Question 1

Once a level of control risk has been established,it cannot be changed.

Accepted Answer

A) True 
 B)False  False

Question 2

Auditors are most likely to gather audit evidence solely using substantive procedures

Accepted Answer

A)  If transactions are recurring. 
B)  For nonrecurring, unusual transactions. 
C)  If control risk is very low. 
D)  If the entity has a well-designed automated system. 
A)  If transactions are recurring. 
B)  For nonrecurring, unusual transactions. 
C)  If control risk is very low. 
D)  If the entity has a well-designed automated system. B

Question 3

An auditor is least likely to test the internal controls that provide for

Accepted Answer

A)  Approval of the purchase and sale of marketable securities. 
B)  Classification of revenue and expense transactions by product line. 
C)  Segregation of the functions of recording disbursements and reconciling the bank account. 
D)  Comparison of receiving reports and vendors' invoices with purchase orders. 
A)  Approval of the purchase and sale of marketable securities. 
B)  Classification of revenue and expense transactions by product line. 
C)  Segregation of the functions of recording disbursements and reconciling the bank account. 
D)  Comparison of receiving reports and vendors' invoices with purchase orders. B

Question 4

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

Accepted Answer

A)  Inspection. 
B)  Reconciliation. 
C)  Confirmation. 
D)  Analytical procedures. 
A)  Inspection. 
B)  Reconciliation. 
C)  Confirmation. 
D)  Analytical procedures.

Question 5

In a properly designed internal control system,the same employee may be permitted to

Accepted Answer

A)  Receive and deposit checks and also approve write-offs of customer accounts. 
B)  Approve vouchers for payment and also sign checks. 
C)  Reconcile the bank statements and also receive and deposit cash. 
D)  Sign checks and also cancel supporting documents. 
A)  Receive and deposit checks and also approve write-offs of customer accounts. 
B)  Approve vouchers for payment and also sign checks. 
C)  Reconcile the bank statements and also receive and deposit cash. 
D)  Sign checks and also cancel supporting documents.

Question 6

Internal control includes monitoring of controls.

Accepted Answer

A) True 
 B)False

Question 7

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when

Accepted Answer

A)  External policies established by parties outside the entity affect its accounting practices. 
B)  Management is dominated by one individual. 
C)  Internal audit personnel have direct access to the board of directors and the entity's management. 
D)  The audit committee is active in overseeing the entity's financial reporting policies. 
A)  External policies established by parties outside the entity affect its accounting practices. 
B)  Management is dominated by one individual. 
C)  Internal audit personnel have direct access to the board of directors and the entity's management. 
D)  The audit committee is active in overseeing the entity's financial reporting policies.

Question 8

The risk assessment component of internal control refers to

Accepted Answer

A)  The auditor's assessment of control risk. 
B)  The auditor's assessment of client risk. 
C)  The entity's identification and analysis of risks relevant to achievement of its objectives. 
D)  The entity's monitoring of the potential for material misstatements. 
A)  The auditor's assessment of control risk. 
B)  The auditor's assessment of client risk. 
C)  The entity's identification and analysis of risks relevant to achievement of its objectives. 
D)  The entity's monitoring of the potential for material misstatements.

Question 9

To obtain evidential matter about control risk,an auditor selects tests from a variety of techniques including

Accepted Answer

A)  Inquiry. 
B)  Analytical procedures. 
C)  Calculation. 
D)  Confirmation. 
A)  Inquiry. 
B)  Analytical procedures. 
C)  Calculation. 
D)  Confirmation.

Question 10

The concept of reasonable assurance in the context of an entity's internal controls recognizes that

Accepted Answer

A)  Auditors may fail to detect material misstatements. 
B)  Proper internal controls guarantee that material misstatements will not occur. 
C)  Proper internal controls preclude fraud. 
D)  The costs of some controls may be too high to implement in relation to potential benefits. 
A)  Auditors may fail to detect material misstatements. 
B)  Proper internal controls guarantee that material misstatements will not occur. 
C)  Proper internal controls preclude fraud. 
D)  The costs of some controls may be too high to implement in relation to potential benefits.

Question 11

After the auditor has prepared a flowchart of the internal controls surrounding sales and evaluated the design of the system,the auditor would perform tests of controls on all control activities

Accepted Answer

A)  Documented in the flowchart. 
B)  Considered to be weaknesses that might allow errors to enter the accounting system. 
C)  That the auditor plans to rely on. 
D)  That would aid in preventing fraud. 
A)  Documented in the flowchart. 
B)  Considered to be weaknesses that might allow errors to enter the accounting system. 
C)  That the auditor plans to rely on. 
D)  That would aid in preventing fraud.

Question 12

Proper monitoring within an internal control framework may include all of the following except:

Accepted Answer

A)  An external auditor. 
B)  An effective audit committee. 
C)  An internal audit function. 
D)  The internal revenue service. 
A)  An external auditor. 
B)  An effective audit committee. 
C)  An internal audit function. 
D)  The internal revenue service.

Question 13

In terms of an audit,define substantive strategy and reliance strategy.Include in your definition how the different strategies relate to internal control.Which strategy would best relate to a lower control risk?

Accepted Answer

A substantive strategy means that the au

Question 14

During consideration of internal control in a financial statement audit of a nonpublic company,an auditor is not obligated to

Accepted Answer

A)  Search for significant deficiencies in the operation of internal control. 
B)  Understand the internal control environment and the information system. 
C)  Determine whether the controls relevant to audit planning have been placed in operation. 
D)  Perform procedures to understand the design of internal control. 
A)  Search for significant deficiencies in the operation of internal control. 
B)  Understand the internal control environment and the information system. 
C)  Determine whether the controls relevant to audit planning have been placed in operation. 
D)  Perform procedures to understand the design of internal control.

Question 15

An effective control environment

Accepted Answer

A)  Allows management to identify all relevant risks. 
B)  Creates a commitment to competence. 
C)  Guarantees that all controls are followed as prescribed. 
D)  Requires an internal audit function. 
A)  Allows management to identify all relevant risks. 
B)  Creates a commitment to competence. 
C)  Guarantees that all controls are followed as prescribed. 
D)  Requires an internal audit function.

Question 16

An IT specialist is least likely to be necessary when

Accepted Answer

A)  Data are shared extensively among systems. 
B)  The entity participates heavily in electronic commerce. 
C)  The system has not changed from the prior year. 
D)  Significant audit evidence is in electronic form. 
A)  Data are shared extensively among systems. 
B)  The entity participates heavily in electronic commerce. 
C)  The system has not changed from the prior year. 
D)  Significant audit evidence is in electronic form.

Question 17

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

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 18

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

Accepted Answer

A)  Preparation of a flowchart of duties performed by available personnel. 
B)  Inquiring whether control activities operated consistently throughout the period. 
C)  Reviewing job descriptions prepared by the Personnel Department. 
D)  Direct personal observation of the employees who apply the control activities. 
A)  Preparation of a flowchart of duties performed by available personnel. 
B)  Inquiring whether control activities operated consistently throughout the period. 
C)  Reviewing job descriptions prepared by the Personnel Department. 
D)  Direct personal observation of the employees who apply the control activities.

Question 19

One of the risks associated with internal control from IT is potential loss of data.

Accepted Answer

A) True 
 B)False

Question 20

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

Accepted Answer

A)  Employment of temporary personnel to aid in the separation of duties. 
B)  Direct participation by the owner of the business in the recordkeeping activities of the business. 
C)  Engaging a CPA to perform monthly bookkeeping. 
D)  Delegation of full, clear-cut responsibility to each employee for the functions assigned to each. 
A)  Employment of temporary personnel to aid in the separation of duties. 
B)  Direct participation by the owner of the business in the recordkeeping activities of the business. 
C)  Engaging a CPA to perform monthly bookkeeping. 
D)  Delegation of full, clear-cut responsibility to each employee for the functions assigned to each.

Exam 6: Internal Control in a Financial Statement Audit

Once a level of control risk has been established,it cannot be changed.

Auditors are most likely to gather audit evidence solely using substantive procedures

An auditor is least likely to test the internal controls that provide for

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

In a properly designed internal control system,the same employee may be permitted to

Internal control includes monitoring of controls.

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when

The risk assessment component of internal control refers to

To obtain evidential matter about control risk,an auditor selects tests from a variety of techniques including

The concept of reasonable assurance in the context of an entity's internal controls recognizes that

After the auditor has prepared a flowchart of the internal controls surrounding sales and evaluated the design of the system,the auditor would perform tests of controls on all control activities

Proper monitoring within an internal control framework may include all of the following except:

In terms of an audit,define substantive strategy and reliance strategy.Include in your definition how the different strategies relate to internal control.Which strategy would best relate to a lower control risk?

During consideration of internal control in a financial statement audit of a nonpublic company,an auditor is not obligated to

An effective control environment

An IT specialist is least likely to be necessary when

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

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

One of the risks associated with internal control from IT is potential loss of data.

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

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

Auditing Internal Control Over Financial Reporting

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 Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting 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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

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