Question 1

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 2

Which of the following is not a primary objective of internal control as established by COSO?

Accepted Answer

A)  Efficiency and effectiveness of operations. 
B)  Effective purchasing systems. 
C)  Compliance with laws and regulations. 
D)  Reliable financial reporting.

Question 3

Examples of entity-level controls include

Accepted Answer

A)  Management's risk assessment process. 
B)  Controls to monitor results of operations. 
C)  The period-end financial reporting process. 
D)  All of these are examples of entity-level controls.

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

AS5 requires that the auditor appropriately document the processes,procedures,judgments,and results relating to the audit of internal control.Specifically,what must this documentation include?

Accepted Answer

The answer of AS5 requires that the auditor appropriately document...

Question 7

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 8

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 new...

Question 9

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.

Question 10

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.

Question 11

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 12

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.

Question 13

Which of the following is an advantage of generalized computer audit packages?

Accepted Answer

A)  They are all written in one identical computer language. 
B)  They can be used for audits of entities that use differing IT equipment and file formats. 
C)  They have reduced the need for the auditor to study input controls for IT-related procedures. 
D)  Their use can be substituted for a relatively large part of the required compliance testing.

Question 14

Identify indicators of a material weakness in internal control over financial reporting.

Accepted Answer

The answer of Identify indicators of a material weakness in...

Question 15

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 16

You are performing an audit on North South Natural Gas (NSNG).Alana,an NSNG employee,has responsibility for reconciling bank statements with the entity's cash accounts.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 17

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

Accepted Answer

A)  Use the entity'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 entity's electronic data processing systems. 
C)  Select larger samples from the entity's electronic data processing records than would otherwise be selected without the generalized program. 
D)  Independently process electronic data processing records.

Question 18

When an auditor tests a computerized accounting system,which of the following is true of the test data approach?

Accepted Answer

A)  Test data are processed by the entity's computer programs under the auditor's control. 
B)  Test data must consist of all possible valid and invalid conditions. 
C)  Testing a program at year end provides assurance that the entity's processing was accurate for the entire year. 
D)  Several transactions of each type must be tested.

Question 19

For which of the following internal controls would an auditor be least likely to perform tests of internal controls closer to the "as of" date?

Accepted Answer

A)  Withdrawals from Federal Bank of more than $5 million must include a manager's signature. 
B)  At the end of each day at Federal Bank, the total cash in the vault is reconciled with daily registers of deposits and withdrawals. 
C)  Federal Bank has just started establishing trusts for its customers and it has only set up ten such trusts. Before making an investment for a trust, bank employees must verify that the investment is in accordance with stated investment policies. 
D)  On an annual basis, Federal Bank management performs credit checks on its loan customers before determining the value of loans it will not be able to collect on.

Question 20

Which of the following is true of generalized audit software packages?

Accepted Answer

A)  They can be used only in auditing online computer systems. 
B)  They can be used on any computer without modification. 
C)  They each have their own characteristics that the auditor must carefully consider before using in a given audit situation. 
D)  They enable the auditor to perform all manual test procedures less expensively.

Exam 7: Auditing Internal Control Over Financial Reporting