Question 1

Which one of the following statements about the internal control questionnaire is NOT correct?

Accepted Answer

A)  The primary advantage of the questionnaire approach is the relative completeness of coverage of each audit area that a good instrument affords. 
B)  The primary disadvantage of the questionnaire approach is that individual parts of the system are examined without providing an overall view. 
C)  It is unacceptable for the auditor to rely on an internal control questionnaire that has been filled out by client's personnel. 
D)  The questionnaire can cover each audit area reasonably quickly, and it can be accomplished at the beginning of the audit engagement. 
A)  The primary advantage of the questionnaire approach is the relative completeness of coverage of each audit area that a good instrument affords. 
B)  The primary disadvantage of the questionnaire approach is that individual parts of the system are examined without providing an overall view. 
C)  It is unacceptable for the auditor to rely on an internal control questionnaire that has been filled out by client's personnel. 
D)  The questionnaire can cover each audit area reasonably quickly, and it can be accomplished at the beginning of the audit engagement.

Question 2

For IT equipment, there are three categories of controls related to safeguarding IT equipment, programs, and data files.Discuss the categories of IT-related controls, and for each category, give an example of a specific control.

Accepted Answer

The categories of IT-related controls ar

Question 3

The most important aspect of any system of controls is:

Accepted Answer

A)  regular review by top management. 
B)  competent trustworthy personnel. 
C)  proper authorisation procedures. 
D)  separation of duties. 
A)  regular review by top management. 
B)  competent trustworthy personnel. 
C)  proper authorisation procedures. 
D)  separation of duties.

Question 4

Discuss 'monitoring activities' and give an example.

Accepted Answer

Monitoring activities deal with ongoing

Question 5

Which one of the following statements regarding auditor documentation of the client's internal controls is correct?

Accepted Answer

A)  No one particular form of documentation is necessary, and the extent of documentation may vary. 
B)  No documentation is necessary, although it is desirable. 
C)  Documentation must include procedural write-ups. 
D)  Documentation must include flowcharts. 
A)  No one particular form of documentation is necessary, and the extent of documentation may vary. 
B)  No documentation is necessary, although it is desirable. 
C)  Documentation must include procedural write-ups. 
D)  Documentation must include flowcharts.

Question 6

Of the three objectives management has when designing an effective system of internal control, the objective that auditors are primarily concerned with is the client's compliance with applicable laws and regulations.

Accepted Answer

A) True 
 B)False

Question 7

Monitoring activities in an internal control structure determines that:

Accepted Answer

A)  controls are operating as intended. 
B)  external audit assurance is no longer necessary. 
C)  improvements in internal control are overdue. 
D)  auditing procedures are to be restricted. 
A)  controls are operating as intended. 
B)  external audit assurance is no longer necessary. 
C)  improvements in internal control are overdue. 
D)  auditing procedures are to be restricted.

Question 8

Which one of the following is NOT typically a type of audit evidence the auditor would use in obtaining an understanding of internal controls?

Accepted Answer

A)  documentation 
B)  inquiry 
C)  observation 
D)  reperformance 
A)  documentation 
B)  inquiry 
C)  observation 
D)  reperformance

Question 9

Which one of the following BEST describes the inherent limitations that should be recognised by an auditor when considering the potential effectiveness of a system of internal accounting control?

Accepted Answer

A)  Procedures designed to assure the execution and recording of transactions in accordance with proper authorisations are effective against irregularities perpetrated by management. 
B)  The benefits expected to be derived from effective internal accounting control usually do not exceed the costs of such control. 
C)  Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion. 
D)  The competence and integrity of client personnel provides an environment conducive to accounting control and provides assurance that effective control will be achieved. 
A)  Procedures designed to assure the execution and recording of transactions in accordance with proper authorisations are effective against irregularities perpetrated by management. 
B)  The benefits expected to be derived from effective internal accounting control usually do not exceed the costs of such control. 
C)  Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion. 
D)  The competence and integrity of client personnel provides an environment conducive to accounting control and provides assurance that effective control will be achieved.

Question 10

The less control risk there is, the smaller the amount of planned substantive evidence required.

Accepted Answer

A) True 
 B)False

Question 11

A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated.

Accepted Answer

A) True 
 B)False

Question 12

An essential characteristic of the persons performing internal verification procedures is:

Accepted Answer

A)  independence from the original data preparer. 
B)  a thorough knowledge of accounting. 
C)  an analytical and inquisitive mind. 
D)  all of the above 
A)  independence from the original data preparer. 
B)  a thorough knowledge of accounting. 
C)  an analytical and inquisitive mind. 
D)  all of the above

Question 13

Discuss what is meant by the term 'control environment' and identify four control environment subcomponents that the auditor should consider.

Accepted Answer

The control environment consists of the

Question 14

If employees are competent and trustworthy, other controls can be absent.

Accepted Answer

A) True 
 B)False

Question 15

Evidential matter concerning proper segregation of duties ordinarily is BEST obtained by:

Accepted Answer

A)  inspection of third-party documents containing the initials of the person who applied control procedures. 
B)  making inquiries of co-workers about the employee who applies control procedures. 
C)  preparation of a flowchart of duties performed and available personnel. 
D)  direct personal observation of the employee who applies control procedures. 
A)  inspection of third-party documents containing the initials of the person who applied control procedures. 
B)  making inquiries of co-workers about the employee who applies control procedures. 
C)  preparation of a flowchart of duties performed and available personnel. 
D)  direct personal observation of the employee who applies control procedures.

Question 16

Which one of the following statements is NOT correct?

Accepted Answer

A)  It would be unusual to use both a narrative and a flowchart to describe the same system. 
B)  The advantage of the narrative description is the ease of describing the details of the internal controls. 
C)  The use of both questionnaires and flowcharts on the same engagement is highly desirable for understanding the client's system. 
D)  When reliable and understandable narratives, flowcharts, and questionnaires are available from the client, it is desirable to use them rather than have the auditor prepare his or her own documents. 
A)  It would be unusual to use both a narrative and a flowchart to describe the same system. 
B)  The advantage of the narrative description is the ease of describing the details of the internal controls. 
C)  The use of both questionnaires and flowcharts on the same engagement is highly desirable for understanding the client's system. 
D)  When reliable and understandable narratives, flowcharts, and questionnaires are available from the client, it is desirable to use them rather than have the auditor prepare his or her own documents.

Question 17

Auditors assess internal controls for the purpose of ________ planned audit evidence.

Accepted Answer

A)  requiring 
B)  increasing 
C)  estimating 
D)  reducing 
A)  requiring 
B)  increasing 
C)  estimating 
D)  reducing

Question 18

The essence of an effectively controlled organisation lies in the:

Accepted Answer

A)  attitude of its employees. 
B)  effectiveness of its independent auditor. 
C)  effectiveness of its internal auditor. 
D)  attitude of its management. 
A)  attitude of its employees. 
B)  effectiveness of its independent auditor. 
C)  effectiveness of its internal auditor. 
D)  attitude of its management.

Question 19

If the auditor wants a lower assessed control risk:

Accepted Answer

A)  more tests must be conducted on each control. 
B)  larger sample sizes for the tests of control would be appropriate. 
C)  a greater number of controls must be tested. 
D)  all of the above 
A)  more tests must be conducted on each control. 
B)  larger sample sizes for the tests of control would be appropriate. 
C)  a greater number of controls must be tested. 
D)  all of the above

Which one of the following statements about the internal control questionnaire is NOT correct?

For IT equipment, there are three categories of controls related to safeguarding IT equipment, programs, and data files.Discuss the categories of IT-related controls, and for each category, give an example of a specific control.

The most important aspect of any system of controls is:

Discuss 'monitoring activities' and give an example.

Which one of the following statements regarding auditor documentation of the client's internal controls is correct?

Of the three objectives management has when designing an effective system of internal control, the objective that auditors are primarily concerned with is the client's compliance with applicable laws and regulations.

Monitoring activities in an internal control structure determines that:

Which one of the following is NOT typically a type of audit evidence the auditor would use in obtaining an understanding of internal controls?

Which one of the following BEST describes the inherent limitations that should be recognised by an auditor when considering the potential effectiveness of a system of internal accounting control?

The less control risk there is, the smaller the amount of planned substantive evidence required.

A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated.

An essential characteristic of the persons performing internal verification procedures is:

Discuss what is meant by the term 'control environment' and identify four control environment subcomponents that the auditor should consider.

If employees are competent and trustworthy, other controls can be absent.

Evidential matter concerning proper segregation of duties ordinarily is BEST obtained by:

Which one of the following statements is NOT correct?

Auditors assess internal controls for the purpose of ________ planned audit evidence.

The essence of an effectively controlled organisation lies in the:

If the auditor wants a lower assessed control risk:

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

Which one of the following statements about the internal control questionnaire is NOT correct?

For IT equipment, there are three categories of controls related to safeguarding IT equipment, programs, and data files.Discuss the categories of IT-related controls, and for each category, give an example of a specific control.

The most important aspect of any system of controls is:

Discuss 'monitoring activities' and give an example.

Which one of the following statements regarding auditor documentation of the client's internal controls is correct?

Of the three objectives management has when designing an effective system of internal control, the objective that auditors are primarily concerned with is the client's compliance with applicable laws and regulations.

Monitoring activities in an internal control structure determines that:

Which one of the following is NOT typically a type of audit evidence the auditor would use in obtaining an understanding of internal controls?

Which one of the following BEST describes the inherent limitations that should be recognised by an auditor when considering the potential effectiveness of a system of internal accounting control?

The less control risk there is, the smaller the amount of planned substantive evidence required.

A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated.

An essential characteristic of the persons performing internal verification procedures is:

Discuss what is meant by the term 'control environment' and identify four control environment subcomponents that the auditor should consider.

If employees are competent and trustworthy, other controls can be absent.

Evidential matter concerning proper segregation of duties ordinarily is BEST obtained by:

Which one of the following statements is NOT correct?

Auditors assess internal controls for the purpose of ________ planned audit evidence.

The essence of an effectively controlled organisation lies in the:

If the auditor wants a lower assessed control risk:

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