Question 1

Understanding components of internal control and assessing the level of control risk are primarily used by the auditor to:

Accepted Answer

A)  determine whether procedures and records concerning the safeguarding of assets are reliable. 
B)  modify the initial assessments of inherent risk and preliminary judgements about materiality levels. 
C)  determine the nature, timing, and extent of substantive tests for financial statement assertions. 
D)  ascertain whether the opportunities to allow any person to both perpetrate and conceal irregularities are minimised. 
A)  determine whether procedures and records concerning the safeguarding of assets are reliable. 
B)  modify the initial assessments of inherent risk and preliminary judgements about materiality levels. 
C)  determine the nature, timing, and extent of substantive tests for financial statement assertions. 
D)  ascertain whether the opportunities to allow any person to both perpetrate and conceal irregularities are minimised.

Question 2

A system of internal accounting control normally would include procedures that are designed to provide reasonable assurance that:

Accepted Answer

A)  transactions are executed in accordance with management's general or specific authorisation. 
B)  employees act with integrity when performing their assigned tasks. 
C)  collusive activities would be detected by segregation of employee duties. 
D)  unusual transactions are accurately recorded. 
A)  transactions are executed in accordance with management's general or specific authorisation. 
B)  employees act with integrity when performing their assigned tasks. 
C)  collusive activities would be detected by segregation of employee duties. 
D)  unusual transactions are accurately recorded.

Question 3

Reportable conditions are matters that come to an auditor's attention, which should be communicated to an entity's audit committee because they represent:

Accepted Answer

A)  significant deficiencies in the design or operation of the internal controls. 
B)  flagrant violations of the entity's documented conflict-of-interest policies. 
C)  intentional attempts by client personnel to limit the scope of the auditor's field work. 
D)  material irregularities or illegal acts perpetrated by high-level management. 
A)  significant deficiencies in the design or operation of the internal controls. 
B)  flagrant violations of the entity's documented conflict-of-interest policies. 
C)  intentional attempts by client personnel to limit the scope of the auditor's field work. 
D)  material irregularities or illegal acts perpetrated by high-level management.

Question 4

Which of the following is NOT typically one of management's concerns in designing effective internal controls?

Accepted Answer

A)  reliability of financial reporting 
B)  compliance with applicable laws and regulations 
C)  obtaining the best internal control system possible 
D)  efficiency and effectiveness of operations 
A)  reliability of financial reporting 
B)  compliance with applicable laws and regulations 
C)  obtaining the best internal control system possible 
D)  efficiency and effectiveness of operations

Question 5

The reason to prevent those who authorise transactions from having control over the related asset is to protect the company primarily against:

Accepted Answer

A)  defalcation. 
B)  error. 
C)  non-compliance with accounting standards. 
D)  unbiased information. 
A)  defalcation. 
B)  error. 
C)  non-compliance with accounting standards. 
D)  unbiased information.

Question 6

One benefit of effective internal control is the guarantee that all employee frauds will now be detected.

Accepted Answer

A) True 
 B)False

Question 7

There is a distinction between approval and authorisation.Approval is a policy decision for a general class of transactions.Authorisation is the implementation of management's general authorisation decisions.

Accepted Answer

A) True 
 B)False

Question 8

The auditor can conclude that control risk is low:

Accepted Answer

A)  after identifying specific controls that will reduce control risk and making an assessment of control risk. 
B)  after testing the controls for effectiveness. 
C)  after obtaining an understanding of the control environment and the accounting system at a fairly detailed level. 
D)  only after all three steps above are completed. 
A)  after identifying specific controls that will reduce control risk and making an assessment of control risk. 
B)  after testing the controls for effectiveness. 
C)  after obtaining an understanding of the control environment and the accounting system at a fairly detailed level. 
D)  only after all three steps above are completed.

Question 9

Match seven of the nine terms (a-i) with the seven definitions provided below (1-7):
a.	control environment
b.	control activities
c.	independent checks on performance
d.	internal control
e.	monitoring
f.	separation of duties
g.	general authorisation
h.	specific authorisation
i.	risk assessment

1.	management's ongoing and periodic assessment of the quality of internal control performance to determine that controls are operating as intended and modified when needed
2.	company-wide policies for the approval of all transactions within stated limits
3.	the actions, policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about control and its importance to the entity
4.	segregation of the following activities in an organisation: custody of assets, accounting, authorisation, and operational responsibility
5.	management's identification and analysis of risks relevant to the preparation of financial statements in accordance with applicable accounting standards
6.	policies and procedures that help ensure necessary actions are taken to address risks in the achievement of the entity's objective
7.	a process designed to provide reasonable assurance regarding the achievement of management's objectives in the following categories: (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with applicable laws and regulations

Accepted Answer

1.	e
2.	g

Question 10

The auditor's assessment of control risk and the extent of tests of controls are inversely related; that is, if the auditor's assessment of control risk decreases, more extensive tests of controls are applied.

Accepted Answer

A) True 
 B)False

Question 11

The auditor need NOT be concerned with all three areas of internal control that apply to management.The auditor's primary concerns are with the system's ability to:

Accepted Answer

A)  ensure reliability of financial reporting. 
B)  provide reliable data, safeguard assets, and comply with the Corporations Act. 
C)  promote efficiency and encourage adherence to policy. 
D)  provide reliable data and promote efficiency. 
A)  ensure reliability of financial reporting. 
B)  provide reliable data, safeguard assets, and comply with the Corporations Act. 
C)  promote efficiency and encourage adherence to policy. 
D)  provide reliable data and promote efficiency.

Question 12

Management, with the help of the auditor, must establish and maintain the entity's controls.

Accepted Answer

A) True 
 B)False

Question 13

If the auditor decides to go for a lower assessed control risk, more extensive tests of controls are applied.

Accepted Answer

A) True 
 B)False

Question 14

Adequate documents and records are important for effective internal control.Discuss each of the five principles that dictate the proper design and use of documents and records.

Accepted Answer

Documents and records should be designed

Question 15

Which of the following is NOT an objective of management in designing internal control systems?

Accepted Answer

A)  reducing control risk 
B)  compliance with applicable laws and regulations 
C)  efficient and effective use of resources 
D)  reliable financial reporting 
A)  reducing control risk 
B)  compliance with applicable laws and regulations 
C)  efficient and effective use of resources 
D)  reliable financial reporting

Question 16

Which one of the following is NOT a component of an entity's internal control?

Accepted Answer

A)  the accounting system 
B)  the control environment 
C)  control risk 
D)  control procedures 
A)  the accounting system 
B)  the control environment 
C)  control risk 
D)  control procedures

Question 17

Authorisations can be either general or specific.Which one of the following is NOT an example of a general authorisation?

Accepted Answer

A)  credit limits for various classes of customers 
B)  a sales price list for merchandise 
C)  a sales manager's authorisation for a sales return 
D)  automatic reorder points for raw materials inventory 
A)  credit limits for various classes of customers 
B)  a sales price list for merchandise 
C)  a sales manager's authorisation for a sales return 
D)  automatic reorder points for raw materials inventory

Question 18

When the auditor identifies significant deficiencies in the design or operation of internal controls, it will be communicated to client's audit committee in the:

Accepted Answer

A)  audit report. 
B)  reportable conditions letter. 
C)  management letter. 
D)  engagement letter. 
A)  audit report. 
B)  reportable conditions letter. 
C)  management letter. 
D)  engagement letter.

Question 19

Each key control that the auditor intends to rely on must be supported by sufficient:

Accepted Answer

A)  tests of transactions. 
B)  tests of controls. 
C)  reperformance procedures. 
D)  analytical review procedures. 
A)  tests of transactions. 
B)  tests of controls. 
C)  reperformance procedures. 
D)  analytical review procedures.

Question 20

Tests of controls are conducted when:

Accepted Answer

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

Understanding components of internal control and assessing the level of control risk are primarily used by the auditor to:

A system of internal accounting control normally would include procedures that are designed to provide reasonable assurance that:

Reportable conditions are matters that come to an auditor's attention, which should be communicated to an entity's audit committee because they represent:

Which of the following is NOT typically one of management's concerns in designing effective internal controls?

The reason to prevent those who authorise transactions from having control over the related asset is to protect the company primarily against:

One benefit of effective internal control is the guarantee that all employee frauds will now be detected.

There is a distinction between approval and authorisation.Approval is a policy decision for a general class of transactions.Authorisation is the implementation of management's general authorisation decisions.

The auditor can conclude that control risk is low:

The auditor's assessment of control risk and the extent of tests of controls are inversely related; that is, if the auditor's assessment of control risk decreases, more extensive tests of controls are applied.

The auditor need NOT be concerned with all three areas of internal control that apply to management.The auditor's primary concerns are with the system's ability to:

Management, with the help of the auditor, must establish and maintain the entity's controls.

If the auditor decides to go for a lower assessed control risk, more extensive tests of controls are applied.

Adequate documents and records are important for effective internal control.Discuss each of the five principles that dictate the proper design and use of documents and records.

Which of the following is NOT an objective of management in designing internal control systems?

Which one of the following is NOT a component of an entity's internal control?

Authorisations can be either general or specific.Which one of the following is NOT an example of a general authorisation?

When the auditor identifies significant deficiencies in the design or operation of internal controls, it will be communicated to client's audit committee in the:

Each key control that the auditor intends to rely on must be supported by sufficient:

Tests of controls are conducted when:

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

Understanding components of internal control and assessing the level of control risk are primarily used by the auditor to:

A system of internal accounting control normally would include procedures that are designed to provide reasonable assurance that:

Reportable conditions are matters that come to an auditor's attention, which should be communicated to an entity's audit committee because they represent:

Which of the following is NOT typically one of management's concerns in designing effective internal controls?

The reason to prevent those who authorise transactions from having control over the related asset is to protect the company primarily against:

One benefit of effective internal control is the guarantee that all employee frauds will now be detected.

There is a distinction between approval and authorisation.Approval is a policy decision for a general class of transactions.Authorisation is the implementation of management's general authorisation decisions.

The auditor can conclude that control risk is low:

The auditor's assessment of control risk and the extent of tests of controls are inversely related; that is, if the auditor's assessment of control risk decreases, more extensive tests of controls are applied.

The auditor need NOT be concerned with all three areas of internal control that apply to management.The auditor's primary concerns are with the system's ability to:

Management, with the help of the auditor, must establish and maintain the entity's controls.

If the auditor decides to go for a lower assessed control risk, more extensive tests of controls are applied.

Adequate documents and records are important for effective internal control.Discuss each of the five principles that dictate the proper design and use of documents and records.

Which of the following is NOT an objective of management in designing internal control systems?

Which one of the following is NOT a component of an entity's internal control?

Authorisations can be either general or specific.Which one of the following is NOT an example of a general authorisation?

When the auditor identifies significant deficiencies in the design or operation of internal controls, it will be communicated to client's audit committee in the:

Each key control that the auditor intends to rely on must be supported by sufficient:

Tests of controls are conducted when:

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