Question 1

You are performing the audit of internal control for Clifton Company.Which of the following would represent a material weakness in internal control?

Accepted Answer

A) The company's audit committee has experienced unusual turnover of members. 
B) The company's CFO was indicted for embezzling from the company. 
C) Bank reconciliations are done monthly. 
D) The CEO retired after twenty years of service to the company.

Question 2

It is generally possible for small companies to have all of the following except for

Accepted Answer

A) adequate documents and records. 
B) physical controls over assets. 
C) competent,trustworthy personnel. 
D) internal auditors.

Question 3

The auditor designs and performs a combination of tests of controls and substantive procedures to obtain reasonable assurance that the financial statements are fairly stated when control risk

Accepted Answer

A) is assessed above the maximum. 
B) is assessed below the maximum. 
C) cannot be assessed. 
D) none of the above

Question 4

Tests of controls

Accepted Answer

A) are the procedures used to test the effectiveness of controls in support of a reduced assessed control risk. 
B) are used to support the ending balances in the balance sheet and income statement accounts. 
C) are performed at the end of the audit. 
D) are designed to detect fraud.

Question 5

An auditor traces the sales prices to the authorized price list in effect at the date of the transaction.Which of the following procedures has the auditor performed?

Accepted Answer

A) inquiry 
B) observation 
C) reperformance 
D) examination

Question 6

Flowcharts are harder to read aad update than narratives.

Accepted Answer

A) True 
 B)False

Question 7

When identifying audit objectives and existing controls,

Accepted Answer

A) audit objectives are identified for classes of transactions,account balances,and presentation and disclosure. 
B) the auditor identifies controls to satisfy each objective. 
C) it is helpful for the auditor to use the five control activities as reminders of controls. 
D) all of the above

Question 8

A design deficiency exists if the person performing the control is not qualified.

Accepted Answer

A) True 
 B)False

Question 9

When assessing whether the financial statements are auditable,the auditor must consider

Accepted Answer

A) that the integrity of management and the adequacy of accounting records are the two primary factors determining auditability. 
B) that the integrity of management and the adequacy of risk management are the two primary factors determining auditability. 
C) that if all of the transaction information is available only in electronic form without a visible audit trail,the company cannot be audited. 
D) the control risk before determining if the entity is auditable.

Question 10

Which of the following is the correct definition of "control deficiency"?

Accepted Answer

A) A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis. 
B) A control deficiency exists if one or more deficiencies exist that adversely affect a company's ability to prepare external financial statements reliably. 
C) A control deficiency exists if the design or operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements. 
D) A control deficiency exists if the design or operation of controls results in a more than probable likelihood that controls will prevent or detect misstatements.

Question 11

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

Question 12

Generalized audit software is used to test automated controls.

Accepted Answer

A) True 
 B)False

Question 13

The auditor obtains a sufficient understanding of internal control to assess the risk of material misstatement at the overall financial statement level and at the relevant assertion level.

Accepted Answer

A) True 
 B)False

Question 14

When assessing control risk,

Accepted Answer

A) many auditors use actuarial tables to assist in the control risk assessment process. 
B) each control can be used to satisfy only one audit objective. 
C) many auditors use a control risk matrix to assist in the control risk assessment process. 
D) all controls,including key controls,should be considered.

Question 15

The auditor should identify and include only ________ controls since they will be sufficient to achieve the transaction-related audit objectives and will also provide audit efficiency.

Accepted Answer

A) key 
B) significant 
C) material 
D) compensating

Question 16

Auditing by testing automated internal controls and account balances electronically,generally because effective general controls exist,is known as

Accepted Answer

A) auditing through the computer. 
B) auditing around the computer. 
C) embedded audit module approach. 
D) parallel simulation testing.

Question 17

The auditor's objective in determining whether the client's computer program correctly processes valid and invalid transactions is accomplished through the

Accepted Answer

A) test data approach. 
B) generalized audit software approach. 
C) microcomputer-aided auditing approach. 
D) generally accepted auditing standards.

Question 18

What type of report is issued when one or more material internal control weaknesses exist?

Accepted Answer

A) unqualified opinion 
B) disclaimer of opinion 
C) adverse opinion 
D) qualified opinion

Question 19

The procedures used to gain an understanding of internal control do not vary from client to client.

Accepted Answer

A) True 
 B)False

Question 20

To issue an unqualified opinion on internal control over financial reporting,there must be no identified material weaknesses and no restrictions on the scope of the audit.

Accepted Answer

A) True 
 B)False

Exam 12: Assessing Control Risk and Reporting on Internal Controls

You are performing the audit of internal control for Clifton Company.Which of the following would represent a material weakness in internal control?

It is generally possible for small companies to have all of the following except for

The auditor designs and performs a combination of tests of controls and substantive procedures to obtain reasonable assurance that the financial statements are fairly stated when control risk

Tests of controls

An auditor traces the sales prices to the authorized price list in effect at the date of the transaction.Which of the following procedures has the auditor performed?

Flowcharts are harder to read aad update than narratives.

When identifying audit objectives and existing controls,

A design deficiency exists if the person performing the control is not qualified.

When assessing whether the financial statements are auditable,the auditor must consider

Which of the following is the correct definition of "control deficiency"?

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?

Generalized audit software is used to test automated controls.

The auditor obtains a sufficient understanding of internal control to assess the risk of material misstatement at the overall financial statement level and at the relevant assertion level.

When assessing control risk,

The auditor should identify and include only ________ controls since they will be sufficient to achieve the transaction-related audit objectives and will also provide audit efficiency.

Auditing by testing automated internal controls and account balances electronically,generally because effective general controls exist,is known as

The auditor's objective in determining whether the client's computer program correctly processes valid and invalid transactions is accomplished through the

What type of report is issued when one or more material internal control weaknesses exist?

The procedures used to gain an understanding of internal control do not vary from client to client.

To issue an unqualified opinion on internal control over financial reporting,there must be no identified material weaknesses and no restrictions on the scope of the audit.