Question 1

In assessing the objectivity of a client's internal auditors,the CPA would be most likely to consider internal auditor:

Accepted Answer

A) Education levels. 
B) Experience. 
C) Organizational status within the company. 
D) Training and supervisory skills. 
A) Education levels. 
B) Experience. 
C) Organizational status within the company. 
D) Training and supervisory skills.

Question 2

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 3

Which of the following would be least likely to be included in an auditor's tests of controls?

Accepted Answer

A) Inspection. 
B) Observation. 
C) Inquiry. 
D) Analytical procedures. 
A) Inspection. 
B) Observation. 
C) Inquiry. 
D) Analytical procedures.

Question 4

A report on internal control performed in accordance with PCAOB Standard No.5 includes an opinion on internal control for:

Accepted Answer

A) The entire year. 
B) The prior quarter. 
C) The "as of date." 
D) The end of each quarter. 
A) The entire year. 
B) The prior quarter. 
C) The "as of date." 
D) The end of each quarter.

Question 5

The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States:

Accepted Answer

A) All companies. 
B) SEC registrants. 
C) Only those companies included in the Fortune 500. 
D) All nonpublic companies. 
A) All companies. 
B) SEC registrants. 
C) Only those companies included in the Fortune 500. 
D) All nonpublic companies.

Question 6

The provisions of the Foreign Corrupt Practices Act apply to:

Accepted Answer

A) All U.S.corporations. 
B) All U.S.corporations that engage in foreign operations. 
C) All corporations that must file under the Securities Exchange Act of 1934. 
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 that must file under the Securities Exchange Act of 1934. 
D) All U.S.partnerships and corporations.

Question 7

Which of the following is not a component of the control environment?

Accepted Answer

A) Integrity and ethical values. 
B) Risk assessment. 
C) Commitment to competence. 
D) Organizational structure. 
A) Integrity and ethical values. 
B) Risk assessment. 
C) Commitment to competence. 
D) Organizational structure.

Question 8

Well-designed internal control will prevent all fraud by top management.

Accepted Answer

A) True 
 B)False

Question 9

After documenting the client's prescribed internal control,the auditors will often perform a walk-through of each transaction cycle.An objective of a walk-through is to:

Accepted Answer

A) Verify that the controls have been implemented (placed in operation). 
B) Replace tests of controls. 
C) Evaluate the major strengths and weaknesses in the client's internal control. 
D) Identify weaknesses to be communicated to management in the management letter. 
A) Verify that the controls have been implemented (placed in operation). 
B) Replace tests of controls. 
C) Evaluate the major strengths and weaknesses in the client's internal control. 
D) Identify weaknesses to be communicated to management in the management letter.

Question 10

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 11

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 12

An auditor's purpose for performing tests of controls is to provide reasonable assurance that:

Accepted Answer

A) Controls are operating effectively. 
B) The risk that the auditor may unknowingly fail to modify the opinion on the financial statements is minimized. 
C) Transactions are executed in accordance with management's authorization and access to assets is limited by a segregation of functions. 
D) Transactions are recorded as necessary to permit the preparation of the financial statements in conformity with generally accepted accounting principles. 
A) Controls are operating effectively. 
B) The risk that the auditor may unknowingly fail to modify the opinion on the financial statements is minimized. 
C) Transactions are executed in accordance with management's authorization and access to assets is limited by a segregation of functions. 
D) Transactions are recorded as necessary to permit the preparation of the financial statements in conformity with generally accepted accounting principles.

Question 13

Which of the following would be least likely to be considered a benefit of effective internal control?

Accepted Answer

A) Eliminating all employee fraud. 
B) Restricting access to assets. 
C) Detecting ineffectiveness. 
D) Ensuring authorization of transactions. 
A) Eliminating all employee fraud. 
B) Restricting access to assets. 
C) Detecting ineffectiveness. 
D) Ensuring authorization of transactions.

Question 14

Internal control is concerned with the reliability of financial information.

Accepted Answer

A) True 
 B)False

Question 15

Well-designed internal control that is functioning effectively is most likely to detect a fraud arising from:

Accepted Answer

A) The fraudulent action of several employees. 
B) The fraudulent action of an individual employee. 
C) Informal deviations from the official organization chart. 
D) Management fraud. 
A) The fraudulent action of several employees. 
B) The fraudulent action of an individual employee. 
C) Informal deviations from the official organization chart. 
D) Management fraud.

Question 16

The major components of internal control include all of the following,except:

Accepted Answer

A) Risk assessment. 
B) The control environment. 
C) Internal auditing. 
D) Control activities. 
A) Risk assessment. 
B) The control environment. 
C) Internal auditing. 
D) Control activities.

Question 17

A significant deficiency:

Accepted Answer

A) Differs from a material weakness in that it involves internal control over operations rather than internal control over financial reporting. 
B) Involves an amount of discovered misstatements greater than the amount used as the planning measure of materiality. 
C) Is identical to a material weakness except that it need not be communicated to those responsible for oversight of the company's financial reporting. 
D) Is less severe than a material weakness. 
A) Differs from a material weakness in that it involves internal control over operations rather than internal control over financial reporting. 
B) Involves an amount of discovered misstatements greater than the amount used as the planning measure of materiality. 
C) Is identical to a material weakness except that it need not be communicated to those responsible for oversight of the company's financial reporting. 
D) Is less severe than a material weakness.

Question 18

The relatively low number of types of transactions incurred by small firms makes the segregation of duties impossible.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following audit tests would be regarded as a test of a control?

Accepted Answer

A) Tests of the specific items making up the balance in a given general ledger account. 
B) Tests confirming receivables. 
C) Tests of the signatures on canceled checks to board of director's authorizations. 
D) Tests of the additions to property, plant, and equipment by physical inspection. 
A) Tests of the specific items making up the balance in a given general ledger account. 
B) Tests confirming receivables. 
C) Tests of the signatures on canceled checks to board of director's authorizations. 
D) Tests of the additions to property, plant, and equipment by physical inspection.

Question 20

The program flowcharting symbol representing a decision is a:

Accepted Answer

A) Triangle. 
B) Circle. 
C) Rectangle. 
D) Diamond. 
A) Triangle. 
B) Circle. 
C) Rectangle. 
D) Diamond.

Exam 7: Internal Control

In assessing the objectivity of a client's internal auditors,the CPA would be most likely to consider internal auditor:

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

Which of the following would be least likely to be included in an auditor's tests of controls?

A report on internal control performed in accordance with PCAOB Standard No.5 includes an opinion on internal control for:

The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States:

The provisions of the Foreign Corrupt Practices Act apply to:

Which of the following is not a component of the control environment?

Well-designed internal control will prevent all fraud by top management.

After documenting the client's prescribed internal control,the auditors will often perform a walk-through of each transaction cycle.An objective of a walk-through is to:

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

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

An auditor's purpose for performing tests of controls is to provide reasonable assurance that:

Which of the following would be least likely to be considered a benefit of effective internal control?

Internal control is concerned with the reliability of financial information.

Well-designed internal control that is functioning effectively is most likely to detect a fraud arising from:

The major components of internal control include all of the following,except:

A significant deficiency:

The relatively low number of types of transactions incurred by small firms makes the segregation of duties impossible.

Which of the following audit tests would be regarded as a test of a control?

The program flowcharting symbol representing a decision is a:

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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