Question 1

The control environment component of internal controls includes all of the following except:

Accepted Answer

A)   Management's operating style.
B)   Access to computer programs.
C)   Organizational structure.
D)   Human resource policies and practices.

Question 2

While substantive procedures may support the accuracy of underlying records,these tests frequently provide no affirmative evidence of segregation of duties because

Accepted Answer

A)   Substantive procedures rarely guarantee the accuracy of the records if only a sample of the transactions has been tested.
B)   The records may be accurate even though they are maintained by persons having incompatible functions.
C)   Substantive procedures relate to the entire period under audit, but compliance tests ordinarily are confined to the period during which the auditor is on the client's premises.
D)   Many computerized procedures leave no audit trail of who performed them, so substantive procedures may necessarily be limited to inquiries and observation of office personnel. B

Question 3

Which of the following statements concerning control risk is correct?

Accepted Answer

A)   Assessing control risk and obtaining an understanding of an entity's internal controls may be performed concurrently.
B)   When control risk is at the maximum level, an auditor is required to document the basis for that assessment.
C)   Control risk may be assessed sufficiently low to eliminate substantive procedure for significant transaction classes.
D)   When assessing control risk, an auditor should not consider evidence obtained in prior audits about the operation of control activities. A

Question 4

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 5

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control is suitably designed to prevent or detect material misstatements?

Accepted Answer

A)   Scanning the journals produced by the internal control system.
B)   Performing analytical procedures using data aggregated at a high level.
C)   Vouching a sample of transactions directly related to the controls.
D)   Observing the entity's personnel applying the controls.

Question 6

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

Accepted Answer

A)   Employment of temporary personnel to aid in the separation of duties.
B)   Direct participation by the owner of the business in the record-keeping activities of the business.
C)   Engaging a CPA to perform monthly bookkeeping.
D)   Delegation of full, clear-cut responsibility to each employee for the functions assigned to each.

Question 7

All of the following are significant deficiencies except:

Accepted Answer

A)   Absence of appropriate reviews of transactions.
B)   Evidence of willful wrongdoing by lower-level employees.
C)   Inadequate provisions for safeguarding assets.
D)   Inventory is highly subject to obsolescence.

Question 8

General controls include all of the following except:

Accepted Answer

A)   Organizational controls.
B)   Data validation controls.
C)   Access security controls.
D)   Application system acquisition controls.

Question 9

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 10

A procedure that would most likely be used by an auditor in performing tests of control activities that involve segregation of functions and that leave no transaction trail is

Accepted Answer

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

Question 11

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

Accepted Answer

A)   Preparation of a flowchart of duties performed by available personnel.
B)   Inquiring whether control activities operated consistently throughout the period.
C)   Reviewing job descriptions prepared by the Personnel Department.
D)   Direct personal observation of the employees who apply control activities.

Question 12

In planning an audit of a new client,an auditor most likely would consider the methods used to process accounting information because such methods

Accepted Answer

A)   Influence the design of internal controls.
B)   Affect the auditor's planning materiality levels.
C)   Assist in evaluating the planned audit assertions.
D)   Determine the auditor's acceptable level of audit risk. A

Question 13

Internal control consists of six components.

Accepted Answer

A) True 
 B)False

Question 14

What are four potential tools available to the auditor for documenting their understanding of a client's system of internal control?

Accepted Answer

1.Copies of the entity's procedures manu...

Question 15

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when

Accepted Answer

A)   External policies established by parties outside the entity affect its accounting practices.
B)   Management is dominated by one individual.
C)   Internal auditors have direct access to the board of directors and the entity's management.
D)   The audit committee is active in overseeing the entity's financial reporting policies.

Question 16

An auditor's primary consideration regarding an entity's internal controls is whether the policies and procedures

Accepted Answer

A)   Affect the financial statement assertions.
B)   Prevent management override.
C)   Relate to the control environment.
D)   Reflect management's philosophy and operating style.

Question 17

Which of the following input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission?

Accepted Answer

A)   Hash total.
B)   Parity check.
C)   Encryption.
D)   Check digit.

Question 18

Assessing control risk at below the maximum most likely would involve

Accepted Answer

A)   Changing the timing of substantive procedures by omitting interim testing and performing the tests at year-end.
B)   Identifying specific internal controls relevant to specific assertions.
C)   Performing more extensive substantive procedures with larger sample sizes than originally planned.
D)   Reducing inherent risk for most of the assertions relevant to significant account balances.

Question 19

In a properly designed internal control system,the same employee may be permitted to

Accepted Answer

A)   Receive and deposit checks and also approve write-offs of customer accounts.
B)   Approve vouchers for payment and also sign checks.
C)   Reconcile the bank statements and also receive and deposit cash.
D)   Sign checks and also cancel supporting documents.

Question 20

In an audit of financial statements of a private company in accordance with generally accepted auditing standards,an auditor is required to

Accepted Answer

A)   Identify specific internal control activities relevant to management's financial statement assertions.
B)   Perform tests of controls to evaluate the effectiveness of the entity's accounting system.
C)   Determine whether procedures are suitably designed to prevent or detect material misstatements.
D)   Document the auditor's understanding of the entity's internal control.

Exam 6: Internal Control in a Financial Statement Audit

The control environment component of internal controls includes all of the following except:

Correct AnswerverifiedShow Answer

While substantive procedures may support the accuracy of underlying records,these tests frequently provide no affirmative evidence of segregation of duties because

Correct AnswerverifiedB

Which of the following statements concerning control risk is correct?

Correct AnswerverifiedA

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

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control is suitably designed to prevent or detect material misstatements?

Correct AnswerverifiedShow Answer

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced by

Correct AnswerverifiedShow Answer

All of the following are significant deficiencies except:

Correct AnswerverifiedShow Answer

General controls 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

A procedure that would most likely be used by an auditor in performing tests of control activities that involve segregation of functions and that leave no transaction trail is

Correct AnswerverifiedShow Answer

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

Correct AnswerverifiedShow Answer

In planning an audit of a new client,an auditor most likely would consider the methods used to process accounting information because such methods

Correct AnswerverifiedA

Internal control consists of six components.

Correct AnswerverifiedShow Answer

What are four potential tools available to the auditor for documenting their understanding of a client's system of internal control?

Correct Answerverified1.Copies of the entity's procedures manu...View AnswerShow Answer

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when

Correct AnswerverifiedShow Answer

An auditor's primary consideration regarding an entity's internal controls is whether the policies and procedures

Correct AnswerverifiedShow Answer

Which of the following input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission?

Correct AnswerverifiedShow Answer

Assessing control risk at below the maximum most likely would involve

Correct AnswerverifiedShow Answer

In a properly designed internal control system,the same employee may be permitted to

Correct AnswerverifiedShow Answer

In an audit of financial statements of a private company in accordance with generally accepted auditing standards,an auditor is required to

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A substantive strategy means that the au...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified
1.Copies of the entity's procedures manu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified