Question 1

Certain relevant principles dictate the proper design and use of documents and records.Which one is NOT correct? Documents and records should be:

Accepted Answer

A)  prepared at some time after a transaction takes place. 
B)  sufficiently simple to ensure they are clearly understood. 
C)  designed for multiple use. 
D)  prenumbered consecutively. 
A)  prepared at some time after a transaction takes place. 
B)  sufficiently simple to ensure they are clearly understood. 
C)  designed for multiple use. 
D)  prenumbered consecutively. A

Question 2

Procedures used to obtain an understanding of internal control are normally performed on fewer transactions than procedures used to test controls.

Accepted Answer

A) True 
 B)False  True

Question 3

An example of a monitoring activity would be reviewing complaints from customers.

Accepted Answer

A) True 
 B)False  True

Question 4

For efficiency, if internal controls are ignored, then control risk is assumed to be maximum.

Accepted Answer

A) True 
 B)False

Question 5

Tests of controls are conducted when:

Accepted Answer

A)  the auditor determines that substantive testing is not effective. 
B)  control risk may be higher than the initial assessment. 
C)  controls are expected to be operating effectively. 
D)  controls are not operating as effectively as initially assessed. 
A)  the auditor determines that substantive testing is not effective. 
B)  control risk may be higher than the initial assessment. 
C)  controls are expected to be operating effectively. 
D)  controls are not operating as effectively as initially assessed.

Question 6

It is not always practicable to apply tests of controls to transactions over the entire year.

Accepted Answer

A) True 
 B)False

Question 7

Once an understanding of the client's internal control is obtained that is sufficient for audit planning, then the auditor must first assess:

Accepted Answer

A)  the level of control risk supported by the understanding obtained. 
B)  whether a lower level of control risk could be supported. 
C)  whether the financial statements are auditable. 
D)  the level of control risk. 
A)  the level of control risk supported by the understanding obtained. 
B)  whether a lower level of control risk could be supported. 
C)  whether the financial statements are auditable. 
D)  the level of control risk.

Question 8

It is more common for the auditor's assessment of control risk to be low when auditing larger clients than smaller clients.

Accepted Answer

A) True 
 B)False

Question 9

When planning an audit, the auditor's assessed level of control risk is:

Accepted Answer

A)  an economic issue, trading off the costs of testing controls against the cost of testing balances. 
B)  calculated by using the formulas provided in ASA 315. 
C)  determined by using actuarial tables. 
D)  calculated by using the audit risk model. 
A)  an economic issue, trading off the costs of testing controls against the cost of testing balances. 
B)  calculated by using the formulas provided in ASA 315. 
C)  determined by using actuarial tables. 
D)  calculated by using the audit risk model.

Question 10

If evidence was obtained in the prior year's audit that indicates a key control was operating effectively:

Accepted Answer

A)  the extent of tests of that control may be reduced this year if the auditor determines that it is still in place. 
B)  the tests of that control will be reduced this year. 
C)  it will be unnecessary to test that control this year. 
D)  the auditor would not test this area again this year. 
A)  the extent of tests of that control may be reduced this year if the auditor determines that it is still in place. 
B)  the tests of that control will be reduced this year. 
C)  it will be unnecessary to test that control this year. 
D)  the auditor would not test this area again this year.

Question 11

A major control available in a small company, which might not be feasible in a large company, is:

Accepted Answer

A)  a wider segregation of duties. 
B)  a voucher system. 
C)  the owner-manager's personal interest and close relationship with the personnel. 
D)  fewer transactions to process. 
A)  a wider segregation of duties. 
B)  a voucher system. 
C)  the owner-manager's personal interest and close relationship with the personnel. 
D)  fewer transactions to process.

Question 12

Which of the following is NOT a type of audit evidence used in assessing internal control?

Accepted Answer

A)  checking approval of customer sales orders 
B)  matching prices on sales invoices against a standard price list 
C)  observing staff performing their duties 
D)  observing the inventory count 
A)  checking approval of customer sales orders 
B)  matching prices on sales invoices against a standard price list 
C)  observing staff performing their duties 
D)  observing the inventory count

Question 13

The most important type of protective measure for safeguarding assets and records is:

Accepted Answer

A)  adequate documentation. 
B)  adequate separation of duties among personnel. 
C)  the use of physical precautions. 
D)  proper authorisation of transactions. 
A)  adequate documentation. 
B)  adequate separation of duties among personnel. 
C)  the use of physical precautions. 
D)  proper authorisation of transactions.

Question 14

Three steps must be completed by the auditor before he or she can conclude that control risk is low.Discuss these three steps.

Accepted Answer

The three steps that must be completed b

Question 15

The auditor's primary objective to obtain an understanding of internal control is that it must provide:

Accepted Answer

A)  reasonable protection against client fraud and defalcations by client employees. 
B)  an understanding that is sufficient for the auditor to plan the audit adequately. 
C)  a basis for constructive suggestions to the client for improving the accounting system. 
D)  a method for safeguarding assets, checking the accuracy and reliability of accounting data, promoting operational efficiency, and encouraging adherence to prescribed managerial policies. 
A)  reasonable protection against client fraud and defalcations by client employees. 
B)  an understanding that is sufficient for the auditor to plan the audit adequately. 
C)  a basis for constructive suggestions to the client for improving the accounting system. 
D)  a method for safeguarding assets, checking the accuracy and reliability of accounting data, promoting operational efficiency, and encouraging adherence to prescribed managerial policies.

Question 16

Internal control comprises the plan of the organisation and the procedures and records that are concerned with:

Accepted Answer

A)  reliability of statistical data. 
B)  achievement of the company's objectives and goals. 
C)  authorisation of transactions. 
D)  decision processes of management. 
A)  reliability of statistical data. 
B)  achievement of the company's objectives and goals. 
C)  authorisation of transactions. 
D)  decision processes of management.

Question 17

If employees are competent and trustworthy, how does this affect controls?

Accepted Answer

A)  All employees need numerous controls. 
B)  All employees become bored or dissatisfied. 
C)  Other controls can be absent. 
D)  All employees can reduce the system to a shambles. 
A)  All employees need numerous controls. 
B)  All employees become bored or dissatisfied. 
C)  Other controls can be absent. 
D)  All employees can reduce the system to a shambles.

Question 18

Which of the following is not an inherent limitation of internal controls?

Accepted Answer

A)  inappropriate assessment of the effectiveness of internal controls 
B)  collusion by employees 
C)  management overriding a control 
D)  misunderstanding of instructions 
A)  inappropriate assessment of the effectiveness of internal controls 
B)  collusion by employees 
C)  management overriding a control 
D)  misunderstanding of instructions

Question 19

When a compensating control exists, a deficiency in the system:

Accepted Answer

A)  is magnified and must be removed from the sampling process and examined in its entirety. 
B)  could cause a material loss, so it must be tested using substantive procedures. 
C)  is reduced but not removed; therefore, it is still of concern to the auditor. 
D)  is no longer a concern because the potential for misstatement has been sufficiently reduced. 
A)  is magnified and must be removed from the sampling process and examined in its entirety. 
B)  could cause a material loss, so it must be tested using substantive procedures. 
C)  is reduced but not removed; therefore, it is still of concern to the auditor. 
D)  is no longer a concern because the potential for misstatement has been sufficiently reduced.

Question 20

Which one of the following is NOT a control related to safeguarding IT equipment, programs, and data files?

Accepted Answer

A)  access controls 
B)  physical controls 
C)  automated internal verification procedures 
D)  backup and recovery procedures 
A)  access controls 
B)  physical controls 
C)  automated internal verification procedures 
D)  backup and recovery procedures

Certain relevant principles dictate the proper design and use of documents and records.Which one is NOT correct? Documents and records should be:

Procedures used to obtain an understanding of internal control are normally performed on fewer transactions than procedures used to test controls.

An example of a monitoring activity would be reviewing complaints from customers.

For efficiency, if internal controls are ignored, then control risk is assumed to be maximum.

Tests of controls are conducted when:

It is not always practicable to apply tests of controls to transactions over the entire year.

Once an understanding of the client's internal control is obtained that is sufficient for audit planning, then the auditor must first assess:

It is more common for the auditor's assessment of control risk to be low when auditing larger clients than smaller clients.

When planning an audit, the auditor's assessed level of control risk is:

If evidence was obtained in the prior year's audit that indicates a key control was operating effectively:

A major control available in a small company, which might not be feasible in a large company, is:

Which of the following is NOT a type of audit evidence used in assessing internal control?

The most important type of protective measure for safeguarding assets and records is:

Three steps must be completed by the auditor before he or she can conclude that control risk is low.Discuss these three steps.

The auditor's primary objective to obtain an understanding of internal control is that it must provide:

Internal control comprises the plan of the organisation and the procedures and records that are concerned with:

If employees are competent and trustworthy, how does this affect controls?

Which of the following is not an inherent limitation of internal controls?

When a compensating control exists, a deficiency in the system:

Which one of the following is NOT a control related to safeguarding IT equipment, programs, and data files?

Demand for audit and assurance services

Auditors’ legal environment

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Fraud auditing

The impact of information technology on the audit process

Overall audit plan and audit program

Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters

Exam 8: Internal control and control risk

Certain relevant principles dictate the proper design and use of documents and records.Which one is NOT correct? Documents and records should be:

Procedures used to obtain an understanding of internal control are normally performed on fewer transactions than procedures used to test controls.

An example of a monitoring activity would be reviewing complaints from customers.

For efficiency, if internal controls are ignored, then control risk is assumed to be maximum.

Tests of controls are conducted when:

It is not always practicable to apply tests of controls to transactions over the entire year.

Once an understanding of the client's internal control is obtained that is sufficient for audit planning, then the auditor must first assess:

It is more common for the auditor's assessment of control risk to be low when auditing larger clients than smaller clients.

When planning an audit, the auditor's assessed level of control risk is:

If evidence was obtained in the prior year's audit that indicates a key control was operating effectively:

A major control available in a small company, which might not be feasible in a large company, is:

Which of the following is NOT a type of audit evidence used in assessing internal control?

The most important type of protective measure for safeguarding assets and records is:

Three steps must be completed by the auditor before he or she can conclude that control risk is low.Discuss these three steps.

The auditor's primary objective to obtain an understanding of internal control is that it must provide:

Internal control comprises the plan of the organisation and the procedures and records that are concerned with:

If employees are competent and trustworthy, how does this affect controls?

Which of the following is not an inherent limitation of internal controls?

When a compensating control exists, a deficiency in the system:

Which one of the following is NOT a control related to safeguarding IT equipment, programs, and data files?

Demand for audit and assurance services

Auditors’ legal environment

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Fraud auditing

The impact of information technology on the audit process

Overall audit plan and audit program

Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters