Question 1

An auditor will use the IT test data method in order to gain certain assurances with respect to the

Accepted Answer

A)  Input data. 
B)  Machine capacity. 
C)  Procedures contained within the program. 
D)  Degree of keypunching accuracy. 
A)  Input data. 
B)  Machine capacity. 
C)  Procedures contained within the program. 
D)  Degree of keypunching accuracy.

Question 2

The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. This is an example of

Accepted Answer

A)  A management deficiency. 
B)  A design deficiency. 
C)  A deficiency in operation. 
D)  This is not an internal control deficiency. 
A)  A management deficiency. 
B)  A design deficiency. 
C)  A deficiency in operation. 
D)  This is not an internal control deficiency.

Question 3

Which of the following is an advantage of generalized computer audit packages?

Accepted Answer

A)  They are all written in one identical computer language. 
B)  They can be used for audits of entities that use differing IT equipment and file formats. 
C)  They have reduced the need for the auditor to study input controls for IT-related procedures. 
D)  Their use can be substituted for a relatively large part of the required compliance testing. 
A)  They are all written in one identical computer language. 
B)  They can be used for audits of entities that use differing IT equipment and file formats. 
C)  They have reduced the need for the auditor to study input controls for IT-related procedures. 
D)  Their use can be substituted for a relatively large part of the required compliance testing.

Question 4

According to the PCAOB, who is responsible for the reliability of the internal controls over financial reporting process of an entity?

Accepted Answer

A)  The entity's CEO and/or CFO. 
B)  The entity's board of directors. 
C)  An internal control specialist. 
D)  The external auditor. 
A)  The entity's CEO and/or CFO. 
B)  The entity's board of directors. 
C)  An internal control specialist. 
D)  The external auditor.

Question 5

In the context of an audit of internal controls, the auditor must document all of the following except:

Accepted Answer

A)  The extent to which he or she relied upon work performed by others. 
B)  The auditor's understanding and evaluation of the design of each of the components of the entity's internal control over financial reporting. 
C)  Transcripts of the auditor's discussion with management concerning the points at which misstatements could occur. 
D)  The evaluation of any deficiencies discovered that could result in a modification of the auditor's report. 
A)  The extent to which he or she relied upon work performed by others. 
B)  The auditor's understanding and evaluation of the design of each of the components of the entity's internal control over financial reporting. 
C)  Transcripts of the auditor's discussion with management concerning the points at which misstatements could occur. 
D)  The evaluation of any deficiencies discovered that could result in a modification of the auditor's report.

Question 6

Most public companies must follow the guidelines of AS5.

Accepted Answer

A) True 
 B)False

Question 7

According to the COSO definition of safeguarding of assets

Accepted Answer

A)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur. 
B)  Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements. 
C)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur and that losses are properly reflected in the financial statements. 
D)  There is no way to create controls that will provide reasonable assurance that asset losses will not occur. 
A)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur. 
B)  Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements. 
C)  Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur and that losses are properly reflected in the financial statements. 
D)  There is no way to create controls that will provide reasonable assurance that asset losses will not occur.

Question 8

Section 404 of the Sarbanes-Oxley Act requires the auditor to provide which of the following:

Accepted Answer

A)  Reasonable assurance on the financial statements, absolute assurance on internal control. 
B)  Reasonable assurance on internal control, absolute assurance on the financial statements. 
C)  Absolute assurance on both the financial statements and internal control. 
D)  Reasonable assurance on both the financial statements and internal control. 
A)  Reasonable assurance on the financial statements, absolute assurance on internal control. 
B)  Reasonable assurance on internal control, absolute assurance on the financial statements. 
C)  Absolute assurance on both the financial statements and internal control. 
D)  Reasonable assurance on both the financial statements and internal control.

Question 9

A modification of the standard report is required for all of the following conditions except:

Accepted Answer

A)  There is a restriction on the scope of the engagement. 
B)  There is other information contained in management's report on internal control. 
C)  Management has concluded that internal controls are not effective. 
D)  A significant subsequent event has occurred since the date being reported on. 
A)  There is a restriction on the scope of the engagement. 
B)  There is other information contained in management's report on internal control. 
C)  Management has concluded that internal controls are not effective. 
D)  A significant subsequent event has occurred since the date being reported on.

Question 10

Which of the following is true regarding management's documentation of internal controls?

Accepted Answer

A)  Some documentation should focus on controls designed to detect fraud. 
B)  Documentation should focus on controls over the interim financial reporting process. 
C)  Documentation must be done on paper. 
D)  Inadequate documentation is usually considered an insignificant deficiency in internal control. 
A)  Some documentation should focus on controls designed to detect fraud. 
B)  Documentation should focus on controls over the interim financial reporting process. 
C)  Documentation must be done on paper. 
D)  Inadequate documentation is usually considered an insignificant deficiency in internal control.

Question 11

Prior to issuing a report on internal controls over financial reporting, an auditor is required to

Accepted Answer

A)  Perform procedures sufficient to identify all control deficiencies. 
B)  Communicate to management, in writing, all control deficiencies previously included in written communication from the internal auditors. 
C)  Communicate to management, in writing, all control deficiencies identified during the audit and inform the audit committee when such a communication has been made. 
D)  Represent that no significant deficiencies were noted during the audit of internal control. 
A)  Perform procedures sufficient to identify all control deficiencies. 
B)  Communicate to management, in writing, all control deficiencies previously included in written communication from the internal auditors. 
C)  Communicate to management, in writing, all control deficiencies identified during the audit and inform the audit committee when such a communication has been made. 
D)  Represent that no significant deficiencies were noted during the audit of internal control.

Question 12

The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.

Accepted Answer

A) True 
 B)False

Question 13

When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

Accepted Answer

A)  Test data are processed by the entity's computer programs under the auditor's control. 
B)  Test data must consist of all possible valid and invalid conditions. 
C)  Testing a program at year end provides assurance that the entity's processing was accurate for the entire year. 
D)  Several transactions of each type must be tested. 
A)  Test data are processed by the entity's computer programs under the auditor's control. 
B)  Test data must consist of all possible valid and invalid conditions. 
C)  Testing a program at year end provides assurance that the entity's processing was accurate for the entire year. 
D)  Several transactions of each type must be tested.

Question 14

Discuss entity-level controls and provide examples of these types of controls.

Accepted Answer

Entity-level controls can have a pervasi

Question 15

In a public company, management's report on internal control must be signed by the members of the audit committee.

Accepted Answer

A) True 
 B)False

Question 16

An auditor performing an audit of internal control over financial reporting would be required to

Accepted Answer

A)  Rely on the work of internal auditors. 
B)  Test all of the entity's internal controls. 
C)  Form an opinion on the effectiveness of internal control. 
D)  Randomly identify accounts for an audit of internal control. 
A)  Rely on the work of internal auditors. 
B)  Test all of the entity's internal controls. 
C)  Form an opinion on the effectiveness of internal control. 
D)  Randomly identify accounts for an audit of internal control.

Question 17

An "integrated audit"

Accepted Answer

A)  Will, in most cases, lead to a substantive audit strategy. 
B)  Denies the auditor access to information about the entity's controls. 
C)  May be performed by two separate audit firms. 
D)  Is comprised of audits of internal control over financial reporting and of financial statements. 
A)  Will, in most cases, lead to a substantive audit strategy. 
B)  Denies the auditor access to information about the entity's controls. 
C)  May be performed by two separate audit firms. 
D)  Is comprised of audits of internal control over financial reporting and of financial statements.

Question 18

Management documentation should include all of the following except:

Accepted Answer

A)  Documentation regarding the auditor's evaluation of internal controls. 
B)  Documentation regarding management's testing and evaluation of the controls. 
C)  Documentation regarding the safeguarding of assets. 
D)  Documentation on the controls designed in all five components of internal control. 
A)  Documentation regarding the auditor's evaluation of internal controls. 
B)  Documentation regarding management's testing and evaluation of the controls. 
C)  Documentation regarding the safeguarding of assets. 
D)  Documentation on the controls designed in all five components of internal control.

Question 19

You are an experienced audit senior. The new staff accountant on your audit team does not understand what a control deficiency is. Give him a definition of "control deficiency." Include examples of two types of control deficiencies.

Accepted Answer

A control deficiency exists when the des

Question 20

Which of the following audit procedures would an auditor be least likely to perform using a generalized computer audit program?

Accepted Answer

A)  Searching records of accounts receivable balances for credit balances. 
B)  Investigating inventory balances for possible damaged goods. 
C)  Selecting accounts receivable for positive and negative confirmations. 
D)  Listing of unusually large inventory balances. 
A)  Searching records of accounts receivable balances for credit balances. 
B)  Investigating inventory balances for possible damaged goods. 
C)  Selecting accounts receivable for positive and negative confirmations. 
D)  Listing of unusually large inventory balances.

Exam 7: Auditing Internal Control Over Financial Reporting

An auditor will use the IT test data method in order to gain certain assurances with respect to the

The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. This is an example of

Which of the following is an advantage of generalized computer audit packages?

According to the PCAOB, who is responsible for the reliability of the internal controls over financial reporting process of an entity?

In the context of an audit of internal controls, the auditor must document all of the following except:

Most public companies must follow the guidelines of AS5.

According to the COSO definition of safeguarding of assets

Section 404 of the Sarbanes-Oxley Act requires the auditor to provide which of the following:

A modification of the standard report is required for all of the following conditions except:

Which of the following is true regarding management's documentation of internal controls?

Prior to issuing a report on internal controls over financial reporting, an auditor is required to

The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.

When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

Discuss entity-level controls and provide examples of these types of controls.

In a public company, management's report on internal control must be signed by the members of the audit committee.

An auditor performing an audit of internal control over financial reporting would be required to

An "integrated audit"

Management documentation should include all of the following except:

You are an experienced audit senior. The new staff accountant on your audit team does not understand what a control deficiency is. Give him a definition of "control deficiency." Include examples of two types of control deficiencies.

Which of the following audit procedures would an auditor be least likely to perform using a generalized computer audit program?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters