Question 1

After obtaining an understanding of a client's financial reporting control activities, the auditor would next:

Accepted Answer

A) test the client's control activities. 
B) assess the final control risk. 
C) document the understanding obtained. 
D) plan the remainder of the audit work. 
A) test the client's control activities. 
B) assess the final control risk. 
C) document the understanding obtained. 
D) plan the remainder of the audit work. C

Question 2

Which of the following payroll control activities would most effectively ensure that payment is made only for work performed?

Accepted Answer

A) Require all employees to record arrival and departure by using the time clock. 
B) Have a payroll clerk recalculate all time cards. 
C) Require all employees to sign their time cards. 
D) Require employees to have their direct supervisors approve their time cards. 
A) Require all employees to record arrival and departure by using the time clock. 
B) Have a payroll clerk recalculate all time cards. 
C) Require all employees to sign their time cards. 
D) Require employees to have their direct supervisors approve their time cards. D

Question 3

If auditors assess control risk at the maximum level, they will tend to:

Accepted Answer

A) perform a great deal of additional tests of controls. 
B) perform a great deal of substantive testing during the audit. 
C) perform substantive tests at an interim date. 
D) perform more audit procedures using internal evidence. 
A) perform a great deal of additional tests of controls. 
B) perform a great deal of substantive testing during the audit. 
C) perform substantive tests at an interim date. 
D) perform more audit procedures using internal evidence. B

Question 4

Proper separation of duties reduces the opportunities to allow persons to be in positions to both:

Accepted Answer

A) journalize entries and prepare financial statements. 
B) record cash receipts and cash disbursements. 
C) establish internal controls and authorize transactions. 
D) perpetrate a fraud and then conceal it in the books. 
A) journalize entries and prepare financial statements. 
B) record cash receipts and cash disbursements. 
C) establish internal controls and authorize transactions. 
D) perpetrate a fraud and then conceal it in the books.

Question 5

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as:

Accepted Answer

A) management assertions. 
B) the control environment. 
C) control risk assessment. 
D) functional responsibilities. 
A) management assertions. 
B) the control environment. 
C) control risk assessment. 
D) functional responsibilities.

Question 6

An auditor is evaluating a client's internal controls. Which of the following situations would be the most difficult internal control issue for an auditor to detect?

Accepted Answer

A) The accounting staff neglects the control, due to increased transactions to be processed. 
B) The technology department writes a program that does not properly implement the control, due to a lack of understanding. 
C) Two employees, who work in different departments, are circumventing an internal control. 
D) Someone erroneously disables edit checks in a software program designed to identify control exceptions. 
A) The accounting staff neglects the control, due to increased transactions to be processed. 
B) The technology department writes a program that does not properly implement the control, due to a lack of understanding. 
C) Two employees, who work in different departments, are circumventing an internal control. 
D) Someone erroneously disables edit checks in a software program designed to identify control exceptions.

Question 7

When auditing financial statements of a private company, the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements?

Accepted Answer

A) Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness. 
B) Determine whether the company's control policies are designed well enough to prevent material misstatements. 
C) Prepare auditing working papers that document the auditor's understanding of the company's internal control. 
D) Design procedures to search for significant deficiencies in the actual operation of the company's internal control. 
A) Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness. 
B) Determine whether the company's control policies are designed well enough to prevent material misstatements. 
C) Prepare auditing working papers that document the auditor's understanding of the company's internal control. 
D) Design procedures to search for significant deficiencies in the actual operation of the company's internal control.

Question 8

In an audit of financial statements, an auditor's primary consideration regarding an internal control policy or activity is whether the policy or activity:

Accepted Answer

A) reflects management's philosophy and operating style. 
B) affects management's financial statement assertions. 
C) provides adequate safeguards over access to assets. 
D) enhances management's decision making processes. 
A) reflects management's philosophy and operating style. 
B) affects management's financial statement assertions. 
C) provides adequate safeguards over access to assets. 
D) enhances management's decision making processes.

Question 9

Which of the following is a factor in the control environment?

Accepted Answer

A) Segregation of duties. 
B) Information processing. 
C) Performance reviews. 
D) Management's philosophy and operating style. 
A) Segregation of duties. 
B) Information processing. 
C) Performance reviews. 
D) Management's philosophy and operating style.

Question 10

List several elements of a company's control environment.

Accepted Answer

Some of the elements of a control enviro

Question 11

In testing control activities, an auditor ordinarily selects from a variety of techniques, including:

Accepted Answer

A) inquiry and analytical procedures. 
B) reperformance and observation. 
C) comparison and confirmation. 
D) inspection and verification. 
A) inquiry and analytical procedures. 
B) reperformance and observation. 
C) comparison and confirmation. 
D) inspection and verification.

Question 12

What are some of the problems in establishing an internal control system in small business?

Accepted Answer

Internal control problems in small busin

Question 13

What is the difference between a significant deficiency and a material weakness?

Accepted Answer

The difference between a signi

Question 14

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

Accepted Answer

A) Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls. 
B) Perform tests of details of transactions and account balances to identify potential errors and fraud. 
C) Identify specific internal control policies and activities that are likely to detect or prevent material misstatements. 
D) Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing. 
A) Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls. 
B) Perform tests of details of transactions and account balances to identify potential errors and fraud. 
C) Identify specific internal control policies and activities that are likely to detect or prevent material misstatements. 
D) Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing.

Question 15

A report on internal control effectiveness by the management team of public companies is required by:

Accepted Answer

A) the Sarbanes-Oxley Act of 2002. 
B) the PCAOB. 
C) the AICPA. 
D) the auditors. 
A) the Sarbanes-Oxley Act of 2002. 
B) the PCAOB. 
C) the AICPA. 
D) the auditors.

Question 16

Which of the following procedures is considered a test of controls?

Accepted Answer

A) An auditor reviews the entity's check register for unrecorded liabilities. 
B) An auditor evaluates whether a general journal entry was recorded at the proper amount. 
C) An auditor interviews and observes appropriate personnel to determine segregation of duties. 
D) An auditor reviews the audit workpapers to ensure proper sign-off. 
A) An auditor reviews the entity's check register for unrecorded liabilities. 
B) An auditor evaluates whether a general journal entry was recorded at the proper amount. 
C) An auditor interviews and observes appropriate personnel to determine segregation of duties. 
D) An auditor reviews the audit workpapers to ensure proper sign-off.

Question 17

When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate?

Accepted Answer

A) Test the operating effectiveness of such controls in the current audit. 
B) Document that reliance and proceed with the original audit strategy. 
C) Inquire of management as to the effectiveness of the controls. 
D) Report the reliance in the report on internal controls. 
A) Test the operating effectiveness of such controls in the current audit. 
B) Document that reliance and proceed with the original audit strategy. 
C) Inquire of management as to the effectiveness of the controls. 
D) Report the reliance in the report on internal controls.

Question 18

What are the six steps auditors of public companies should use to audit internal control over financial reporting (ICOFR)?

Accepted Answer

Planning the engagementUsing a top-down

Question 19

In computer systems, the information technology general controls (ITGC) would not include:

Accepted Answer

A) processing control activities. 
B) separation of various computer system functions. 
C) appropriate documentation of the data processing system. 
D) control over physical access to computer hardware. 
A) processing control activities. 
B) separation of various computer system functions. 
C) appropriate documentation of the data processing system. 
D) control over physical access to computer hardware.

Question 20

Which of the following is a definition of control risk?

Accepted Answer

A) The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls. 
B) The risk that the auditor will not detect a material misstatement. 
C) The risk that the auditor's assessment of internal controls will be at less than the maximum level. 
D) The susceptibility of material misstatement assuming there are no related internal controls, policies, or procedures. 
A) The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls. 
B) The risk that the auditor will not detect a material misstatement. 
C) The risk that the auditor's assessment of internal controls will be at less than the maximum level. 
D) The susceptibility of material misstatement assuming there are no related internal controls, policies, or procedures.

After obtaining an understanding of a client's financial reporting control activities, the auditor would next:

Which of the following payroll control activities would most effectively ensure that payment is made only for work performed?

If auditors assess control risk at the maximum level, they will tend to:

Proper separation of duties reduces the opportunities to allow persons to be in positions to both:

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as:

An auditor is evaluating a client's internal controls. Which of the following situations would be the most difficult internal control issue for an auditor to detect?

When auditing financial statements of a private company, the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements?

In an audit of financial statements, an auditor's primary consideration regarding an internal control policy or activity is whether the policy or activity:

Which of the following is a factor in the control environment?

List several elements of a company's control environment.

In testing control activities, an auditor ordinarily selects from a variety of techniques, including:

What are some of the problems in establishing an internal control system in small business?

What is the difference between a significant deficiency and a material weakness?

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

A report on internal control effectiveness by the management team of public companies is required by:

Which of the following procedures is considered a test of controls?

When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate?

What are the six steps auditors of public companies should use to audit internal control over financial reporting (ICOFR)?

In computer systems, the information technology general controls (ITGC) would not include:

Which of the following is a definition of control risk?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Employee Fraud and the Audit of Cash 227

Revenue and Collection Cycle 279

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Reports on Audited Financial Statements

Filters

Exam 5: Risk Assessment: Internal Control Evaluation

After obtaining an understanding of a client's financial reporting control activities, the auditor would next:

Which of the following payroll control activities would most effectively ensure that payment is made only for work performed?

If auditors assess control risk at the maximum level, they will tend to:

Proper separation of duties reduces the opportunities to allow persons to be in positions to both:

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as:

An auditor is evaluating a client's internal controls. Which of the following situations would be the most difficult internal control issue for an auditor to detect?

When auditing financial statements of a private company, the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements?

In an audit of financial statements, an auditor's primary consideration regarding an internal control policy or activity is whether the policy or activity:

Which of the following is a factor in the control environment?

List several elements of a company's control environment.

In testing control activities, an auditor ordinarily selects from a variety of techniques, including:

What are some of the problems in establishing an internal control system in small business?

What is the difference between a significant deficiency and a material weakness?

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

A report on internal control effectiveness by the management team of public companies is required by:

Which of the following procedures is considered a test of controls?

When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate?

What are the six steps auditors of public companies should use to audit internal control over financial reporting (ICOFR)?

In computer systems, the information technology general controls (ITGC) would not include:

Which of the following is a definition of control risk?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Employee Fraud and the Audit of Cash 227

Revenue and Collection Cycle 279

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Reports on Audited Financial Statements

Filters