Question 1

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 2

A service auditor's report on a service center should include a(n)

Accepted Answer

A)  Detailed description of the service center's internal control.
B)  Statement that the user of the report may assess control risk at the minimum level.
C)  Indication that no assurance is provided.
D)  Opinion on the operating effectiveness of the service center's internal control.

Question 3

To provide for the greatest degree of independence in performing internal auditing functions,an internal auditor most likely should report to the:

Accepted Answer

A)  Financial vice-president.
B)  Corporate controller.
C)  Audit committee.
D)  Corporate stockholders.

Question 4

After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated.Under these circumstances the auditors would most likely:

Accepted Answer

A)  Cease to perform further substantive procedures.
B)  Reduce substantive procedures in areas where the internal control was found to be effective.
C)  Increase the extent of anticipated analytical procedures.
D)  Perform all tests of controls to the extent outlined in the preplanned audit program.

Question 5

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?

Accepted Answer

A)  An understanding of the control environment, information and communication, risk assessment and monitoring is necessary; an understanding of control activities is only necessary for areas in which the auditor is performing tests of controls.
B)  The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit.
C)  When tests of controls have been performed, control risk must be assessed at a level less than the maximum.
D)  An understanding of the control environment is necessary, but no understanding of the other components is necessary unless control risk is to be assessed at a level less than the maximum.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  Confirm accounts receivable.
B)  Perform a test of a control relating to payroll.
C)  Take test counts of the year-end inventory.
D)  Trace a transaction through the information system relevant to financial reporting.

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.

Question 9

When performing an internal control audit under PCAOB standards,one or more material weaknesses in internal control that exist at year-end may result in what type of report(s) :   Qualified  Disclaimer  A)   Yes  Yes  B)   Yes  No  C)   No  Yes  D)   No  No \begin{array} { c c c } & 	ext { Qualified } & 	ext { Disclaimer } \	ext { A)  } & 	ext { Yes } & 	ext { Yes } \	ext { B)  } & 	ext { Yes } & 	ext { No } \	ext { C)  } & 	ext { No } & 	ext { Yes } \	ext { D)  } & 	ext { No } & 	ext { No }\end{array} A)   B)   C)   D)  ​ Qualified  Yes  Yes  No  No ​ Disclaimer  Yes  No  Yes  No ​

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option D

Question 10

This organization developed a set of criteria that provide management with a basis to evaluate controls not only over financial reporting,but also over the effectiveness and efficiency of operations and compliance with laws and regulations:

Accepted Answer

A)  Foreign Corrupt Practices Corporation.
B)  Committee of Sponsoring Organizations.
C)  Cohen Commission.
D)  Financial Accounting Standards Board.

Question 11

Which of the following is intended to detect deviations from prescribed controls?

Accepted Answer

A)  Substantive procedures specified by a standardized audit program.
B)  Tests of controls designed specifically for the client.
C)  Analytical procedures as set forth in an industry audit guide.
D)  Computerized analytical procedures tailored for the configuration of the computer equipment in use.

Question 12

Which of the following is not considered one of the five major components of internal control?

Accepted Answer

A)  Risk assessment.
B)  Segregation of duties.
C)  Control activities.
D)  Monitoring.

Question 13

In assessing the competence of a client's internal auditor,an independent auditor most likely would consider the

Accepted Answer

A)  Internal auditor's compliance with professional internal auditing standards.
B)  Client's policies that limit the internal auditor's access to management salary data.
C)  Evidence supporting a further reduction in the assessed level of control risk.
D)  Results of ratio analysis that may identify unusual transactions and events.

Question 14

A situation in which the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent or detect material misstatements on a timely basis is referred to as a:

Accepted Answer

A)  Control deficiency.
B)  Material weakness.
C)  Reportable condition.
D)  Significant deficiency.

Question 15

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.

Question 16

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.

Question 17

Tests of controls do not ordinarily address:

Accepted Answer

A)  By whom a control was applied.
B)  How a control was applied.
C)  The consistency with which a control was applied.
D)  The cost effectiveness of the way a control was applied.

Question 18

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.

Question 19

Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both

Accepted Answer

A)  Journalize cash receipts and disbursements and prepare the financial statements.
B)  Monitor internal controls and evaluate whether the controls are operating as intended.
C)  Adopt new accounting pronouncements and authorize the recording of transactions.
D)  Record and conceal fraudulent transactions in the normal course of assigned tasks.

Question 20

When a client uses a service organization to process certain transactions (e.g.,its employee benefit plan) ,the auditor is least likely to obtain an understanding relating to these transactions by

Accepted Answer

A)  Contacting the service organization to obtain specific information.
B)  Visiting the service organization and performing procedures.
C)  Sending a confirmation request to the service organization
D)  Obtaining and reading a type 1 or type 2 report from the service organization.

Exam 7: Internal Control

This organization developed a set of criteria that provide management with a basis to evaluate controls not only over financial reporting,but also over the effectiveness and efficiency of operations and compliance with laws and regulations:

Correct Answer
verified

After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated.Under these circumstances the auditors would most likely:

Correct Answer
verified

When a client uses a service organization to process certain transactions (e.g.,its employee benefit plan) ,the auditor is least likely to obtain an understanding relating to these transactions by

Correct Answer
verified

Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both

Correct Answer
verified

Which of the following is intended to detect deviations from prescribed controls?

Correct Answer
verified

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:

Correct Answer
verified

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?

Correct Answer
verified

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

Correct Answer
verified

To provide for the greatest degree of independence in performing internal auditing functions,an internal auditor most likely should report to the:

Correct Answer
verified

A situation in which the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent or detect material misstatements on a timely basis is referred to as a:

Correct Answer
verified

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

Correct Answer
verified

A service auditor's report on a service center should include a(n)

Correct Answer
verified

Which of the following is not considered one of the five major components of internal control?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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a.The auditors have a responsibility to ...
View Answer

In assessing the competence of a client's internal auditor,an independent auditor most likely would consider the

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Tests of controls do not ordinarily address:

Correct Answer
verified

Exam 7: Internal Control

This organization developed a set of criteria that provide management with a basis to evaluate controls not only over financial reporting,but also over the effectiveness and efficiency of operations and compliance with laws and regulations:

Correct AnswerverifiedShow Answer

After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated.Under these circumstances the auditors would most likely:

Correct AnswerverifiedShow Answer

When a client uses a service organization to process certain transactions (e.g.,its employee benefit plan) ,the auditor is least likely to obtain an understanding relating to these transactions by

Correct AnswerverifiedShow Answer

Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both

Correct AnswerverifiedShow Answer

Which of the following is intended to detect deviations from prescribed controls?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To provide for the greatest degree of independence in performing internal auditing functions,an internal auditor most likely should report to the:

Correct AnswerverifiedShow Answer

A situation in which the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent or detect material misstatements on a timely basis is referred to as a:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A service auditor's report on a service center should include a(n)

Correct AnswerverifiedShow Answer

Which of the following is not considered one of the five major components of internal control?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The auditors have a responsibility to ...View AnswerShow Answer

In assessing the competence of a client's internal auditor,an independent auditor most likely would consider the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Tests of controls do not ordinarily address:

Correct AnswerverifiedShow Answer

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a.The auditors have a responsibility to ...
View Answer

Correct Answer
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Correct Answer
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