Question 1

Which of the following is an advantage of describing internal control through the use of a standardized questionnaire?

Accepted Answer

A)  Questionnaires highlight weaknesses in the system. 
B)  Questionnaires are more flexible than other methods of describing internal control. 
C)  Questionnaires usually identify situations in which internal control weaknesses are compensated for by other strengths in the system. 
D)  Questionnaires provide a clearer and more specific portrayal of a client's system than other methods of describing internal control. 
A)  Questionnaires highlight weaknesses in the system. 
B)  Questionnaires are more flexible than other methods of describing internal control. 
C)  Questionnaires usually identify situations in which internal control weaknesses are compensated for by other strengths in the system. 
D)  Questionnaires provide a clearer and more specific portrayal of a client's system than other methods of describing internal control.

Question 2

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 3

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 under the jurisdiction of the SEC. 
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 under the jurisdiction of the SEC. 
D)  All U.S. partnerships and corporations.

Question 4

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 5

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 6

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 7

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 8

Incompatible duties exist when an employee is in a position to perpetrate and conceal errors or fraud.

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

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

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 11

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

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 12

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 13

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 14

Which of the following is correct with respect to control deficiencies discovered during an audit?

Accepted Answer

A)  Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management. 
B)  All material weaknesses in internal control should be reported to the audit committee. 
C)  All such matters must be communicated to the audit committee and regulatory agencies. 
D)  All control deficiencies are also significant deficiencies. 
A)  Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management. 
B)  All material weaknesses in internal control should be reported to the audit committee. 
C)  All such matters must be communicated to the audit committee and regulatory agencies. 
D)  All control deficiencies are also significant deficiencies.

Question 15

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 16

In a financial statement audit performed following AICPA Professional Standards, how frequently must an auditor test operating effectiveness of controls that appear to function as they have in past years and on which the auditor wishes to rely upon in the current year?

Accepted Answer

A)  Monthly. 
B)  Each audit. 
C)  At least every second audit. 
D)  At least every third audit. 
A)  Monthly. 
B)  Each audit. 
C)  At least every second audit. 
D)  At least every third audit.

Question 17

The scope of substantive procedures as compared to the scope of tests of controls generally vary:

Accepted Answer

A)  In a parallel manner. 
B)  Inversely. 
C)  Directly. 
D)  Equally. 
A)  In a parallel manner. 
B)  Inversely. 
C)  Directly. 
D)  Equally.

Question 18

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

Accepted Answer

A)  Analytical procedures. 
B)  Inspection of documents. 
C)  Observation of the counting of inventory. 
D)  Observation of the performance of certain accounting procedures. 
A)  Analytical procedures. 
B)  Inspection of documents. 
C)  Observation of the counting of inventory. 
D)  Observation of the performance of certain accounting procedures.

Question 19

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 20

The auditors' communication of internal control significant deficiencies should be addressed only to senior management of the company.

Accepted Answer

A) True 
 B)False

Exam 7: Internal Control

Which of the following is an advantage of describing internal control through the use of a standardized questionnaire?

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

The provisions of the Foreign Corrupt Practices Act apply to:

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

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?

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

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

Incompatible duties exist when an employee is in a position to perpetrate and conceal errors or fraud.

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

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

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

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

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

Which of the following is correct with respect to control deficiencies discovered during an audit?

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

In a financial statement audit performed following AICPA Professional Standards, how frequently must an auditor test operating effectiveness of controls that appear to function as they have in past years and on which the auditor wishes to rely upon in the current year?

The scope of substantive procedures as compared to the scope of tests of controls generally vary:

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

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?

The auditors' communication of internal control significant deficiencies should be addressed only to senior management of the company.

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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