Question 1

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. C

Question 2

The Foreign Corrupt Practices Act prohibits bribes to foreign corporate officials to obtain business.

Accepted Answer

A) True 
 B)False  False

Question 3

On financial statement audits,it is required that the auditors obtain an understanding of internal control,including:

Accepted Answer

A) Its operating effectiveness. 
B) Whether it has been implemented (placed in operation). 
C) Performing tests of controls for all material controls. 
D) Its ability to provide reasonable assurance. 
A) Its operating effectiveness. 
B) Whether it has been implemented (placed in operation). 
C) Performing tests of controls for all material controls. 
D) Its ability to provide reasonable assurance. B

Question 4

The independent auditors might consider the procedures performed by the internal auditors because:

Accepted Answer

A) They are employees whose work must be reviewed during substantive testing. 
B) They are employees whose work might affect the independent auditors' work. 
C) Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations. 
D) Their degree of independence may be inferred by the nature of their work. 
A) They are employees whose work must be reviewed during substantive testing. 
B) They are employees whose work might affect the independent auditors' work. 
C) Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations. 
D) Their degree of independence may be inferred by the nature of their work.

Question 5

Tests of controls are most likely to be performed when:

Accepted Answer

A) Controls seem weak and must be properly documented. 
B) Inadequate substantive procedures exist to restrict audit risk to an acceptable level. 
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) Inadequate substantive procedures exist to restrict audit risk to an acceptable level. 
C) The auditor wishes to assess control risk at the maximum. 
D) The client's control environment appears weak.

Question 6

For A through F place a X in the box (for Situation 1 or Situation 2)which is most accurate with the statement below; if for any question you believe that the situation 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.

Accepted Answer

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

Question 7

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 8

Which statement is correct concerning the definition of internal control developed by the Committee of Sponsoring Organizations (COSO)?

Accepted Answer

A) Its applicability is largely limited to internal auditing applications. 
B) It is recognized in the Statements on Auditing Standards. 
C) It emphasizes the effectiveness and efficiency of operations over the reliability of financial reporting. 
D) It suggests that it is important to view internal control as an end product as contrasted to a process or means to obtain an end. 
A) Its applicability is largely limited to internal auditing applications. 
B) It is recognized in the Statements on Auditing Standards. 
C) It emphasizes the effectiveness and efficiency of operations over the reliability of financial reporting. 
D) It suggests that it is important to view internal control as an end product as contrasted to a process or means to obtain an end.

Question 9

In a financial statement audit,CPAs are required to assess the operating effectiveness of most significant accounting oriented controls.

Accepted Answer

A) True 
 B)False

Question 10

A client's internal control appears strong,but the CPA has elected not to perform any tests of controls.The planned assessed level of control risk is at what level?

Accepted Answer

A) Zero. 
B) Low. 
C) Moderate. 
D) Maximum. 
A) Zero. 
B) Low. 
C) Moderate. 
D) Maximum.

Question 11

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 12

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

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 13

Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes?

Accepted Answer

A) Checklist. 
B) Flowchart. 
C) Questionnaire. 
D) Confirmation. 
A) Checklist. 
B) Flowchart. 
C) Questionnaire. 
D) Confirmation.

Question 14

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 15

Which of the following is least likely to be a factor that might indicate to an auditor that an identified risk of misstatement requires special audit consideration?

Accepted Answer

A) Complex calculations are involved. 
B) The rate of technological change is moderate in the industry. 
C) The potential for fraud seems high. 
D) Various subjective methods of application of a key accounting policy exist. 
A) Complex calculations are involved. 
B) The rate of technological change is moderate in the industry. 
C) The potential for fraud seems high. 
D) Various subjective methods of application of a key accounting policy exist.

Question 16

The definition of internal control developed by the Committee of Sponsoring Organizations (COSO)includes controls related to the reliability of financial 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 17

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 18

The report of a service auditor may provide assurance on whether: $$\begin{array} { c } 
&\text{Controls are implemented}&\text{
Operating effectiveness of controls}\
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}$$

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 19

Which of the following is not ordinarily considered a factor indicative of increased financial reporting risk when an auditor is considering a client's risk assessment policies?

Accepted Answer

A) Salaried sales personnel. 
B) Implementation of a new information system. 
C) Rapid growth of the organization. 
D) Corporate restructuring. 
A) Salaried sales personnel. 
B) Implementation of a new information system. 
C) Rapid growth of the organization. 
D) Corporate restructuring.

Question 20

An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and:

Accepted Answer

A) Compliance with laws. 
B) Internal control over asset safeguarding. 
C) Internal control over financial reporting. 
D) Suitable criteria. 
A) Compliance with laws. 
B) Internal control over asset safeguarding. 
C) Internal control over financial reporting. 
D) Suitable criteria.

Exam 7: Internal Control

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

The Foreign Corrupt Practices Act prohibits bribes to foreign corporate officials to obtain business.

On financial statement audits,it is required that the auditors obtain an understanding of internal control,including:

The independent auditors might consider the procedures performed by the internal auditors because:

Tests of controls are most likely to be performed when:

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

Which statement is correct concerning the definition of internal control developed by the Committee of Sponsoring Organizations (COSO)?

In a financial statement audit,CPAs are required to assess the operating effectiveness of most significant accounting oriented controls.

A client's internal control appears strong,but the CPA has elected not to perform any tests of controls.The planned assessed level of control risk is at what level?

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

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

Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes?

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

Which of the following is least likely to be a factor that might indicate to an auditor that an identified risk of misstatement requires special audit consideration?

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

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

The report of a service auditor may provide assurance on whether: Controls are implemented Operating effectiveness of controls A) Yes Yes B) Yes No C) No Yes D) No No

Which of the following is not ordinarily considered a factor indicative of increased financial reporting risk when an auditor is considering a client's risk assessment policies?

An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and:

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 Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Probability-Proportion-To-Size Sampling

Filters