Question 1

Record keeping is typically included in a separate department under the financial controller 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 2

Management of public listed entities have to issue a report on the effectiveness of their organisation's internal control system in:

Accepted Answer

A)  the United States. 
B)  Australia. 
C)  both Australia and the United States. 
D)  none of the above 
A)  the United States. 
B)  Australia. 
C)  both Australia and the United States. 
D)  none of the above

Question 3

The procedures for proper record-keeping should be spelled out in:

Accepted Answer

A)  run manuals. 
B)  minutes of the board of directors. 
C)  the corporate bylaws. 
D)  systems manuals. 
A)  run manuals. 
B)  minutes of the board of directors. 
C)  the corporate bylaws. 
D)  systems manuals.

Question 4

After considering a client's internal controls, an auditor has concluded that they are well designed and are functioning as intended.Under these circumstances the auditor would most likely:

Accepted Answer

A)  not increase the extent of predetermined substantive tests. 
B)  determine whether transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles. 
C)  perform reduced tests of controls to the extent outlined in the audit program. 
D)  determine the control procedures that should prevent or detect errors and irregularities. 
A)  not increase the extent of predetermined substantive tests. 
B)  determine whether transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles. 
C)  perform reduced tests of controls to the extent outlined in the audit program. 
D)  determine the control procedures that should prevent or detect errors and irregularities.

Question 5

The documents of a client company must be adequate to provide ________ assurance that all assets are properly controlled and all transactions are correctly recorded.

Accepted Answer

A)  sufficient appropriate 
B)  reasonable 
C)  qualitative 
D)  absolute 
A)  sufficient appropriate 
B)  reasonable 
C)  qualitative 
D)  absolute

Question 6

Is reperformance a type of audit evidence typically used in assessing control risk?

Accepted Answer

A)  yes, in testing controls only 
B)  yes, in both obtaining an understanding of controls and testing controls 
C)  yes, in obtaining an understanding of controls only 
D)  no 
A)  yes, in testing controls only 
B)  yes, in both obtaining an understanding of controls and testing controls 
C)  yes, in obtaining an understanding of controls only 
D)  no

Question 7

The financial statements are NOT likely to correctly reflect applicable accounting standards if the:

Accepted Answer

A)  company's controls do not promote efficiency. 
B)  controls affecting the reliability of financial reporting are inadequate. 
C)  company's controls do not promote effectiveness. 
D)  all of the above 
A)  company's controls do not promote efficiency. 
B)  controls affecting the reliability of financial reporting are inadequate. 
C)  company's controls do not promote effectiveness. 
D)  all of the above

Question 8

Control activities are defined as 'the policies and procedures, in addition to those included in the other elements, that help ensure necessary actions are taken to address risks in the achievement of the entity's objectives.' Describe the five categories of control activities.

Accepted Answer

The five categories of control activitie

Question 9

For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of a system of internal control.

Accepted Answer

A) True 
 B)False

Question 10

Why do the procedures used to gain an understanding of internal control and assess control risk vary for smaller clients?

Accepted Answer

In practice, the procedures used to gain

Question 11

When a company designs and implements an internal control system, the control must be cost-effective.

Accepted Answer

A) True 
 B)False

Question 12

When two or more employees act together to misstate accounting records, they have committed what is referred to as:

Accepted Answer

A)  a felony. 
B)  defalcation. 
C)  collusion. 
D)  malfeasance. 
A)  a felony. 
B)  defalcation. 
C)  collusion. 
D)  malfeasance.

Question 13

The procedures to test effectiveness of control policies and procedures in support of a lower assessment of control risk are called:

Accepted Answer

A)  a walk-through. 
B)  analytical tests. 
C)  tests of transactions. 
D)  tests of controls. 
A)  a walk-through. 
B)  analytical tests. 
C)  tests of transactions. 
D)  tests of controls.

Question 14

The primary emphasis by auditors is on controls over:

Accepted Answer

A)  account balances. 
B)  classes of transactions. 
C)  both A and B, because they are equally weighted. 
D)  both A and B, because they vary from client to client. 
A)  account balances. 
B)  classes of transactions. 
C)  both A and B, because they are equally weighted. 
D)  both A and B, because they vary from client to client.

Question 15

Control risk is a measure of the auditor's expectation that the internal controls will:

Accepted Answer

A)  detect and correct material misstatements. 
B)  either prevent material misstatements or detect and correct them. 
C)  prevent material misstatements from occurring. 
D)  neither prevent material misstatements nor detect and correct them. 
A)  detect and correct material misstatements. 
B)  either prevent material misstatements or detect and correct them. 
C)  prevent material misstatements from occurring. 
D)  neither prevent material misstatements nor detect and correct them.

Question 16

The study of the client's internal control by the auditor is:

Accepted Answer

A)  required by the ASX for listed companies. 
B)  recommended by the Corporations Act. 
C)  required by auditing standards. 
D)  required by accounting standards. 
A)  required by the ASX for listed companies. 
B)  recommended by the Corporations Act. 
C)  required by auditing standards. 
D)  required by accounting standards.

Question 17

A well-designed system of management risk assessment is likely to help management identify the risks:

Accepted Answer

A)  relevant to the preparation of appropriate financial statements. 
B)  of being over-audited. 
C)  of ineffective audit procedures. 
D)  of making a loss for the year. 
A)  relevant to the preparation of appropriate financial statements. 
B)  of being over-audited. 
C)  of ineffective audit procedures. 
D)  of making a loss for the year.

Question 18

Because the auditor's main responsibility is to express an opinion on financial statements, which are composed of account balances, the primary emphasis by auditors when evaluating and testing internal control is on controls over account balances rather than controls over classes of transactions.

Accepted Answer

A) True 
 B)False

Question 19

Describe three inherent limitations of internal control.

Accepted Answer

The effectiveness of internal controls d

Question 20

Most audits of a company are done annually by the same audit firm.Except for initial engagements, the auditor begins the audit with a great deal of information about the client's internal controls developed in prior years.Because systems and controls usually don't change frequently:

Accepted Answer

A)  it eases the burden on the auditor's requirement to do a complete study of the controls this year. 
B)  the auditor can skip the evaluation of this area on repeat engagements. 
C)  it is sufficient for the auditor just to inquire of the client whether the controls have been changed since last year. 
D)  this information can be updated and carried forward to the current year's audit. 
A)  it eases the burden on the auditor's requirement to do a complete study of the controls this year. 
B)  the auditor can skip the evaluation of this area on repeat engagements. 
C)  it is sufficient for the auditor just to inquire of the client whether the controls have been changed since last year. 
D)  this information can be updated and carried forward to the current year's audit.

Record keeping is typically included in a separate department under the financial controller to protect the company primarily against:

Management of public listed entities have to issue a report on the effectiveness of their organisation's internal control system in:

The procedures for proper record-keeping should be spelled out in:

After considering a client's internal controls, an auditor has concluded that they are well designed and are functioning as intended.Under these circumstances the auditor would most likely:

The documents of a client company must be adequate to provide ________ assurance that all assets are properly controlled and all transactions are correctly recorded.

Is reperformance a type of audit evidence typically used in assessing control risk?

The financial statements are NOT likely to correctly reflect applicable accounting standards if the:

Control activities are defined as 'the policies and procedures, in addition to those included in the other elements, that help ensure necessary actions are taken to address risks in the achievement of the entity's objectives.' Describe the five categories of control activities.

For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of a system of internal control.

Why do the procedures used to gain an understanding of internal control and assess control risk vary for smaller clients?

When a company designs and implements an internal control system, the control must be cost-effective.

When two or more employees act together to misstate accounting records, they have committed what is referred to as:

The procedures to test effectiveness of control policies and procedures in support of a lower assessment of control risk are called:

The primary emphasis by auditors is on controls over:

Control risk is a measure of the auditor's expectation that the internal controls will:

The study of the client's internal control by the auditor is:

A well-designed system of management risk assessment is likely to help management identify the risks:

Because the auditor's main responsibility is to express an opinion on financial statements, which are composed of account balances, the primary emphasis by auditors when evaluating and testing internal control is on controls over account balances rather than controls over classes of transactions.

Describe three inherent limitations of internal control.

Most audits of a company are done annually by the same audit firm.Except for initial engagements, the auditor begins the audit with a great deal of information about the client's internal controls developed in prior years.Because systems and controls usually don't change frequently:

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

Record keeping is typically included in a separate department under the financial controller to protect the company primarily against:

Management of public listed entities have to issue a report on the effectiveness of their organisation's internal control system in:

The procedures for proper record-keeping should be spelled out in:

After considering a client's internal controls, an auditor has concluded that they are well designed and are functioning as intended.Under these circumstances the auditor would most likely:

The documents of a client company must be adequate to provide ________ assurance that all assets are properly controlled and all transactions are correctly recorded.

Is reperformance a type of audit evidence typically used in assessing control risk?

The financial statements are NOT likely to correctly reflect applicable accounting standards if the:

Control activities are defined as 'the policies and procedures, in addition to those included in the other elements, that help ensure necessary actions are taken to address risks in the achievement of the entity's objectives.' Describe the five categories of control activities.

For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of a system of internal control.

Why do the procedures used to gain an understanding of internal control and assess control risk vary for smaller clients?

When a company designs and implements an internal control system, the control must be cost-effective.

When two or more employees act together to misstate accounting records, they have committed what is referred to as:

The procedures to test effectiveness of control policies and procedures in support of a lower assessment of control risk are called:

The primary emphasis by auditors is on controls over:

Control risk is a measure of the auditor's expectation that the internal controls will:

The study of the client's internal control by the auditor is:

A well-designed system of management risk assessment is likely to help management identify the risks:

Because the auditor's main responsibility is to express an opinion on financial statements, which are composed of account balances, the primary emphasis by auditors when evaluating and testing internal control is on controls over account balances rather than controls over classes of transactions.

Describe three inherent limitations of internal control.

Most audits of a company are done annually by the same audit firm.Except for initial engagements, the auditor begins the audit with a great deal of information about the client's internal controls developed in prior years.Because systems and controls usually don't change frequently:

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