Question 1

The scope of substantive procedures as compared to the scope of tests of controls generally vary:

Accepted Answer

A) In a parallel manner. 
B) Inversely. 
C) Directly. 
D) Equally. 
A) In a parallel manner. 
B) Inversely. 
C) Directly. 
D) Equally.

Question 2

Under which circumstance is it likely that the extent of substantive procedures will be expanded beyond that anticipated in the audit plan?

Accepted Answer

A) The auditors have determined that controls have been implemented (placed in operation)but,in accordance with the audit plan,have performed no tests of controls. 
B) Certain controls do not leave a trail of documentary evidence. 
C) Deviation rates were greater than zero and approached anticipated levels. 
D) The operating effectiveness of certain controls was found to be less than expected,although no material misstatements were identified. 
A) The auditors have determined that controls have been implemented (placed in operation)but,in accordance with the audit plan,have performed no tests of controls. 
B) Certain controls do not leave a trail of documentary evidence. 
C) Deviation rates were greater than zero and approached anticipated levels. 
D) The operating effectiveness of certain controls was found to be less than expected,although no material misstatements were identified.

Question 3

When performing an internal control audit under PCAOB standards,one or more material weaknesses in internal control that exist at year-end will result in what type of report(s)? 
$\begin{array} { c c c } 
& \quad\quad  \text { Qualified } & \text { Disclaimer}  \\end{array}$
A- $\begin{array} { c c c }   \quad\quad\quad\text { Yes } &\quad\quad\quad  \text { Yes } \\end{array}$
B-  $\begin{array} { c c c }\quad\quad\quad \text { Yes } &\quad\quad\quad \text { No } \\end{array}$
C-  $\begin{array} { c c c } \quad\quad\quad\text {No} & \quad\quad\quad\quad\text { Yes } \\end{array}$
D-   $\begin{array} { c c c }\quad\quad\quad \text { No } &\quad\quad\quad\quad\text { No }

\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 4

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

Accepted Answer

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

Question 5

Atleast what level of probability of a material misstatement is required for a control deficiency to be considered a material weakness?

Accepted Answer

A) More than remote. 
B) Probable. 
C) Reasonable possibility. 
D) Sufficient. 
A) More than remote. 
B) Probable. 
C) Reasonable possibility. 
D) Sufficient.

Question 6

The Foreign Corrupt Practices Act prohibits American companies to make payments to foreign officials to obtain business.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a responsibility that should be assigned to a company's internal audit department?

Accepted Answer

A) Evaluating internal control. 
B) Approving credit. 
C) Reporting on the effectiveness of operating segments. 
D) Investigating potential merger candidates. 
A) Evaluating internal control. 
B) Approving credit. 
C) Reporting on the effectiveness of operating segments. 
D) Investigating potential merger candidates.

Question 8

Which of the following is intended to detect deviations from prescribed controls?

Accepted Answer

A) Substantive procedures specified by a standardized audit plan. 
B) Tests of controls designed specifically for the client. 
C) Analytical procedures as set forth in an industry audit guide. 
D) Computerized analytical procedures tailored for the configuration of the computer equipment in use. 
A) Substantive procedures specified by a standardized audit plan. 
B) Tests of controls designed specifically for the client. 
C) Analytical procedures as set forth in an industry audit guide. 
D) Computerized analytical procedures tailored for the configuration of the computer equipment in use.

Question 9

After considering the client's internal control,the auditors have concluded that it is well-designed and is functioning as anticipated.Under these circumstances,the auditors would most likely:

Accepted Answer

A) Cease to perform further substantive procedures. 
B) Reduce substantive procedures in areas where the internal control was found to be effective. 
C) Increase the extent of anticipated analytical procedures. 
D) Perform all tests of controls to the extent outlined in the preplanned audit plan. 
A) Cease to perform further substantive procedures. 
B) Reduce substantive procedures in areas where the internal control was found to be effective. 
C) Increase the extent of anticipated analytical procedures. 
D) Perform all tests of controls to the extent outlined in the preplanned audit plan.

Question 10

Which of the following is an advantage of describing internal control through the use of a standardized questionnaire?

Accepted Answer

A) Questionnaires highlight weaknesses in the system. 
B) Questionnaires are more flexible than other methods of describing internal control. 
C) Questionnaires usually identify situations in which internal control weaknesses are compensated for by other strengths in the system. 
D) Questionnaires provide a clearer and more specific portrayal of a client's system than other methods of describing internal control. 
A) Questionnaires highlight weaknesses in the system. 
B) Questionnaires are more flexible than other methods of describing internal control. 
C) Questionnaires usually identify situations in which internal control weaknesses are compensated for by other strengths in the system. 
D) Questionnaires provide a clearer and more specific portrayal of a client's system than other methods of describing internal control.

Question 11

Which of the following is not considered one of the five major components of internal control?

Accepted Answer

A) Risk assessment. 
B) Physical controls. 
C) Control activities. 
D) Monitoring. 
A) Risk assessment. 
B) Physical controls. 
C) Control activities. 
D) Monitoring.

Question 12

The definition of internal control developed by the Committee of Sponsoring Organizations (COSO)includes controls related to the reliability of internal and external reporting,the effectiveness and efficiency of operations,and:

Accepted Answer

A) Compliance with applicable laws and regulations. 
B) Effectiveness of prevention of fraudulent occurrences. 
C) Safeguarding of entity equity. 
D) Incorporation of ethical business practice standards. 
A) Compliance with applicable laws and regulations. 
B) Effectiveness of prevention of fraudulent occurrences. 
C) Safeguarding of entity equity. 
D) Incorporation of ethical business practice standards.

Question 13

Tests of controls do not ordinarily address:

Accepted Answer

A) By whom a control was applied. 
B) How a control was applied. 
C) The consistency with which a control was applied. 
D) The cost effectiveness of the way a control was applied. 
A) By whom a control was applied. 
B) How a control was applied. 
C) The consistency with which a control was applied. 
D) The cost effectiveness of the way a control was applied.

Question 14

Which of the following audit tests would be regarded as a test of control?

Accepted Answer

A) Tests of the specific items making up the balance in a given general ledger account. 
B) Tests confirming receivables. 
C) Tests of the signatures on canceled checks to board of director's authorizations. 
D) Tests of the additions to property,plant,and equipment by physical inspection. 
A) Tests of the specific items making up the balance in a given general ledger account. 
B) Tests confirming receivables. 
C) Tests of the signatures on canceled checks to board of director's authorizations. 
D) Tests of the additions to property,plant,and equipment by physical inspection.

Question 15

The use of fidelity bonds protects a company from embezzlement loses and also:

Accepted Answer

A) Minimizes the possibility of employing persons with dubious records in positions of trust. 
B) Reduces the company's need to obtain expensive business interruption insurance. 
C) Allows the company to substitute the fidelity bonds for various parts of internal control. 
D) Protects employees who made unintentional errors from possible monetary damages resulting from such errors. 
A) Minimizes the possibility of employing persons with dubious records in positions of trust. 
B) Reduces the company's need to obtain expensive business interruption insurance. 
C) Allows the company to substitute the fidelity bonds for various parts of internal control. 
D) Protects employees who made unintentional errors from possible monetary damages resulting from such errors.

Question 16

The relatively low number of types of transactions incurred by small firms makes the segregation of duties impossible.

Accepted Answer

A) True 
 B)False

Question 17

Tests of controls are most likely to be performed when:

Accepted Answer

A) Controls seem weak and must be properly documented. 
B) The auditor plans to rely on the controls. 
C) The auditor wishes to assess control risk at the maximum. 
D) The client's control environment appears weak. 
A) Controls seem weak and must be properly documented. 
B) The auditor plans to rely on the controls. 
C) The auditor wishes to assess control risk at the maximum. 
D) The client's control environment appears weak.

Question 18

A material weakness involves an amount that could result in a misstatement that is:

Accepted Answer

A) Smaller than inconsequential. 
B) Larger than inconsequential. 
C) Tolerable. 
D) Material. 
A) Smaller than inconsequential. 
B) Larger than inconsequential. 
C) Tolerable. 
D) Material.

Question 19

The major components of internal control include all of the following,except:

Accepted Answer

A) Risk assessment. 
B) The control environment. 
C) Internal auditing. 
D) Control activities. 
A) Risk assessment. 
B) The control environment. 
C) Internal auditing. 
D) Control activities.

Question 20

Which of the following is a likely approach for testing the segregation of duties?

Accepted Answer

A) Personal inquiry and confirmation. 
B) Counting variations of performance. 
C) Analytical procedures. 
D) Observing employee performance of processes. 
A) Personal inquiry and confirmation. 
B) Counting variations of performance. 
C) Analytical procedures. 
D) Observing employee performance of processes.

Exam 7: Internal Control

The scope of substantive procedures as compared to the scope of tests of controls generally vary:

Under which circumstance is it likely that the extent of substantive procedures will be expanded beyond that anticipated in the audit plan?

When performing an internal control audit under PCAOB standards,one or more material weaknesses in internal control that exist at year-end will result in what type of report(s)? Qualified Disclaimer A- Yes Yes B- Yes No C- No Yes D- No No

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

Atleast what level of probability of a material misstatement is required for a control deficiency to be considered a material weakness?

The Foreign Corrupt Practices Act prohibits American companies to make payments to foreign officials to obtain business.

Which of the following is not a responsibility that should be assigned to a company's internal audit department?

Which of the following is intended to detect deviations from prescribed controls?

After considering the client's internal control,the auditors have concluded that it is well-designed and is functioning as anticipated.Under these circumstances,the auditors would most likely:

Which of the following is an advantage of describing internal control through the use of a standardized questionnaire?

Which of the following is not considered one of the five major components of internal control?

The definition of internal control developed by the Committee of Sponsoring Organizations (COSO)includes controls related to the reliability of internal and external reporting,the effectiveness and efficiency of operations,and:

Tests of controls do not ordinarily address:

Which of the following audit tests would be regarded as a test of control?

The use of fidelity bonds protects a company from embezzlement loses and also:

The relatively low number of types of transactions incurred by small firms makes the segregation of duties impossible.

Tests of controls are most likely to be performed when:

A material weakness involves an amount that could result in a misstatement that is:

The major components of internal control include all of the following,except:

Which of the following is a likely approach for testing the segregation of duties?

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

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