Question 1

Tests of controls are auditing procedures performed to determine:

Accepted Answer

A)   whether required internal controls have been put in place.
B)   the efficiency of the information flow
C)   the effectiveness of the design and operation of internal controls.
D)   b and c C

Question 2

The statement that is accurate concerning audit testing is:

Accepted Answer

A)   the test data approach involves dummy transactions prepared by and processed under the control of the auditor.
B)   the test data approach is relatively complicated, time consuming and expensive.
C)   the test data approach involves dummy transactions prepared by the client and processed under the control of the auditor
D)   the test data approach involves dummy transactions prepared by the auditor and processed under the control of the client. A

Question 3

The name given to the test of control where the auditor reprocesses actual entity data using auditor-controlled software is:

Accepted Answer

A)   test data approach.
B)   integrated test facility.
C)   parallel simulation.
D)   dual-purpose testing. C

Question 4

Which of these would be a necessary control to prevent a cash payment being made for an unauthorised purpose?

Accepted Answer

A)   invoices being required before cheques are issued.
B)   only authorised people being able to issue cheques.
C)   the duties of approving invoices and signing cheques are separated.
D)   all of the above.

Question 5

If the auditor decides to seek a further reduction in control risk, this will require them to:

Accepted Answer

A)   expand the scope of substantive testing during interim work.
B)   rely exclusively on analytical procedures.
C)   perform additional tests of control.
D)   increase, proportionately, assessed inherent risk.

Question 6

The incorrect statement is: The external auditor

Accepted Answer

A)   may coordinate their audit work with that of the internal auditor
B)   may use the internal auditors to provide direct assistance with some types of audit work
C)   may delegate some of the substantive testing to the internal auditor
D)   none of the statements is incorrect, i.e. all are correct statements

Question 7

The untrue statement concerning the communication of internal control matters to management during a financial statement audit is:

Accepted Answer

A)   the duties relating to communication are included in ASA 265/ISA 265
B)   the auditor shall communicate in writing significant deficiencies in internal control identified
C)   circumstances where it may be inappropriate to communicate deficiencies in the internal control system includes situations where there are other deficiencies that are of sufficient importance to merit management's attention
D)   none of the statements are untrue, i.e. all are true statements

Question 8

Which of the following would be a necessary control to avoid an invoice being paid twice

Accepted Answer

A)   periodic bank reconciliations.
B)   segregating the duties of approving invoices and signing cheques.
C)   invoice stamped paid when the cheque is issued.
D)   making payments by cheque.

Question 9

Assessing control risk at a level below high most likely would involve:

Accepted Answer

A)   identifying specific internal controls relevant to specific assertions.
B)   changing the timing of substantive tests by omitting interim testing and performing the tests at year-end.
C)   reducing inherent risk for most of the assertions relevant to significant account balances.
D)   performing more extensive substantive tests with larger sample sizes than originally planned.

Question 10

Of the following, the procedure that would produce the most reliable evidence on the segregation duties is:

Accepted Answer

A)   observation.
B)   analytical procedures
C)   reconciliation.
D)   re-performance.

Question 11

The test of control that is known as a dual-purpose test is:

Accepted Answer

A)   enquiring
B)   re-performing the control
C)   observing.
D)   inspecting.

Question 12

Testing the work of the internal auditors is least likely when the external auditor has decided that:

Accepted Answer

A)   the internal auditors will be used to directly assist in the conduct of the audit.
B)   the internal auditors have operating responsibilities as well as their auditing role
C)   the internal auditors are full-time employees of the client.
D)   the reports of the internal auditors are consistent with the results of the work performed.

Question 13

1. Identify the steps involved in a preliminary assessment of risk.
2. What is the requirement for documenting the assessed level of control risk when:
-control risk is at the maximum, and
-control risk is below the maximum?"
"3. Tests of controls pertaining to effectiveness of operation focus on what two questions?

Accepted Answer

The answer of 1. Identify the steps involved in a...

Question 14

Outline the factors that will determine whether the auditor has obtained sufficient appropriate evidence to support a particular risk assessment.

Accepted Answer

The answer of Outline the factors that will determine whether...

Question 15

What audit strategy is the auditor likely to adopt if at the planning stage, control risk is assessed as less than high?

Accepted Answer

The answer of What audit strategy is the auditor likely...

Question 16

For the following potential misstatements for cash payments, identify a necessary control and a test of the operational effectiveness of that control.
1.a cash payment may be made for an unauthorised purpose.
2.an invoice may be paid twice.
3.a cheque may be issued for the wrong amount.
4.a cash payment transaction may not be recorded.

Accepted Answer

The answer of For the following potential misstatements for cash...

Question 17

When tests of controls are not performed while obtaining an understanding under the primarily substantive approach:

Accepted Answer

A)   they must be performed at year-end.
B)   preliminary control risk must be assessed at the maximum.
C)   preliminary control risk must be assessed at below maximum.
D)   preliminary control risk must be assessed at the minimum.

Question 18

In a computer information system control procedures that provide reasonable assurance that the recording, processing and reporting of data are properly performed for specific applications are known as:

Accepted Answer

A)   application controls
B)   general controls
C)   user controls
D)   integrated testing.

Question 19

When an auditor is designing tests of the operational effectiveness of controls they must decide their nature, timing and extent. Explain what each of these concepts mean and why they are important in designing these tests.

Accepted Answer

The answer of When an auditor is designing tests of...

Question 20

The relationship between the required understanding of the internal control structure and the preliminary audit strategy is that:

Accepted Answer

A)   normally, greater understanding is required when the lower assessed level of control risk approach is used.
B)   normally, greater understanding is required when the primarily substantive approach is used.
C)   no understanding is required in the planning stage unless tests of controls are a planned part of the strategy.
D)   normally, less understanding is required when the lower assessed level of control risk approach is used.

Exam 11: Tests of Controls