Question 1

All companies must follow the guidelines of AS5.

Accepted Answer

A) True 
 B)False  False

Question 2

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. B

Question 3

A deficiency that implies that there is a reasonable possibility of misstatement in the financial statements that is significant but not material is

Accepted Answer

A)   A material weakness.
B)   A significant deficiency.
C)   An insignificant deficiency.
D)   A probable deficiency. B

Question 4

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 5

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:

Accepted Answer

A)   Accept responsibility for the effectiveness of the entity's internal control over financial reporting.
B)   Evaluate the effectiveness of the entity's internal control over financial reporting using suitable control criteria.
C)   Support its evaluation with sufficient evidence, including documentation.
D)   Present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year.

Question 6

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 7

Information Nation has two hundred locations spread across the fifty states. Twenty of the locations are considered to be individually important, but fifty of the locations are not important even when aggregated from the others. Five locations deal with foreign exchange trading. These locations are not considered important, but they are important when aggregated with the other locations. As an auditor, discuss the considerations involved in testing multiple locations and group the locations accordingly (provide how many locations are included in each group). Include the treatment that each group should receive from the auditor.

Accepted Answer

The answer of Information Nation has two hundred locations spread...

Question 8

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 9

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)   Test some of the work performed by others to evaluate the quality and effectiveness of their work.
B)   Evaluate the nature of 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.

Question 10

Based on PCAOB guidelines, the audit of ICFR and financial statements audit should be conduced as an "integrated audit."

Accepted Answer

A) True 
 B)False

Question 11

ACL is an example of

Accepted Answer

A)   An EDI software package.
B)   An IT software package.
C)   Software that allows auditors to retrieve and evaluate data from entity systems.
D)   A type of networking.

Question 12

The main goal of auditing internal control is

Accepted Answer

A)   To allow the auditor to fix any internal control deficiencies.
B)   To form an opinion on the ability of internal controls to prevent fraud.
C)   To assure management that internal control is preventing all material misstatements on the financial statements.
D)   To evaluate the effectiveness of controls over all relevant financial statement disclosures in the financial statements.

Question 13

S&H Associates has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management about internal control. Which of the following is true?

Accepted Answer

A)   S&H must still assume that management has assessed the effectiveness of internal control.
B)   Depending on other factors in the audit, S&H can still issue an unqualified opinion.
C)   S&H should consider this situation a limitation on the scope of the audit.
D)   Management does not need to give S&H a letter if it has disclosed all known internal control deficiencies.

Question 14

Which of the following statements included in management's assessment of the effectiveness of internal control over financial reporting would be considered acceptable for issuing an unqualified opinion?

Accepted Answer

A)   Nothing has come to management's attention to suggest that the entity's internal control is less than effective.
B)   Statements suggesting only negative assurance.
C)   A conclusion that the entity's internal control over financial reporting is effective when a material weakness exists at the end of the reporting period.
D)   Disclosure of material weaknesses corrected during the period.

Question 15

Which of the following is least likely to represent a material weakness in internal control for Flynt Corporation?

Accepted Answer

A)   Flynt Corporation's computer systems were not working properly for two days; consequently, employees needed to do all reconciliations manually.
B)   Flynt Corporation's CFO was arrested last year for embezzling money from the entity.
C)   For the current year, the auditor found a material misstatement in Flynt's sales recognition that was undetected by the internal controls.
D)   Flynt's audit committee is deemed to be ineffective.

Question 16

Section 404 of the Sarbanes-Oxley Act includes which of the following?

Accepted Answer

A)   A requirement that management of a publicly traded company issues an assessment of internal control that covers the entire year.
B)   Specific guidance on what constitutes adequate internal control.
C)   A requirement that management of a publicly traded company accepts responsibility for establishing and maintaining adequate internal controls.
D)   A requirement that management of a publicly traded company issues an assessment regarding the efficiency of internal control for the year.

Question 17

Which of the following is not an element of management's assessment process for the effectiveness of internal control?

Accepted Answer

A)   Evaluating the likelihood that failure of a control could result in a misstatement.
B)   Determining the locations and business units to include in the evaluation.
C)   Determining significant deficiencies and material weaknesses in controls.
D)   Obtaining the auditor's assessment of the internal control effectiveness.

Question 18

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 19

Public reporting on the effectiveness of internal control over financial reporting, as required by the Sarbanes-Oxley Act, includes

Accepted Answer

A)   A statement that the public accounting firm that audited the financial statements has provided input on the design of internal controls.
B)   A statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting.
C)   An explicit statement as to whether management agrees with the public accounting firm's assessment of internal controls.
D)   A detailed statement describing changes or additions to the internal control environment that occurred in the current year.

Question 20

To obtain an understanding of significant processes and relevant subprocesses, auditors would be least likely to use which of the following techniques?

Accepted Answer

A)   Reviewing management documentation.
B)   Inquiry.
C)   Scanning.
D)   Transaction walkthroughs.

Exam 7: Auditing Internal Control Over Financial Reporting