Question 1

In a public company, management must assess and report on internal control over financial reporting.

Accepted Answer

A) True 
 B)False

Question 2

Most public companies must follow Sarbanes-Oxley requirements.

Accepted Answer

A) True 
 B)False

Question 3

All companies must follow the Sarbanes-Oxley Act requirements.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a topic that requires special consideration by management during management's internal control assessment process and by the auditor during the audit of internal control?

Accepted Answer

A) Multiple locations and business units. 
B) Service organizations. 
C) The role of the auditor in internal control. 
D) Safeguarding assets.

Question 5

On the audit of Technology Unlimited, a leading manufacturer of computer chips, the external audit staff discovers that the internal audit staff has performed extensive evaluation and testing on the control environment. What should the external auditors do to determine the extent to which they may use the work of the internal audit staff? Can the external audit staff rely on the internal audit staff for evaluating and testing the control environment?

Accepted Answer

The answer of On the audit of Technology Unlimited, a...

Question 6

CBA Associates is auditing a large publicly traded company. The audit of internal controls over financial reporting has been properly planned and the auditors have already identified controls to test using a top-down, risk-based approach. What is the next step? Give three examples of procedures that may be completed in the next step in the audit.

Accepted Answer

The answer of CBA Associates is auditing a large publicly...

Question 7

You are an experienced audit senior. The new staff accountant on your audit team does not understand what a control deficiency is. Give him a definition of "control deficiency." Include examples of two types of control deficiencies.

Accepted Answer

The answer of You are an experienced audit senior. The...

Question 8

Which of the following is not true?

Accepted Answer

A) The auditor should not communicate with management until the audit of internal control over financial reporting is finished. 
B) Written communication between the auditor and management about internal control over financial reporting should include the definitions of control deficiencies, significant deficiencies, and material weaknesses. 
C) The auditor should not include in the audit report that no significant deficiencies were noted during an audit of internal control over financial reporting. 
D) If fraud is discovered, the auditor must report it to the appropriate level of management.

Question 9

AAA & Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting. AAA found a number of material weaknesses in the entity's internal control. LinktheEarth's management remediated all of the weaknesses that AAA found. However, the auditors did not have sufficient time to retest the controls. What report should AAA issue with regards to internal control over financial reporting at year-end?

Accepted Answer

A) Unqualified report. 
B) Adverse report. 
C) Qualified report. 
D) Disclaimer on opinion.

Question 10

Which of the following concerning the auditor's report on internal control over financial reporting is correct?

Accepted Answer

A) The auditor's report contains an opinion on the effectiveness of internal control over financial reporting based on the auditor's independent work. 
B) In the report on internal control over financial reporting, the auditor can issue only a qualified or an unqualified opinion. 
C) The auditor needs to state management's assessment of internal control over financial reporting, but does not necessarily need to comment on whether he or she agrees. 
D) An unqualified opinion is required if a material weakness is identified.

Question 11

Prior to issuing a report on internal controls over financial reporting, an auditor is required to:

Accepted Answer

A) perform procedures sufficient to identify all control deficiencies. 
B) communicate to management, in writing, all control deficiencies previously included in written communication from the internal auditors. 
C) communicate to management, in writing, all control deficiencies identified during the audit and inform the audit committee when such a communication has been made. 
D) represent that no significant deficiencies were noted during the audit of internal control.

Question 12

Which of the following statements included in management's assessment of the effectiveness of internal control over financial reporting would not cause the auditor to disclaim an opinion?

Accepted Answer

A) Management includes disclosures about corrective actions taken by the entity after the date of management's assessment. 
B) The entity plans to implement new controls. 
C) Management believes the cost of correcting a material weakness would exceed the benefits derived from implementing the new controls. 
D) Disclosure of material weaknesses corrected during the period.

Question 13

The auditor is least likely to use generalized audit software to:

Accepted Answer

A) perform analytical procedures on the entity's data. 
B) access information stored on the entity's IT files. 
C) identify material weaknesses in the entity's IT controls. 
D) test the accuracy of the entity's computations.

Question 14

One of the advantages of generalized audit software is that:

Accepted Answer

A) it involves auditing after the entity has processed the data rather than while the data are being processed. 
B) it provides a limited ability to verify programming logic because its application is usually directed to testing entity files or databases. 
C) it is limited to audit procedures that can be conducted on data available in electronic form. 
D) limited IT expertise or programming skills are required.

Question 15

The likelihood of an event is "more than remote" when it is "reasonably possible."

Accepted Answer

A) True 
 B)False

Question 16

Which of the following audit procedures would an auditor be least likely to perform using a generalized audit software?

Accepted Answer

A) Searching records of accounts receivable balances for credit balances. 
B) Investigating inventory for possible damaged goods. 
C) Selecting accounts receivable for positive and negative confirmations. 
D) Listing of unusually large inventory balances.

Question 17

According to the COSO definition of safeguarding of assets:

Accepted Answer

A) controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur. 
B) controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements. 
C) controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur and that losses are properly reflected in the financial statements. 
D) there is no way to create controls that will provide reasonable assurance that asset losses will not occur.

Question 18

An "integrated audit" as stated in Section 404 of the Sarbanes-Oxley Act means:

Accepted Answer

A) the auditor must consider the integrated thoughts and ideas of everyone on the audit staff. 
B) the auditor must conduct two audits, one on the effectiveness of internal control and one on the financial statements, in an integrated way. 
C) the auditor must integrate the same objectives whether auditing internal control or auditing the financial statements. 
D) two independent CPA firms must work together on the audit.

Question 19

A modification of the standard report is required for all of the following conditions except:

Accepted Answer

A) there is a restriction on the scope of the engagement. 
B) the presence of a material weakness at the end of the period. 
C) management has concluded that internal controls are effective. 
D) the auditor was not able to apply all the procedures necessary.

Question 20

In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except:

Accepted Answer

A) be ready to document the extent to which he or she relied on the work. 
B) evaluate the risks associated with the controls subjected to the work of others. 
C) evaluate the competence and objectivity of the individuals who performed the work. 
D) All of these are required.

Exam 7: Auditing Internal Control Over Financial Reporting

In a public company, management must assess and report on internal control over financial reporting.

Most public companies must follow Sarbanes-Oxley requirements.

All companies must follow the Sarbanes-Oxley Act requirements.

Which of the following is not a topic that requires special consideration by management during management's internal control assessment process and by the auditor during the audit of internal control?

You are an experienced audit senior. The new staff accountant on your audit team does not understand what a control deficiency is. Give him a definition of "control deficiency." Include examples of two types of control deficiencies.

Which of the following is not true?

Which of the following concerning the auditor's report on internal control over financial reporting is correct?

Prior to issuing a report on internal controls over financial reporting, an auditor is required to:

Which of the following statements included in management's assessment of the effectiveness of internal control over financial reporting would not cause the auditor to disclaim an opinion?

The auditor is least likely to use generalized audit software to:

One of the advantages of generalized audit software is that:

The likelihood of an event is "more than remote" when it is "reasonably possible."

Which of the following audit procedures would an auditor be least likely to perform using a generalized audit software?

According to the COSO definition of safeguarding of assets:

An "integrated audit" as stated in Section 404 of the Sarbanes-Oxley Act means:

A modification of the standard report is required for all of the following conditions except:

In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except: