Question 1

Which is most likely when the assessed level of control risk increases?

Accepted Answer

A) Change from performing substantive procedures at year-end to an interim date. 
B) Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity. 
C) Use the maximum number of dual purpose tests. 
D) Use larger sample sizes for substantive procedures. 
A) Change from performing substantive procedures at year-end to an interim date. 
B) Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity. 
C) Use the maximum number of dual purpose tests. 
D) Use larger sample sizes for substantive procedures.

Question 2

Which of the following statements is correct concerning the understanding of internal control needed by auditors?

Accepted Answer

A) The auditors must understand the information system,not the accounting system. 
B) The auditors must understand monitoring and all preliminary accounting controls. 
C) The auditors must have a sufficient understanding to assess the risks of material misstatement. 
D) The auditors must understand the control environment,risk assessment,and all control activities. 
A) The auditors must understand the information system,not the accounting system. 
B) The auditors must understand monitoring and all preliminary accounting controls. 
C) The auditors must have a sufficient understanding to assess the risks of material misstatement. 
D) The auditors must understand the control environment,risk assessment,and all control activities.

Question 3

Which of the following factors would most likely be considered an inherent limitation to an entity's internal control?

Accepted Answer

A) The complexity of the information processing system. 
B) Human judgment in the decision making process. 
C) The ineffectiveness of the board of directors. 
D) The lack of management incentives to improve the control environment. 
A) The complexity of the information processing system. 
B) Human judgment in the decision making process. 
C) The ineffectiveness of the board of directors. 
D) The lack of management incentives to improve the control environment.

Question 4

When performing an internal control audit under PCAOB requirements,one or more material weaknesses in internal control that exist at year-end will result in what type of report(s)? 
$\begin{array} { c c c } 
& \quad\quad  \text { Qualified } & \text { Adverse}  \\end{array}$
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 5

To provide for the greatest degree of independence in performing internal auditing functions,an internal auditor most likely should report to the:

Accepted Answer

A) Financial vice-president. 
B) Corporate controller. 
C) Audit committee. 
D) Corporate stockholders. 
A) Financial vice-president. 
B) Corporate controller. 
C) Audit committee. 
D) Corporate stockholders.

Question 6

For A through F place an X in the box (for Situation 1 or Situation 2)which is most accurate for each statement below;if for any question you believe that the situations are the same relating to that question place an X in each of the two boxes.
In both situations assume inherent risk is at a high level.
Situation 1: While obtaining an understanding of internal control,you have determined that it appears to be very strong. You choose not to test controls in the area.
Situation 2: While obtaining an understanding of internal control,you have determined that it appears to be adequate-not strong,not weak. You choose to test controls in the area-they reveal that the system functions as expected.
 $\begin{array}{|l|l|l|l|}
\hline &&\text { Situation } 1 &\text { Situation } 2\
\hline \text { A } & \begin{array}{l}
\text { The planned assessed level of control risk is } \
\text { lower for this situation. }
\end{array} \
\hline \text { B. } & \begin{array}{l}
\text { The planned allowable detection risk is lower for } \
\text { this situation. }
\end{array} \
\hline \text { C. } & \begin{array}{l}
\text { More tests of controls will be performed for this } \
\text { situation. }
\end{array} \
\hline \text { D. } & \begin{array}{l}
\text { More substantive procedures will be performed } \
\text { for this situation. }
\end{array} \
\hline \text { E. } & \begin{array}{l}
\text { The assessed level of control risk will be lower } \
\text { for this situation. }
\end{array} \
\hline \text { F. } & \begin{array}{l}
\text { The risk of misstatement will be lower in this } \
\text { situation. }\
\end{array}\\hline
\end{array}$

Accepted Answer

\[\begin{array} { | l | l | c | c | } 
\

Question 7

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?

Accepted Answer

A) An understanding of the control environment,information and communication,risk assessment and monitoring is necessary;an understanding of control activities is only necessary for areas in which the auditor is performing tests of controls. 
B) The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit. 
C) When tests of controls have been performed,control risk must be assessed at a level less than the maximum. 
D) An understanding of the control environment is necessary,but no understanding of the other components is necessary unless control risk is to be assessed at a level less than the maximum. 
A) An understanding of the control environment,information and communication,risk assessment and monitoring is necessary;an understanding of control activities is only necessary for areas in which the auditor is performing tests of controls. 
B) The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit. 
C) When tests of controls have been performed,control risk must be assessed at a level less than the maximum. 
D) An understanding of the control environment is necessary,but no understanding of the other components is necessary unless control risk is to be assessed at a level less than the maximum.

Question 8

Which of the following is correct with respect to control deficiencies discovered during an audit?

Accepted Answer

A) Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management. 
B) All material weaknesses in internal control must be reported to the audit committee in writing. 
C) All such matters must be communicated to the audit committee and regulatory agencies. 
D) All control deficiencies are also significant deficiencies. 
A) Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management. 
B) All material weaknesses in internal control must be reported to the audit committee in writing. 
C) All such matters must be communicated to the audit committee and regulatory agencies. 
D) All control deficiencies are also significant deficiencies.

Question 9

Which of the following is least likely to be evidence of operating effectiveness of controls?

Accepted Answer

A) Cancelled supporting documents. 
B) Confirmations of accounts receivable. 
C) Records documenting usage of computer programs. 
D) Signatures on authorization forms. 
A) Cancelled supporting documents. 
B) Confirmations of accounts receivable. 
C) Records documenting usage of computer programs. 
D) Signatures on authorization forms.

Question 10

In assessing the competence of a client's internal auditor,an external auditor most likely would consider the:

Accepted Answer

A) Internal auditor's compliance with professional internal auditing standards. 
B) Client's policies that limit the internal auditor's access to management salary data. 
C) Evidence supporting a further reduction in the assessed level of control risk. 
D) Results of ratio analysis that may identify unusual transactions and events. 
A) Internal auditor's compliance with professional internal auditing standards. 
B) Client's policies that limit the internal auditor's access to management salary data. 
C) Evidence supporting a further reduction in the assessed level of control risk. 
D) Results of ratio analysis that may identify unusual transactions and events.

Question 11

The Sarbanes-Oxley Act of 2002 requires that the audit committee:

Accepted Answer

A) Annually reassess control risk using information from the CPA firm. 
B) Be directly responsible for the appointment,compensation,and oversight of the work of the CPA firm. 
C) Require that the company's CPA firm rotate the partner in charge of the audit. 
D) Review the level of management compensation. 
A) Annually reassess control risk using information from the CPA firm. 
B) Be directly responsible for the appointment,compensation,and oversight of the work of the CPA firm. 
C) Require that the company's CPA firm rotate the partner in charge of the audit. 
D) Review the level of management compensation.

Question 12

Which of the following must the auditor communicate to the audit committee?

Accepted Answer

A) Significant deficiencies and material weaknesses. 
B) Only significant deficiencies. 
C) Only material weaknesses. 
D) Neither significant deficiencies nor material weaknesses. 
A) Significant deficiencies and material weaknesses. 
B) Only significant deficiencies. 
C) Only material weaknesses. 
D) Neither significant deficiencies nor material weaknesses.

Question 13

Which of the following would be least likely to be regarded as a test of a control?

Accepted Answer

A) Tests of the additions to property by physical inspection. 
B) Comparisons of the signatures on cancelled checks to the authorized check signer list. 
C) Tests of signatures on purchase orders. 
D) Recalculation of payroll deductions. 
A) Tests of the additions to property by physical inspection. 
B) Comparisons of the signatures on cancelled checks to the authorized check signer list. 
C) Tests of signatures on purchase orders. 
D) Recalculation of payroll deductions.

Question 14

For effective internal control,which of the following functions should not be assigned to the company's accounting department?

Accepted Answer

A) Reconciling accounting records with existing assets. 
B) Recording financial transactions. 
C) Signing payroll checks. 
D) Preparing financial reports. 
A) Reconciling accounting records with existing assets. 
B) Recording financial transactions. 
C) Signing payroll checks. 
D) Preparing financial reports.

Question 15

Auditors are required to consider a client's internal control.
a.Describe the two purposes of the auditors' consideration of a client's internal control.
b.Even the best internal control has certain limitations.List three of those limitations.

Accepted Answer

a.The auditors' consideration of their c

Question 16

Which of the following is least likely to be considered a risk assessment procedure?

Accepted Answer

A) Analytical procedures. 
B) Inspection of documents. 
C) Observation of the counting of inventory. 
D) Observation of the performance of certain accounting procedures. 
A) Analytical procedures. 
B) Inspection of documents. 
C) Observation of the counting of inventory. 
D) Observation of the performance of certain accounting procedures.

Question 17

Which statement is correct concerning the relevance of various types of controls to a financial statement audit?

Accepted Answer

A) An auditor may ordinarily ignore the consideration of controls when a substantive audit approach is used. 
B) Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit,but other controls may also be relevant. 
C) Controls over safeguarding assets and liabilities are of primary importance,while controls over the reliability of financial reporting may also be relevant. 
D) All controls are ordinarily relevant to an audit. 
A) An auditor may ordinarily ignore the consideration of controls when a substantive audit approach is used. 
B) Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit,but other controls may also be relevant. 
C) Controls over safeguarding assets and liabilities are of primary importance,while controls over the reliability of financial reporting may also be relevant. 
D) All controls are ordinarily relevant to an audit.

Question 18

Well-designed internal control can be circumvented by collusion.

Accepted Answer

A) True 
 B)False

Question 19

The provision of the Foreign Corrupt Practices Act that require implementing an internal control system apply to:

Accepted Answer

A) All U.S.corporations. 
B) All U.S.corporations that engage in foreign operations. 
C) All corporations under the jurisdiction of the SEC. 
D) All U.S.partnerships and corporations. 
A) All U.S.corporations. 
B) All U.S.corporations that engage in foreign operations. 
C) All corporations under the jurisdiction of the SEC. 
D) All U.S.partnerships and corporations.

Question 20

Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both:

Accepted Answer

A) Journalize cash receipts and disbursements and prepare the financial statements. 
B) Monitor internal controls and evaluate whether the controls are operating as intended. 
C) Adopt new accounting pronouncements and authorize the recording of transactions. 
D) Record and conceal fraudulent transactions in the normal course of assigned tasks. 
A) Journalize cash receipts and disbursements and prepare the financial statements. 
B) Monitor internal controls and evaluate whether the controls are operating as intended. 
C) Adopt new accounting pronouncements and authorize the recording of transactions. 
D) Record and conceal fraudulent transactions in the normal course of assigned tasks.

Which is most likely when the assessed level of control risk increases?

Which of the following statements is correct concerning the understanding of internal control needed by auditors?

Which of the following factors would most likely be considered an inherent limitation to an entity's internal control?

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

To provide for the greatest degree of independence in performing internal auditing functions,an internal auditor most likely should report to the:

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?

Which of the following is correct with respect to control deficiencies discovered during an audit?

Which of the following is least likely to be evidence of operating effectiveness of controls?

In assessing the competence of a client's internal auditor,an external auditor most likely would consider the:

The Sarbanes-Oxley Act of 2002 requires that the audit committee:

Which of the following must the auditor communicate to the audit committee?

Which of the following would be least likely to be regarded as a test of a control?

For effective internal control,which of the following functions should not be assigned to the company's accounting department?

Auditors are required to consider a client's internal control. a.Describe the two purposes of the auditors' consideration of a client's internal control. b.Even the best internal control has certain limitations.List three of those limitations.

Which of the following is least likely to be considered a risk assessment procedure?

Which statement is correct concerning the relevance of various types of controls to a financial statement audit?

Well-designed internal control can be circumvented by collusion.

The provision of the Foreign Corrupt Practices Act that require implementing an internal control system apply to:

Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both:

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

Filters

Exam 7: Internal Control

Which is most likely when the assessed level of control risk increases?

Which of the following statements is correct concerning the understanding of internal control needed by auditors?

Which of the following factors would most likely be considered an inherent limitation to an entity's internal control?

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

To provide for the greatest degree of independence in performing internal auditing functions,an internal auditor most likely should report to the:

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?

Which of the following is correct with respect to control deficiencies discovered during an audit?

Which of the following is least likely to be evidence of operating effectiveness of controls?

In assessing the competence of a client's internal auditor,an external auditor most likely would consider the:

The Sarbanes-Oxley Act of 2002 requires that the audit committee:

Which of the following must the auditor communicate to the audit committee?

Which of the following would be least likely to be regarded as a test of a control?

For effective internal control,which of the following functions should not be assigned to the company's accounting department?

Auditors are required to consider a client's internal control. a.Describe the two purposes of the auditors' consideration of a client's internal control. b.Even the best internal control has certain limitations.List three of those limitations.

Which of the following is least likely to be considered a risk assessment procedure?

Which statement is correct concerning the relevance of various types of controls to a financial statement audit?

Well-designed internal control can be circumvented by collusion.

The provision of the Foreign Corrupt Practices Act that require implementing an internal control system apply to:

Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both:

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

Filters