Question 1

In order for the auditor to determine whether a significant internal control deficiency is a material weakness, the deficiency should be evaluation along one of the following two dimensions: likelihood or significance.

Accepted Answer

A) True 
 B)False

Question 2

When documenting their understanding of a client's internal controls, auditors are required to use narratives.

Accepted Answer

A) True 
 B)False

Question 3

An example of substantive testing and also a test of controls is using audit software to identify purchases where the vendor's invoice, the receiving report, and the purchase order did not match prior to payment of the vendor's invoice.

Accepted Answer

A) True 
 B)False

Question 4

The auditor will issue an unqualified opinion on internal control over financial reporting when

Accepted Answer

A)  there are no identified material weaknesses as of the end of the fiscal year. 
B)  there have been no restrictions on the scope of the auditor's work. 
C)  both a and b 
D)  either a or b

Question 5

Name three types of documents which auditors commonly use to obtain and to document their understanding in the audit working paper of the design of internal controls.

Accepted Answer

The answer of Name three types of documents which auditors...

Question 6

The objective of the test data approach is to determine whether the client's computer programs can correctly process valid and invalid transactions.

Accepted Answer

A) True 
 B)False

Question 7

The assessment of control risk is the measure of the auditor's expectation that internal controls will prevent material misstatements from occurring or detect and correct them if they have occurred.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is a correct statement?

Accepted Answer

A)  The auditor uses the control risk assessment and results of tests of controls to determine planned detection risk. 
B)  The auditor links the inherent risk assessments to the balance-related audit objectives. 
C)  The audit risk model is used determine the level of audit risk. 
D)  All of the above are correct statements.

Question 9

Management's documentation is not a major source of information for auditors in gaining an understanding of the design of internal controls.

Accepted Answer

A) True 
 B)False

Question 10

The two disadvantages of using questionnaires are their inability to provide an overview of the system and their inapplicability for some audits, especially smaller ones.

Accepted Answer

A) True 
 B)False

Question 11

As Section 404 of the Sarbanes-Oxley Act requires management to assess and to document the design effectiveness of internal controls over financial reporting, management may have already prepared narratives and flowcharts which the auditor can the use in documenting their understanding of the design of such internal controls.

Accepted Answer

A) True 
 B)False

Question 12

A(n) ________ control is a control elsewhere in the system that offsets the absence of a key control.

Accepted Answer

A)  significant 
B)  alternate 
C)  design 
D)  compensating

Question 13

If the likelihood that a material misstatement would be prevented, detected, or corrected by the controls in place, then the control risk is low in the revenue transaction cycle.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Parallel simulation is used primarily to test internal controls over the client's IT systems, whereas the test data approach is used primarily for substantive testing.

Accepted Answer

A) True 
 B)False

Question 16

Auditors often use Generalized Audit Software during their testing of a client's internal controls. For the following uses of the software provide a description and an example.
Verify extensions and footings
Print confirmation requests
Compare data on separate files

Accepted Answer

The answer of Auditors often use Generalized Audit Software during...

Question 17

An auditor traces the cost of sales entry for a sample of product sales to the inventory unit costs in effect at the date of each transaction. Which of the following procedures has the auditor performed?

Accepted Answer

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

Question 18

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 19

A proper narrative of an accounting system and the related controls should include which four characteristics?

Accepted Answer

The answer of A proper narrative of an accounting system...

Question 20

Which deficiency exists if a necessary control is missing or not properly implemented?

Accepted Answer

A)  control 
B)  significant 
C)  design 
D)  operating

Exam 12: Assessing Control Risk and Reporting on Internal Controls

In order for the auditor to determine whether a significant internal control deficiency is a material weakness, the deficiency should be evaluation along one of the following two dimensions: likelihood or significance.

When documenting their understanding of a client's internal controls, auditors are required to use narratives.

An example of substantive testing and also a test of controls is using audit software to identify purchases where the vendor's invoice, the receiving report, and the purchase order did not match prior to payment of the vendor's invoice.

The auditor will issue an unqualified opinion on internal control over financial reporting when

Name three types of documents which auditors commonly use to obtain and to document their understanding in the audit working paper of the design of internal controls.

The objective of the test data approach is to determine whether the client's computer programs can correctly process valid and invalid transactions.

The assessment of control risk is the measure of the auditor's expectation that internal controls will prevent material misstatements from occurring or detect and correct them if they have occurred.

Which of the following is a correct statement?

Management's documentation is not a major source of information for auditors in gaining an understanding of the design of internal controls.

The two disadvantages of using questionnaires are their inability to provide an overview of the system and their inapplicability for some audits, especially smaller ones.

A(n) ________ control is a control elsewhere in the system that offsets the absence of a key control.

If the likelihood that a material misstatement would be prevented, detected, or corrected by the controls in place, then the control risk is low in the revenue transaction cycle.

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

Parallel simulation is used primarily to test internal controls over the client's IT systems, whereas the test data approach is used primarily for substantive testing.

Auditors often use Generalized Audit Software during their testing of a client's internal controls. For the following uses of the software provide a description and an example. Verify extensions and footings Print confirmation requests Compare data on separate files

An auditor traces the cost of sales entry for a sample of product sales to the inventory unit costs in effect at the date of each transaction. Which of the following procedures has the auditor performed?

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

A proper narrative of an accounting system and the related controls should include which four characteristics?

Which deficiency exists if a necessary control is missing or not properly implemented?