Question 1

The purpose of the management letter is to inform:

Accepted Answer

A)  the auditor with concerns held by the client's management about the audit fee
B)  the client's audit committee of disagreements with management
C)  the client of the auditor's recommendations for improving its internal controls
D)  the client's management of the auditor's opinion on the company's financial statements C

Question 2

When internal controls are effective:

Accepted Answer

A)  the organisation is more likely to achieve its strategic and operating objectives
B)  there will be an increased reliance on substantive tests of transactions and account balances
C)  control risk will also be high
D)  the organisation is less likely to achieve its strategic and operating objectives A

Question 3

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  False

Question 4

For identified risks,management:

Accepted Answer

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

Question 5

An internal control exception is:

Accepted Answer

A)  only expected to exist when internal controls are effective
B)  an observed condition that provides evidence that the control being tested did not operate as indicated
C)  both a and b
D)  an observed condition that provides evidence that the control being tested did operate as indicated

Question 6

Which of the following statements about internal control is in?

Accepted Answer

A)  Internal control encompasses all of the elements of an organisation
B)  Internal control provides reasonable assurance about the achievement of the entity's objectives
C)  Internal control eliminates the possibility of fraud and error
D)  Internal control is a very broad concept

Question 7

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

Accepted Answer

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

Question 8

Control risk refers to the risk that the auditor's testing procedures will not be effective in detecting a material misstatement.

Accepted Answer

A) True 
 B)False

Question 9

For purchasing inventory transactions,an example of a risk that arises is:

Accepted Answer

A)  goods that have been sold and invoiced are included in the inventory on hand
B)  the wrong labour costs are added to the cost of individual inventory items
C)  the wrong amount is paid against an invoice
D)  the wrong quantities are recorded during the stocktake

Question 10

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)  Invoices automatically generated from order and dispatch document
D)  Application control that only allows orders to be processed against existing approved customers with enough unused credit limit

Question 11

ASA260 Communication of Audit Matters with Those Charged with Governance requires auditors to communicate audit matters of governance interest arising from the audit of the financial report with those charged with governance of an entity.What are some examples of these matters and why is it important for auditors to communicate them?

Accepted Answer

The answer of ASA260 Communication of Audit Matters with Those...

Question 12

The concept that no one employee should be in a position both to perpetrate and hide errors or fraud in the normal course of their duties is known as segregation of incompatible duties.

Accepted Answer

A) True 
 B)False

Question 13

The internal control objective of 'valued' refers to controls in place to ensure that transactions are recorded in the accounting period.

Accepted Answer

A) True 
 B)False

Question 14

Internal control weaknesses decrease the risk of material misstatements being undetected by management's processes and controls.

Accepted Answer

A) True 
 B)False

Question 15

What is a management letter and what are its major purposes?

Accepted Answer

The answer of What is a management letter and what...

Question 16

All of the following are components of internal control,except for:

Accepted Answer

A)  the information system
B)  audit committees
C)  monitoring of controls
D)  the control environment

Question 17

The most common ways of auditors documenting their understanding of internal controls include:

Accepted Answer

A)  preformatted questionnaires
B)  flowcharts
C)  narratives
D)  all of the above

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Exam 6: Gaining an Understanding of the Clients System of Internal Controls

The purpose of the management letter is to inform:

When internal controls are effective:

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

For identified risks,management:

An internal control exception is:

Which of the following statements about internal control is in?

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

Control risk refers to the risk that the auditor's testing procedures will not be effective in detecting a material misstatement.

For purchasing inventory transactions,an example of a risk that arises is:

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

The concept that no one employee should be in a position both to perpetrate and hide errors or fraud in the normal course of their duties is known as segregation of incompatible duties.

The internal control objective of 'valued' refers to controls in place to ensure that transactions are recorded in the accounting period.

Internal control weaknesses decrease the risk of material misstatements being undetected by management's processes and controls.

What is a management letter and what are its major purposes?

All of the following are components of internal control,except for:

The most common ways of auditors documenting their understanding of internal controls include:

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

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

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