Question 1

Which of the following is not a responsibility that should be assigned to a company's internal audit department?

Accepted Answer

A)  Evaluating internal control. 
B)  Approving disbursements. 
C)  Reporting on the effectiveness of operating segments. 
D)  Investigating potential merger candidates. 
A)  Evaluating internal control. 
B)  Approving disbursements. 
C)  Reporting on the effectiveness of operating segments. 
D)  Investigating potential merger candidates. B

Question 2

Tests of controls are most likely to be performed when:

Accepted Answer

A)  Controls seem weak and must be properly documented. 
B)  The auditor plans to rely on the controls. 
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)  The auditor plans to rely on the controls. 
C)  The auditor wishes to assess control risk at the maximum. 
D)  The client's control environment appears weak. B

Question 3

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. C

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Of the following statements about internal control, which one is not valid?

Accepted Answer

A)  No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. 
B)  Transactions must be properly authorized before such transactions are processed. 
C)  Because of the cost/benefit relationship, a client may apply control procedures on a test basis. 
D)  Control activities reasonably insure that collusion among employees cannot occur. 
A)  No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. 
B)  Transactions must be properly authorized before such transactions are processed. 
C)  Because of the cost/benefit relationship, a client may apply control procedures on a test basis. 
D)  Control activities reasonably insure that collusion among employees cannot occur.

Question 6

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 7

When considering a client's internal control, the auditors focus on its various characteristics. For each of the following characteristics indicate the auditors' responsibility under generally accepted auditing standards and the procedures used to meet that responsibility.
a. The design of internal control.
b. Controls have been implemented (placed in operation).
c. The operating effectiveness of controls.

Accepted Answer

a. The auditors have a responsibility to

Question 8

Which of the following is not a factor that is considered a part of the client's overall control environment?

Accepted Answer

A)  The organizational structure. 
B)  The information system. 
C)  Management philosophy and operating style. 
D)  Board of directors. 
A)  The organizational structure. 
B)  The information system. 
C)  Management philosophy and operating style. 
D)  Board of directors.

Question 9

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 10

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.

Question 11

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 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following matters would an auditor most likely consider to be a significant deficiency to be communicated to the audit committee?

Accepted Answer

A)  Management's failure to renegotiate unfavorable long-term purchase commitments. 
B)  Recurring operating losses that may indicate going concern problems. 
C)  Evidence of a lack of objectivity by those responsible for accounting decisions. 
D)  Management's current plans to reduce its ownership equity in the entity. 
A)  Management's failure to renegotiate unfavorable long-term purchase commitments. 
B)  Recurring operating losses that may indicate going concern problems. 
C)  Evidence of a lack of objectivity by those responsible for accounting decisions. 
D)  Management's current plans to reduce its ownership equity in the entity.

Question 15

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

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 16

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 17

External auditors should consider the work of internal auditors in their assessment of control risk.
a. Are internal auditors independent of management? Explain.
b. What is the difference between the primary objective of the external auditors and that of internal auditors? Explain.
c. Discuss the factors that should be considered by the external auditors in deciding how much, if any, reliance should be placed on the work of the internal auditors.

Accepted Answer

a. No. However, internal auditors may ac

Question 18

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 19

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

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 20

After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that:

Accepted Answer

A)  Additional evidence to support a reduction in the assessed level of control risk is not available. 
B)  An increase in the assessed level of control risk is justified for certain financial statement assertions. 
C)  It would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures. 
D)  There were many internal control deficiencies that would allow misstatements to enter the accounting system. 
A)  Additional evidence to support a reduction in the assessed level of control risk is not available. 
B)  An increase in the assessed level of control risk is justified for certain financial statement assertions. 
C)  It would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures. 
D)  There were many internal control deficiencies that would allow misstatements to enter the accounting system.

Which of the following is not a responsibility that should be assigned to a company's internal audit department?

Tests of controls are most likely to be performed when:

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)?

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

Of the following statements about internal control, which one is not valid?

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):

Which of the following is not a factor that is considered a part of the client's overall control environment?

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?

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

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

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

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

Which of the following matters would an auditor most likely consider to be a significant deficiency to be communicated to the audit committee?

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

The effectiveness of controls is not generally tested by:

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

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

After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Planning the Audit; Linking Audit Procedures to Risk

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

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Exam 7: Internal Control

Which of the following is not a responsibility that should be assigned to a company's internal audit department?

Tests of controls are most likely to be performed when:

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)?

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

Of the following statements about internal control, which one is not valid?

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):

Which of the following is not a factor that is considered a part of the client's overall control environment?

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?

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

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

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

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

Which of the following matters would an auditor most likely consider to be a significant deficiency to be communicated to the audit committee?

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

The effectiveness of controls is not generally tested by:

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

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

After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Planning the Audit; Linking Audit Procedures to Risk

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

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