Question 1

Flowcharts involve:

Accepted Answer

A)  the auditor summarizing in boxes each step of a transaction from start to finish. 
B)  the auditor describing in words each step of the flow of transactions from start to finish. 
C)  both a and b 
D)  none of the above.

Question 2

Internal control encompasses which of the following elements of an organization?

Accepted Answer

A)  processes 
B)  culture 
C)  systems 
D)  all of the above

Question 3

One of the elements of an entity's control environment is management's philosophy and operating style.

Accepted Answer

A) True 
 B)False

Question 4

Which assertion is not specifically addressed by internal control objectives?

Accepted Answer

A)  cut-off 
B)  presentation and disclosure 
C)  completeness 
D)  existence

Question 5

Audit risk is the risk that an entity's internal control system will not prevent or detect material misstatements.

Accepted Answer

A) True 
 B)False

Question 6

Internal control is intended to provide reasonable assurance about the achievement of an entity's objectives.

Accepted Answer

A) True 
 B)False

Question 7

Detection risk refers to:

Accepted Answer

A)  the susceptibility of an assertion to a material misstatement, assuming there are no related controls. 
B)  the risk that the auditor's testing procedures will not be effective in detecting a material misstatement. 
C)  the risk that a client's system of internal controls will not prevent or detect a material misstatement. 
D)  none of the above.

Question 8

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) During her career as a public accountant, Carolina Doukas has performed audits of large and medium sized clients. When she visited a small business client, a food wholesaler that has had a history of poor controls, she gave a lot of thought to performing her planned audit approach. She decided to use the combined audit approach.
b) Tanya Konczynski was discussing with her audit manager how she could assess whether controls are being monitored. Her audit manager mentioned that the internal audit function is a primary source of assessing and monitoring control activities.
c) The audit senior has been reviewing the key controls in the purchasing and payables process. She has been asked by a junior auditor: "When should the client set up the payable?" She answers: "The company can set up the payable when the goods are received in good order, and then the client can make the payment when the invoice is received."
d) The auditor decided to review transaction-level controls at year-end.

Accepted Answer

The answer of Indicate whether you agree or disagree with...

Question 9

Anwar Maris is considering whether to use a checklist or narrative approach to describing the purchasing system of an environmental engineering company. What part of the audit process is he involved in?

Accepted Answer

A)  documenting internal controls 
B)  risk assessment of company 
C)  review of control environment 
D)  none of the above

Question 10

Which of the following is an inherent limitation of internal control?

Accepted Answer

A)  a control within a software program being overridden or disabled 
B)  human error that results in a breakdown in internal control 
C)  collusion by two or more individuals to circumvent a control 
D)  all of the above

Question 11

For identified risks, management:

Accepted Answer

A)  assesses the likelihood of their occurrence. 
B)  decides upon actions to manage them. 
C)  estimates their significance. 
D)  all of the above.

Question 12

Which of the following is an element of the control environment?

Accepted Answer

A)  participation by those charged with governance 
B)  commitment to competence 
C)  segregation of duties 
D)  both a and b

Question 13

What are control activities and explain the major categories of them?

Accepted Answer

The answer of What are control activities and explain the...

Question 14

Which of the following is not an example of an internal control for the sales process?

Accepted Answer

A)  credit committee review of credit limits on a quarterly basis 
B)  approved purchase order is reconciled to invoice 
C)  application control that only allows orders to be processed against existing approved customers with enough unused credit limit 
D)  invoices automatically generated from order documents

Question 15

When gaining an understanding of the client's monitoring processes at the entity level, factors ordinarily considered include:

Accepted Answer

A)  evaluations or observations made by the external auditors. 
B)  management's approach to correcting known significant deficiencies on a timely basis. 
C)  both a and b 
D)  none of the above.

Question 16

Checklists and preformatted questionnaires are particularly helpful in industries that the auditor may not personally be familiar with auditing.

Accepted Answer

A) True 
 B)False

Question 17

In larger entities, there are often limitations surrounding the entity's ability to put effective internal controls in place.

Accepted Answer

A) True 
 B)False

Question 18

The inherent limitations of internal control include the possibility of collusion by two or more individuals to circumvent a control.

Accepted Answer

A) True 
 B)False

Question 19

Mona Kew is reviewing the purchasing and payments process. At which stage would she determine that purchases that are being made are properly authorized?

Accepted Answer

A)  purchase requisition transaction 
B)  recording purchases and related items transaction 
C)  invoicing transaction 
D)  purchasing transaction

Question 20

When Vanessa Lanthier reviewed the different key activities in the marketing department of a wholesaler of jewellery, she was performing an entity level review of:

Accepted Answer

A)  monitoring controls. 
B)  the control environment. 
C)  internal controls. 
D)  the risk assessment process.

Exam 7: Sampling and Overview of the Risk Response Phase of the Audit

Flowcharts involve:

Internal control encompasses which of the following elements of an organization?

One of the elements of an entity's control environment is management's philosophy and operating style.

Which assertion is not specifically addressed by internal control objectives?

Audit risk is the risk that an entity's internal control system will not prevent or detect material misstatements.

Internal control is intended to provide reasonable assurance about the achievement of an entity's objectives.

Detection risk refers to:

Anwar Maris is considering whether to use a checklist or narrative approach to describing the purchasing system of an environmental engineering company. What part of the audit process is he involved in?

Which of the following is an inherent limitation of internal control?

For identified risks, management:

Which of the following is an element of the control environment?

What are control activities and explain the major categories of them?

Which of the following is not an example of an internal control for the sales process?

When gaining an understanding of the client's monitoring processes at the entity level, factors ordinarily considered include:

Checklists and preformatted questionnaires are particularly helpful in industries that the auditor may not personally be familiar with auditing.

In larger entities, there are often limitations surrounding the entity's ability to put effective internal controls in place.

The inherent limitations of internal control include the possibility of collusion by two or more individuals to circumvent a control.

Mona Kew is reviewing the purchasing and payments process. At which stage would she determine that purchases that are being made are properly authorized?

When Vanessa Lanthier reviewed the different key activities in the marketing department of a wholesaler of jewellery, she was performing an entity level review of: