Question 1

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. C

Question 2

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)   There is other information contained in management's report on internal control.
C)   Management has concluded that internal controls are not effective.
D)   A significant subsequent event has occurred since the date being reported on. C

Question 3

According to the PCAOB,who is responsible for the reliability of the internal controls over financial reporting process of an entity?

Accepted Answer

A)   The entity's CEO and/or CFO.
B)   The entity's board of directors.
C)   An internal control specialist.
D)   The external auditor. A

Question 4

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 they have disclosed all known internal control deficiencies.

Question 5

The auditor is least likely to use generalized audit software to

Accepted Answer

A)   Perform analytical procedures on the client's data.
B)   Access information stored on the client's IT files.
C)   Identify material weaknesses in the client's IT controls.
D)   Test the accuracy of the client's computations.

Question 6

Discuss the differences between a control deficiency,a significant deficiency,a material weakness,and the two dimensions of the control deficiency-likelihood and magnitude.

Accepted Answer

The answer of Discuss the differences between a control deficiency,a...

Question 7

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 8

You are performing an audit on North South Natural Gas (NSNG).Alana,an NSNG employee,has responsibility for reconciling bank statements with the company's cash records.You determine,however,that Alana has never been taught how to reconcile statements.In effect,the statements have not been properly reconciled for two years.How would you judge the significance of this control deficiency?
 How would you classify this deficiency?

Accepted Answer

The answer of You are performing an audit on North...

Question 9

The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk.This is an example of

Accepted Answer

A)   A management deficiency.
B)   A design deficiency.
C)   A deficiency in operation.
D)   This is not an internal control deficiency.

Question 10

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 11

The five step process in the audit of ICFR includes

Accepted Answer

A)   Form an opinion on the safeguarding of the entity's assets.
B)   Identify controls to test using a top-down, risk-based approach.
C)   Form an opinion on the fairness of the presentation of the financial statements.
D)   Form an opinion on the effectiveness of internal controls in meeting operational goals.

Question 12

The primary purpose of a generalized computer audit program is to allow the auditor to

Accepted Answer

A)   Use the client's employees to perform routine audit checks of the electronic data processing records that otherwise would be done by the auditor's staff accountants.
B)   Test the logic of computer programs used in the client's electronic data processing systems.
C)   Select larger samples from the client's electronic data processing records than would otherwise be selected without the generalized program.
D)   Independently process client electronic data processing records.

Question 13

Discuss entity-level controls and provide examples of these types of controls.

Accepted Answer

The answer of Discuss entity-level controls and provide examples of...

Question 14

What is wrong with the following report on internal control over financial reporting for AB Corporation?
 The auditor believes an unqualified opinion on the effectiveness of internal control over financial reporting is warranted.
Report of Registered Public Accounting Firm
We have audited AB Corporation's internal control over financial reporting as of December 31,2011,based on criteria established in Internal Control - Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).AB's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting,testing and evaluating the design and operating effectiveness of internal control,and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.A company's internal control over financial reporting includes those policies and procedures that (1)pertain to the maintenance of records that,in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use,or disposition of the company's assets that could have a material effect on the financial statements.
In our opinion,AB Corporation maintained,in all material respects,effective internal control over financial reporting as of December 31,2011,based on criteria established in Internal Control - Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited,in accordance with the standards of the Public Company Accounting Oversight Board (United States),the consolidated financial statements of AB Corporation,and our report dated February 20,2012 expressed an unqualified opinion.
Protzman & Hull
Morgan Hill,CA
February 10,2012

Accepted Answer

The answer of What is wrong with the following report...

Question 15

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 company's internal control is less than effective.
B)   Statements suggesting only negative assurance.
C)   A conclusion that the company'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 16

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 17

In the context of an audit of internal controls,the auditor must document all of the following except:

Accepted Answer

A)   The extent to which he or she relied upon work performed by others.
B)   The auditor's understanding and evaluation of the design of each of the components of the entity's internal control over financial reporting.
C)   Transcripts of the auditor's discussion with management concerning the points at which misstatements could occur.
D)   The evaluation of any deficiencies discovered that could result in a modification of the auditor's report.

Question 18

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 leading...

Question 19

Management's written representations concerning internal control are

Accepted Answer

A)   Addressed to the users of the financial statements.
B)   Normally drafted by management.
C)   Included in the auditor's final report.
D)   Signed by the CEO and CFO.

Question 20

Which of the following is false?

Accepted Answer

A)   Regardless of the achieved level of control risk in connection with the audit of the financial statements, auditing standards require the auditor to perform some substantive procedures for all significant accounts and disclosures.
B)   The absence of misstatements in financial statements is considered convincing evidence that existing controls are effective.
C)   The audit of internal control is intended to draw conclusions about the effectiveness of internal control over financial reporting as of a specific date.
D)   The auditor is required by AS5 to evaluate the implications of the financial statement audit for the effectiveness of internal control over financial reporting.

Exam 7: Auditing Internal Control Over Financial Reporting