Question 1

Which of the following is true about the auditors' consideration of internal control in a financial statement audit?

Accepted Answer

A) The auditors must assess control risk at a level lower than the maximum. 
B) The auditors must prepare a flowchart description of internal control for their working papers. 
C) The auditors must obtain an understanding of the steps in processing major types of transactions. 
D) The auditors must perform tests of controls. 
A) The auditors must assess control risk at a level lower than the maximum. 
B) The auditors must prepare a flowchart description of internal control for their working papers. 
C) The auditors must obtain an understanding of the steps in processing major types of transactions. 
D) The auditors must perform tests of controls.

Question 2

The auditors who become aware of an internal control significant deficiency are required to communicate this to the:

Accepted Answer

A) Client's legal counsel. 
B) Compensation committee. 
C) Audit committee. 
D) Internal auditors. 
A) Client's legal counsel. 
B) Compensation committee. 
C) Audit committee. 
D) Internal auditors.

Question 3

When tests of controls reveal that controls are operating as anticipated,it is most likely that the assessed level of control risk will:

Accepted Answer

A) Be less than the preliminary assessed level of control risk. 
B) Equal the preliminary assessed level of control risk. 
C) Equal the actual control risk. 
D) Be less than the actual control risk. 
A) Be less than the preliminary assessed level of control risk. 
B) Equal the preliminary assessed level of control risk. 
C) Equal the actual control risk. 
D) Be less than the actual control risk.

Question 4

A control deficiency that is less severe than a material weakness,but important enough to merit attention by those responsible for oversight of the company's financial reporting is referred to as a(n):

Accepted Answer

A) Control deficiency. 
B) Inherent limitation. 
C) Reportable deficiency. 
D) Significant deficiency. 
A) Control deficiency. 
B) Inherent limitation. 
C) Reportable deficiency. 
D) Significant deficiency.

Question 5

In the consideration of internal control,the auditor is basically concerned that it provides reasonable assurance that:

Accepted Answer

A) Management can not override the system. 
B) Operational efficiency has been achieved in accordance with management plans. 
C) Misstatements have been prevented or detected. 
D) Controls have not been circumvented by collusion. 
A) Management can not override the system. 
B) Operational efficiency has been achieved in accordance with management plans. 
C) Misstatements have been prevented or detected. 
D) Controls have not been circumvented by collusion.

Question 6

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

Accepted Answer

A) Counting marketable securities at year-end. 
B) Inquiries of client personnel. 
C) Inspecting documents and reports. 
D) Observing the application of specific controls. 
A) Counting marketable securities at year-end. 
B) Inquiries of client personnel. 
C) Inspecting documents and reports. 
D) Observing the application of specific controls.

Question 7

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 8

If the auditors' assessment of the design of internal control reveals that it cannot be relied upon,the auditors are not required to prepare any documentation of internal control for their working papers.

Accepted Answer

A) True 
 B)False

Question 9

During financial statement audits,the auditors' consideration of their clients' internal control is integral to both assess the risk of material misstatement and to:

Accepted Answer

A) Assess inherent risk. 
B) Design further audit procedures. 
C) Assess compliance with the Foreign Corrupt Practices Act. 
D) Provide a reasonable basis for an opinion on compliance with applicable laws. 
A) Assess inherent risk. 
B) Design further audit procedures. 
C) Assess compliance with the Foreign Corrupt Practices Act. 
D) Provide a reasonable basis for an opinion on compliance with applicable laws.

Question 10

If the auditors do not perform tests of controls for certain assertions:

Accepted Answer

A) They have performed a substandard audit. 
B) They are not required to communicate significant deficiencies relating to those accounts to management and the board of directors. 
C) They must issue a qualified opinion. 
D) They must assess control risk at the maximum level for those assertions. 
A) They have performed a substandard audit. 
B) They are not required to communicate significant deficiencies relating to those accounts to management and the board of directors. 
C) They must issue a qualified opinion. 
D) They must assess control risk at the maximum level for those assertions.

Question 11

At least 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 12

When performing an audit of internal control under PCAOB requirements,auditors evaluate control: $$\begin{array}{l}
\begin{array} { c } 
&\text { Design Effectiveness}&\text{ Operating Effectiveness }\
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}
\end{array}$$

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 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 14

If the independent auditors decide that the work performed by the internal auditors may have a bearing on their own procedures,they should consider the internal auditors':

Accepted Answer

A) Competence and objectivity. 
B) Efficiency and experience. 
C) Independence and review skills. 
D) Training and supervisory skills. 
A) Competence and objectivity. 
B) Efficiency and experience. 
C) Independence and review skills. 
D) Training and supervisory skills.

Question 15

Which of the following is not a primary procedure auditors use to obtain sufficient knowledge about the design of the relevant controls and to determine whether they have been implemented (placed in operation)?

Accepted Answer

A) Previous experience with the entity. 
B) Inquiries of appropriate management personnel. 
C) Performance of substantive procedures. 
D) Inspection of document and records. 
A) Previous experience with the entity. 
B) Inquiries of appropriate management personnel. 
C) Performance of substantive procedures. 
D) Inspection of document and records.

Question 16

Internal auditors should preferably report to the chief accounting officer of the company.

Accepted Answer

A) True 
 B)False

Question 17

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 18

The effectiveness of controls is not generally tested by:

Accepted Answer

A) Inspection of documents and reports. 
B) Performance of analytical procedures. 
C) Observation of the application of accounting policies and procedures. 
D) Inquiries of appropriate client personnel. 
A) Inspection of documents and reports. 
B) Performance of analytical procedures. 
C) Observation of the application of accounting policies and procedures. 
D) Inquiries of appropriate client personnel.

Question 19

In the consideration of internal control,the operating effectiveness of controls is tested by:

Accepted Answer

A) Flowcharts verification. 
B) Tests of controls. 
C) Substantive procedures. 
D) Decision tables. 
A) Flowcharts verification. 
B) Tests of controls. 
C) Substantive procedures. 
D) Decision tables.

Question 20

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.

Exam 7: Internal Control

Which of the following is true about the auditors' consideration of internal control in a financial statement audit?

The auditors who become aware of an internal control significant deficiency are required to communicate this to the:

When tests of controls reveal that controls are operating as anticipated,it is most likely that the assessed level of control risk will:

A control deficiency that is less severe than a material weakness,but important enough to merit attention by those responsible for oversight of the company's financial reporting is referred to as a(n):

In the consideration of internal control,the auditor is basically concerned that it provides reasonable assurance that:

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

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.

If the auditors' assessment of the design of internal control reveals that it cannot be relied upon,the auditors are not required to prepare any documentation of internal control for their working papers.

During financial statement audits,the auditors' consideration of their clients' internal control is integral to both assess the risk of material misstatement and to:

If the auditors do not perform tests of controls for certain assertions:

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

When performing an audit of internal control under PCAOB requirements,auditors evaluate control: Design Effectiveness Operating Effectiveness A) Yes Yes B) Yes No C) No Yes D) No No

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

If the independent auditors decide that the work performed by the internal auditors may have a bearing on their own procedures,they should consider the internal auditors':

Which of the following is not a primary procedure auditors use to obtain sufficient knowledge about the design of the relevant controls and to determine whether they have been implemented (placed in operation)?

Internal auditors should preferably report to the chief accounting officer of the company.

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

The effectiveness of controls is not generally tested by:

In the consideration of internal control,the operating effectiveness of controls is tested by:

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

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

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