Question 1

A field test is a:

Accepted Answer

A)  test to ensure that a numerical value in a field does not exceed some predetermined value.
B)  check to ensure that the value in a field falls within an allowable range of values.
C)  check to ensure that the data in a field have the proper arithmetic sign.
D)  check on a field to ensure that it contains either all numeric or all alphabetic characters.

Question 2

Tests of controls must be performed if control risk is set at a lower level.

Accepted Answer

A) True 
 B)False

Question 3

Where computer processing is used in significant accounting applications, internal control activities may be defined by classifying control activities into two types: general and

Accepted Answer

A)  Administrative.
B)  Specific.
C)  Application.
D)  Authorization.

Question 4

An entity's IT infrastructure refers to:

Accepted Answer

A)  Hardware components.
B)  Programmers.
C)  Software.
D)  Data provided by the system.

Question 5

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 6

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.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

A substantive strategy differs from a reliance strategy in that a substantive strategy includes:

Accepted Answer

A)  increased implementation of detailed tests of transactions and balances.
B)  extra tests of controls.
C)  increased emphasis on verbal representations from management.
D)  setting control risk at a minimum level.

Question 9

Information and communication includes all of the following except:

Accepted Answer

A)  identifying and recording all valid transactions.
B)  determining the time period in which transactions occurred.
C)  communicating price changes to customers.
D)  properly presenting transactions and related disclosures in the financial statements.

Question 10

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.

Question 11

An entity's internal controls are most relevant to the auditor when the policies and procedures:

Accepted Answer

A)  affect the financial statement assertions.
B)  relate to management's planning decisions.
C)  address management's operating decisions.
D)  reflect management's philosophy and operating style.

Question 12

Internal control has become a very important focus for publicly traded and privately-held companies alike. Internal control is intended to accomplish at least three objectives and consists of five components of internal control. List the three objectives and five components of internal control.

Accepted Answer

Objectives of internal control include:
...

Question 13

Walkthroughs usually involve all of the following audit procedures except:

Accepted Answer

A)  Reperformance.
B)  Inquiry.
C)  Observation.
D)  Inspection.

Question 14

Management philosophy and operating style most likely would have a significant influence on an entity's control environment when:

Accepted Answer

A)  internal audit personnel have direct access to the board of directors and the entity's management.
B)  the entity does not have sound personnel policies for hiring, training, and evaluating competent individuals.
C)  accurate management job descriptions delineate specific duties.
D)  the audit committee actively oversees the financial reporting process.

Question 15

Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent:

Accepted Answer

A)  disclosures of information that significantly contradict the auditor's going concern assumption.
B)  material fraud or illegal acts perpetrated by high-level management.
C)  deficiencies in the design of controls or failures in the operation of internal controls.
D)  manipulation or falsification of accounting records or documents from which financial statements are prepared.

Question 16

The documentation of an auditor's understanding of internal controls:

Accepted Answer

A)  is optional.
B)  must be exclusively in narrative, questionnaires, or flowchart form.
C)  must include flowcharts.
D)  can include any combination of narratives, questionnaires, or flowcharts.

Question 17

All of the following are significant deficiencies except:

Accepted Answer

A)  inadequate design of internal control over a significant account or process.
B)  management override of controls.
C)  inadequate provisions for safeguarding assets.
D)  inventory is highly subject to obsolescence.

Question 18

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

Accepted Answer

A)  if transactions are recurring.
B)  if the implemented controls are assessed as ineffective.
C)  if control risk is very low.
D)  if the entity has a well-designed automated system.

Question 19

In evaluating internal control, the auditor is basically concerned that the system provides reasonable assurance that:

Accepted Answer

A)  operational efficiency has been achieved in accordance with management plans.
B)  material misstatements have been prevented, or detected and corrected.
C)  controls have not been circumvented by collusion.
D)  management cannot override the system.

Question 20

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.

Exam 6: Internal Control in a Financial Statement Audit

Where computer processing is used in significant accounting applications, internal control activities may be defined by classifying control activities into two types: general and

Correct AnswerverifiedShow Answer

Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent:

Correct AnswerverifiedShow Answer

An entity's internal controls are most relevant to the auditor when the policies and procedures:

Correct AnswerverifiedShow Answer

Information and communication includes all of the following except:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Management philosophy and operating style most likely would have a significant influence on an entity's control environment when:

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An entity's IT infrastructure refers to:

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In evaluating internal control, the auditor is basically concerned that the system provides reasonable assurance that:

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedA substantive strategy means that the au...View AnswerShow Answer

Internal control has become a very important focus for publicly traded and privately-held companies alike. Internal control is intended to accomplish at least three objectives and consists of five components of internal control. List the three objectives and five components of internal control.

Correct AnswerverifiedObjectives of internal control include:...View AnswerShow Answer

A field test is a:

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The documentation of an auditor's understanding of internal controls:

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

Correct AnswerverifiedShow Answer

The risk assessment component of internal control refers to:

Correct AnswerverifiedShow Answer

A substantive strategy differs from a reliance strategy in that a substantive strategy includes:

Correct AnswerverifiedShow Answer

Walkthroughs usually involve all of the following audit procedures except:

Correct AnswerverifiedShow Answer

All of the following are significant deficiencies except:

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Tests of controls must be performed if control risk is set at a lower level.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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A substantive strategy means that the au...
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Objectives of internal control include:
...
View Answer

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