Question 1

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.

Question 2

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.

Question 3

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.

Question 4

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.

Question 5

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.

Question 6

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.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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.

Question 9

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.

Question 10

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.

Question 11

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 12

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 \begin{array} { | l | c | c | } \hline & 	ext { Design Effectiveness } & 	ext { Operating Effectiveness } \\hline 	ext { A. } & 	ext { Yes } & 	ext { Yes } \\hline 	ext { B. } & 	ext { Yes } & 	ext { No } \\hline 	ext { C. } & 	ext { No } & 	ext { Yes } \\hline 	ext { D. } & 	ext { No } & 	ext { No } \\hline\end{array} A.  B.  C.  D. ​ Design Effectiveness  Yes  Yes  No  No ​ Operating Effectiveness  Yes  No  Yes  No ​​

Accepted Answer

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

Question 13

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 14

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.

Question 15

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.

Question 16

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.

Question 17

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.

Question 18

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.

Question 19

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.

Question 20

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 \begin{array} { | l | c | c | } \hline & 	ext { Qualified } & 	ext { Disclaimer } \\hline 	ext { A. } & 	ext { Yes } & 	ext { Yes } \\hline 	ext { B. } & 	ext { Yes } & 	ext { No } \\hline 	ext { C. } & 	ext { No } & 	ext { Yes } \\hline 	ext { D. } & 	ext { No } & 	ext { No } \\hline\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

Exam 7: Internal Control

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

The provisions of the Foreign Corrupt Practices Act apply to:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

Exam 7: Internal Control

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The provisions of the Foreign Corrupt Practices Act apply to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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