Question 1

For inquiry to be effective, auditors need to be skilled at listening and ________ an interviewee's response to questions.

Accepted Answer

A)   remembering
B)   evaluating
C)   recording
D)   transcribing B

Question 2

Briefly describe the responsibilities of management and external auditors for internal controls.

Accepted Answer

Management is responsible for establishing and maintaining the entity's internal controls. For U.S. public companies, management is also required by Section 404 to publicly report on the operating effectiveness of those controls. The auditor's responsibilities include understanding and testing internal control over financial reporting. In many Arab countries, auditors have no formal responsibilities for reporting on internal control. In the U.S., auditors of public companies are also required by Section 404 to issue an audit report on management's assessment of its internal controls, including the auditor's opinion on the operating effectiveness of those controls.

Question 3

Information and idea exchange sessions are required by ISAs 240 and 315.

Accepted Answer

A) True 
 B)False  True

Question 4

Which section of the Sarbanes- Oxley Act requires management to issue an internal control report?

Accepted Answer

A)   408.
B)   202.
C)   404.
D)   203.

Question 5

Before making the final assessment of internal control at the end of an integrated audit, the auditor must:

Accepted Answer

The answer of Before making the final assessment of internal...

Question 6

Companies with non- complex IT environments often rely on microcomputers to perform accounting system functions. Which of the following is not an audit consideration in such an environment?

Accepted Answer

A)   Vulnerability to viruses and other risks.
B)   Excess reliance on automated controls.
C)   Unauthorized access to master files.
D)   Limited reliance on automated controls.

Question 7

What are the two primary factors that auditors consider in determining if an entity is auditable?

Accepted Answer

The answer of What are the two primary factors that...

Question 8

Which of the following is not one of the three categories of testing strategies when auditing through the computer?

Accepted Answer

A)   Embedded audit module.
B)   Test data approach.
C)   Pilot simulation.
D)   Parallel simulation.

Question 9

Inherent risk is often reduced in complex IT systems relative to less complex IT systems.

Accepted Answer

A) True 
 B)False

Question 10

Briefly discuss the discussions required by ISAs 240 and 315 within the audit team to consider fraud. Be sure to include a list of issues that should be addressed in these discussions.

Accepted Answer

The answer of Briefly discuss the discussions required by ISAs...

Question 11

Which of the following statements describes circumstances that underlie employee incentives to misappropriate assets?

Accepted Answer

A)   Weak internal controls encourage employees to take chances.
B)   Dissatisfied employees may steal from a sense of entitlement.
C)   Employees have a vested interest in making the company's financial statements erroneous.
D)   If management cheats customers and gets away with it, then employees believe they can do the same to the company.

Question 12

The auditor's tests to understand the client's internal controls might include which of the following types of procedures?

Accepted Answer

The answer of The auditor's tests to understand the client's...

Question 13

Which of the following issues is normally part of the 'brainstorming' session required by ISA 240 and 315?

Accepted Answer

The answer of Which of the following issues is normally...

Question 14

Internal controls can never be considered as absolutely effective because:

Accepted Answer

A)   controls are designed to prevent and detect only material misstatements.
B)   internal controls prevent separation of duties.
C)   not all organizations have internal audit departments.
D)   their effectiveness is limited by the competency and dependability of employees.

Question 15

Because general controls have a ________ effect on the operating effectiveness of application controls, auditors must consider general controls.

Accepted Answer

A)   mitigating
B)   worsening
C)   nominal
D)   pervasive

Question 16

The most common technique used by management to misstate financial information is:

Accepted Answer

A)   improper revenue recognition.
B)   understatement of liabilities.
C)   understatement of assets.
D)   overstatement of expenses.

Question 17

What tools do companies use to limit access to sensitive company data?

Accepted Answer

The answer of What tools do companies use to limit...

Question 18

The purpose of an entity's accounting information and communication system is to:

Accepted Answer

The answer of The purpose of an entity's accounting information...

Question 19

Compared to a public company, the most important difference in a nonpublic company in assessing control risk is the ability to assess control risk at ________ for any or all control- related objectives.

Accepted Answer

A)   moderately low
B)   high
C)   low
D)   medium

Question 20

Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for U.S. public companies?

Accepted Answer

The answer of Which of the following parties provides an...

Exam 4: Internal Control, Control Risk, Section 404 Audits, Fraud Auditing, and the Impact of Information Technology on the Audit Process