance to the External Auditors

Internal controls are considered to be part of corporate governance.

Several significant deficiencies in internal controls may constitute a material weakness.

In addition to controls being specific,they may be broad,such as policies regarding a code of ethics.

Internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting,compliance with laws and regulations and ineffective and inefficient operations.

Which of the following is not a way an auditor obtains evidence regarding the effectiveness of internal control over the accounting system?

Which of the following best represents a walkthrough?

In a large company,who usually monitors the internal control?

Which of the following is not true of the concepts that are embodied in the COSO framework of internal controls?

To support an assessment that controls are effective,what must an auditor do?

Monitoring of the internal controls involves assessment by appropriate personnel of the design and operation of controls on a timely basis and taking necessary actions.

A company's internal auditing function should not be considered when assessing the effectiveness of internal controls.

A transaction trail includes the documents and records that allow an auditor to trace a transaction from its origination through to its final disposition,or vice versa.

Segregation of duties is a control activity that is designed to protect against the risk that an individual could both perpetrate and cover up a fraud.

The PCAOB's requirement is that documentation must be able to be interpreted by an auditor not connected to the engagement.

Control activities are the component of internal control that includes control actions that have been established by policies and procedures

Which of the following types of evidence is an auditor most likely to consider in determining whether internal controls are operating as designed?

An auditor will conclude an internal control is effective if he or she believes the control can be relied upon to prevent or detect material misstatements.

Which of the following procedures will an auditor use to better understand a client's internal control over accounting systems?

Which one of the following is considered effective documentation of an internal control system?

Which of the following services does the PCAOB require auditors of public companies to perform?