Question 1

If, when obtaining an understanding of control activities of a relatively small client, the auditor identified no control activities, the auditor would probably reassess whether the client is auditable.

Accepted Answer

A) True 
 B)False

Question 2

Significant deficiencies and material weaknesses in internal control of a public company must be reported in writing to which of the following?

Accepted Answer

A) Public Company Accounting Oversight Board 
B) Members of management who are responsible for the related area of the company 
C) Audit committee of the company's board of directors and to management 
D) AICPA

Question 3

Describe each of the three broad objectives management typically has for internal control.With which of these objectives is the auditor primarily concerned?

Accepted Answer

The answer of Describe each of the three broad objectives...

Question 4

Control activities are a subcomponent of the information and communication component of internal control.

Accepted Answer

A) True 
 B)False

Question 5

When auditing a private company, the auditor should obtain an understanding of internal control sufficient to:

Accepted Answer

A) provide reasonable protection against client fraud and defalcations by client employees. 
B) assess control risk. 
C) provide a basis for suggestions to the client for improving the accounting system. 
D) provide a method for safeguarding assets, checking the accuracy and reliability of accounting data, promoting operational efficiency, and encouraging adherence to prescribed managerial policies.

Question 6

Which of the following represents a correct statement regarding internal control testing?

Accepted Answer

A) When auditors plan to use evidence about the operating effectiveness of internal control contained in prior audits, auditing standards require tests of the controls' effectiveness at least every other year. 
B) The greater the risk, the less audit evidence the auditor should obtain that controls are operating effectively. 
C) The auditor uses control risk assessment and results of tests of controls to determine planned detection risk and the related substantive tests for the financial statement audit. 
D) Testing of internal controls can only be performed by the auditor at the end of the fiscal year.

Question 7

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 8

Management's identification and analysis of risk is an ongoing process and is a critical component of effective internal control.An important first step is for management to identify factors that may increase risk.Identify at least five factors, observable by management, which may lead to increased risk in a typical business organization.

Accepted Answer

The answer of Management's identification and analysis of risk is...

Question 9

In an audit of a non-public company, the less control risk there is, the smaller the amount of planned substantive evidence that is required.

Accepted Answer

A) True 
 B)False

Question 10

Of the following statements about internal controls, which one is least likely to be correct?

Accepted Answer

A) No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. 
B) Transactions must be properly authorized before such transactions are processed. 
C) Because of the cost-benefit relationship, a client may apply controls on a test basis. 
D) Control procedures reasonably ensure that collusion among employees cannot occur.

Question 11

For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of internal control.

Accepted Answer

A) True 
 B)False

Question 12

Proper segregation of functional responsibilities calls for separation of:

Accepted Answer

A) authorization, execution, and payment. 
B) authorization, recording, and custody. 
C) custody, execution, and reporting. 
D) authorization, payment, and recording.

Question 13

Match between columns
                        Premises: Management's identification and analysis of risks relevant to the preparation of financial statements in accordance with an applicable accounting framework.
Segregation of the following activities in an organization: custody of assets, accounting, authorization, and operational responsibility.
A process designed to provide reasonable assurance regarding the achievement of management's objectives in the following categories: (1)reliability of financial reporting, (2)effectiveness and efficiency of operations, and (3)compliance with applicable laws and regulations.
Company-wide policies for the approval of all transactions within stated limits.
Policies and procedures that help ensure that necessary actions are taken to address risks in the achievement of the entity's objectives.
Management's ongoing and periodic assessment of the quality of internal control performance to determine that controls are operating as intended and are modified when needed.
The actions, policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about internal control and its importance to the entity.

Accepted Answer

The Answer of Independent checks on performance and Control environment is...

Question 14

The auditor of a private company is not required by auditing standards to issue a written report on significant deficiencies in internal control.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The primary emphasis by auditors is on controls over:

Accepted Answer

A) classes of transactions. 
B) account balances. 
C) both A and B, because they are equally important. 
D) both A and B, because they vary from client to client.

Question 17

Management has a legal and professional responsibility to be sure that the financial statements are prepared in accordance with reporting requirements of applicable accounting frameworks.

Accepted Answer

A) True 
 B)False

Question 18

When management is evaluating the design of internal control, management evaluates whether the control can do which of the following?

Accepted Answer

A)   
B)   
C)   
D)

Question 19

When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be:

Accepted Answer

A) tracing. 
B) vouching. 
C) performing a walk-through. 
D) testing controls.

Question 20

Audit evidence regarding the separation of duties is normally best obtained by:

Accepted Answer

A) preparing flowcharts of operational processes. 
B) preparing narratives of operational processes. 
C) observation of employees applying control activities. 
D) inquiries of employees applying control activities.

Exam 10: Internal Control, Control Risk, and Section 404 Audits

If, when obtaining an understanding of control activities of a relatively small client, the auditor identified no control activities, the auditor would probably reassess whether the client is auditable.

Significant deficiencies and material weaknesses in internal control of a public company must be reported in writing to which of the following?

Describe each of the three broad objectives management typically has for internal control.With which of these objectives is the auditor primarily concerned?

Control activities are a subcomponent of the information and communication component of internal control.

When auditing a private company, the auditor should obtain an understanding of internal control sufficient to:

Which of the following represents a correct statement regarding internal control testing?

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?

In an audit of a non-public company, the less control risk there is, the smaller the amount of planned substantive evidence that is required.

Of the following statements about internal controls, which one is least likely to be correct?

For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of internal control.

Proper segregation of functional responsibilities calls for separation of:

Match seven of the terms (a-i)with the definitions provided below (1-7):

The auditor of a private company is not required by auditing standards to issue a written report on significant deficiencies in internal control.

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

The primary emphasis by auditors is on controls over:

Management has a legal and professional responsibility to be sure that the financial statements are prepared in accordance with reporting requirements of applicable accounting frameworks.

When management is evaluating the design of internal control, management evaluates whether the control can do which of the following?

When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be:

Audit evidence regarding the separation of duties is normally best obtained by: