Question 1

Which of the following is the least important audit reason for the auditor's obtaining an understanding of a company's internal control?

Accepted Answer

A) To serve as a basis for constructive suggestions 
B) To plan subsequent substantive tests 
C) To identify types of possible misstatements that may occur 
D) To consider factors that may affect the risk of material misstatement 
A) To serve as a basis for constructive suggestions 
B) To plan subsequent substantive tests 
C) To identify types of possible misstatements that may occur 
D) To consider factors that may affect the risk of material misstatement

Question 2

Which of the following would most likely be classified as a material weakness?

Accepted Answer

A) Absence of appropriate separation of duties 
B) Absence of appropriate reviews and approvals of transactions 
C) Evidence of failure of control activities 
D) Ineffective oversight of the financial reporting process by the company's audit committee 
A) Absence of appropriate separation of duties 
B) Absence of appropriate reviews and approvals of transactions 
C) Evidence of failure of control activities 
D) Ineffective oversight of the financial reporting process by the company's audit committee

Question 3

When auditing financial statements of a private company,the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements.

Accepted Answer

A) Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness. 
B) Determine whether the company's control policies are designed well enough to prevent material misstatements. 
C) Prepare auditing working papers that document the auditor's understanding of the company's internal control. 
D) Design procedures to search for significant deficiencies in the actual operation of the company's internal control. 
A) Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness. 
B) Determine whether the company's control policies are designed well enough to prevent material misstatements. 
C) Prepare auditing working papers that document the auditor's understanding of the company's internal control. 
D) Design procedures to search for significant deficiencies in the actual operation of the company's internal control.

Question 4

Explain the different opinions that auditors can issue for an entity's internal control over financial reporting.

Accepted Answer

Auditors can issue the following opinion

Question 5

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as

Accepted Answer

A) management assertions. 
B) the control environment. 
C) control risk assessment. 
D) functional responsibilities. 
A) management assertions. 
B) the control environment. 
C) control risk assessment. 
D) functional responsibilities.

Question 6

Each of the following types of controls is considered to be an entity-level control,except those

Accepted Answer

A) relating to the control environment. 
B) pertaining to the company's risk assessment process. 
C) regarding the company's annual stockholder meeting. 
D) addressing policies over significant risk management practices. 
A) relating to the control environment. 
B) pertaining to the company's risk assessment process. 
C) regarding the company's annual stockholder meeting. 
D) addressing policies over significant risk management practices.

Question 7

Which of the following procedures is considered a test of controls?

Accepted Answer

A) An auditor reviews the entity's check register for unrecorded liabilities. 
B) An auditor evaluates whether a general journal entry was recorded at the proper amount. 
C) An auditor interviews and observes appropriate personnel to determine segregation of duties. 
D) An auditor reviews the audit workpapers to ensure proper sign-off. 
A) An auditor reviews the entity's check register for unrecorded liabilities. 
B) An auditor evaluates whether a general journal entry was recorded at the proper amount. 
C) An auditor interviews and observes appropriate personnel to determine segregation of duties. 
D) An auditor reviews the audit workpapers to ensure proper sign-off.

Question 8

A report on internal control effectiveness by the management team of public companies is required by

Accepted Answer

A) the Sarbanes-Oxley Act of 2002. 
B) the PCAOB. 
C) the AICPA. 
D) the auditors. 
A) the Sarbanes-Oxley Act of 2002. 
B) the PCAOB. 
C) the AICPA. 
D) the auditors.

Question 9

The overall attitude and awareness of an entity's board of directors concerning the importance of the client's internal control usually is reflected in its

Accepted Answer

A) computer-based control activities. 
B) system of separation of duties. 
C) control environment. 
D) safeguards over access to assets. 
A) computer-based control activities. 
B) system of separation of duties. 
C) control environment. 
D) safeguards over access to assets.

Question 10

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Accepted Answer

A) Incompatible duties 
B) Management override 
C) Mistakes in judgment 
D) Collusion among employees 
A) Incompatible duties 
B) Management override 
C) Mistakes in judgment 
D) Collusion among employees

Question 11

Proper separation of duties reduces the opportunities to allow persons to be in positions to both

Accepted Answer

A) journalize entries and prepare financial statements. 
B) record cash receipts and cash disbursements. 
C) establish internal controls and authorize transactions. 
D) perpetrate a fraud and then conceal it in the books. 
A) journalize entries and prepare financial statements. 
B) record cash receipts and cash disbursements. 
C) establish internal controls and authorize transactions. 
D) perpetrate a fraud and then conceal it in the books.

Question 12

In an audit of financial statements,an auditor's primary consideration regarding an internal control policy or activity is whether the policy or activity

Accepted Answer

A) reflects management's philosophy and operating style. 
B) affects management's financial statement assertions. 
C) provides adequate safeguards over access to assets. 
D) enhances management's decision making processes. 
A) reflects management's philosophy and operating style. 
B) affects management's financial statement assertions. 
C) provides adequate safeguards over access to assets. 
D) enhances management's decision making processes.

Question 13

As part of understanding the internal control,an auditor is not required to

Accepted Answer

A) consider factors that affect the risk of material misstatement. 
B) ascertain whether internal control policies and activities have been placed in operation. 
C) identify the types of potential misstatements that can occur. 
D) obtain knowledge about the operating effectiveness of the client's internal control activities. 
A) consider factors that affect the risk of material misstatement. 
B) ascertain whether internal control policies and activities have been placed in operation. 
C) identify the types of potential misstatements that can occur. 
D) obtain knowledge about the operating effectiveness of the client's internal control activities.

Question 14

When obtaining an understanding of an entity's internal control in a financial statement audit at a non-public company,an auditor is not obligated to

Accepted Answer

A) determine whether the control activities have been placed in operation. 
B) perform procedures to understand the design of the internal control system. 
C) document the understanding of the company's internal control system. 
D) search for significant deficiencies in the operation of the internal control system. 
A) determine whether the control activities have been placed in operation. 
B) perform procedures to understand the design of the internal control system. 
C) document the understanding of the company's internal control system. 
D) search for significant deficiencies in the operation of the internal control system.

Question 15

What constitutes a material weakness?

Accepted Answer

A material weakness in internal control

Question 16

Assessing control risk at below the maximum level most likely would involve

Accepted Answer

A) performing more extensive substantive tests with larger sample sizes than originally planned. 
B) reducing inherent risk for most of the assertions relevant to significant account balances. 
C) changing the timing of substantive tests by omitting interim-date testing and performing the tests at year end. 
D) identifying specific internal control activities that are relevant to specific financial statement assertions. 
A) performing more extensive substantive tests with larger sample sizes than originally planned. 
B) reducing inherent risk for most of the assertions relevant to significant account balances. 
C) changing the timing of substantive tests by omitting interim-date testing and performing the tests at year end. 
D) identifying specific internal control activities that are relevant to specific financial statement assertions.

Question 17

List and explain briefly the phases of an internal control evaluation.

Accepted Answer

Phase 1: Understanding and document the

Question 18

Which of the following is a definition of control risk?

Accepted Answer

A) The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls. 
B) The risk that the auditor will not detect a material misstatement. 
C) The risk that the auditor's assessment of internal controls will be at less than the maximum level. 
D) The susceptibility of material misstatement assuming there are no related internal controls,policies,or procedures. 
A) The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls. 
B) The risk that the auditor will not detect a material misstatement. 
C) The risk that the auditor's assessment of internal controls will be at less than the maximum level. 
D) The susceptibility of material misstatement assuming there are no related internal controls,policies,or procedures.

Question 19

Tracing bills of lading to sales invoices provides evidence that

Accepted Answer

A) shipments to customers were invoiced. 
B) shipments to customers were recorded as sales. 
C) recorded sales were shipped. 
D) invoiced sales were recorded as sales. 
A) shipments to customers were invoiced. 
B) shipments to customers were recorded as sales. 
C) recorded sales were shipped. 
D) invoiced sales were recorded as sales.

Question 20

The appropriate separation of duties does not include

Accepted Answer

A) authorization to execute transactions. 
B) recording of transactions. 
C) custody of assets involved in the transactions. 
D) data preparation. 
A) authorization to execute transactions. 
B) recording of transactions. 
C) custody of assets involved in the transactions. 
D) data preparation.

Which of the following is the least important audit reason for the auditor's obtaining an understanding of a company's internal control?

Which of the following would most likely be classified as a material weakness?

When auditing financial statements of a private company,the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements.

Explain the different opinions that auditors can issue for an entity's internal control over financial reporting.

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as

Each of the following types of controls is considered to be an entity-level control,except those

Which of the following procedures is considered a test of controls?

A report on internal control effectiveness by the management team of public companies is required by

The overall attitude and awareness of an entity's board of directors concerning the importance of the client's internal control usually is reflected in its

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Proper separation of duties reduces the opportunities to allow persons to be in positions to both

In an audit of financial statements,an auditor's primary consideration regarding an internal control policy or activity is whether the policy or activity

As part of understanding the internal control,an auditor is not required to

When obtaining an understanding of an entity's internal control in a financial statement audit at a non-public company,an auditor is not obligated to

What constitutes a material weakness?

Assessing control risk at below the maximum level most likely would involve

List and explain briefly the phases of an internal control evaluation.

Which of the following is a definition of control risk?

Tracing bills of lading to sales invoices provides evidence that

The appropriate separation of duties does not include

Auditing and Assurance Services

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Management Fraud and Audit Risk

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Acquisition and Expenditure Cycle

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Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

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Exam 5: Risk Assessment: Internal Control Evaluation

Which of the following is the least important audit reason for the auditor's obtaining an understanding of a company's internal control?

Which of the following would most likely be classified as a material weakness?

When auditing financial statements of a private company,the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements.

Explain the different opinions that auditors can issue for an entity's internal control over financial reporting.

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as

Each of the following types of controls is considered to be an entity-level control,except those

Which of the following procedures is considered a test of controls?

A report on internal control effectiveness by the management team of public companies is required by

The overall attitude and awareness of an entity's board of directors concerning the importance of the client's internal control usually is reflected in its

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Proper separation of duties reduces the opportunities to allow persons to be in positions to both

In an audit of financial statements,an auditor's primary consideration regarding an internal control policy or activity is whether the policy or activity

As part of understanding the internal control,an auditor is not required to

When obtaining an understanding of an entity's internal control in a financial statement audit at a non-public company,an auditor is not obligated to

What constitutes a material weakness?

Assessing control risk at below the maximum level most likely would involve

List and explain briefly the phases of an internal control evaluation.

Which of the following is a definition of control risk?

Tracing bills of lading to sales invoices provides evidence that

The appropriate separation of duties does not include

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits, Governmental Audits, and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters