Question 1

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)   Significant design flaws in internal controls or poor implementation of internal controls.
D)   Manipulation or falsification of accounting records or documents from which financial statements are prepared.

Question 2

A high detection risk strategy includes all of the following except:

Accepted Answer

A)   Interim testing.
B)   Reduced testing of transactions.
C)   Heavy reliance on analytical procedures as substantive procedures.
D)   Audit work only completed at year-end.

Question 3

An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts

Accepted Answer

A)   Identify whether segregation of duties prevent collusion.
B)   Provide a visual depiction of the entity's activities.
C)   Indicate whether controls are operating effectively.
D)   Reduce the need to observe the entity's employees performing routine tasks.

Question 4

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

Accepted Answer

A)   The internal audit function reports directly to management.
B)   Management is dominated by one individual.
C)   Accurate management job descriptions delineate specific duties.
D)   The audit committee actively oversees the financial reporting process.

Question 5

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 6

The normal sequence of documents and operations on a well-prepared systems flowchart is

Accepted Answer

A)   Top to bottom and left to right.
B)   Bottom to top and left to right.
C)   Top to bottom and right to left.
D)   Bottom to top and right to left.

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of

Accepted Answer

A)   Authorization, execution, and payment.
B)   Authorization, recording, and custody.
C)   Custody, execution, and reporting.
D)   Authorization, payment, and recording.

Question 10

Assessing control risk at a lower level involves all of the following except:

Accepted Answer

A)   Identifying specific controls to rely on.
B)   Concluding that controls are ineffective.
C)   Performing tests of controls.
D)   Analyzing the achieved level of control risk after performing tests of controls.

Question 11

Walkthroughs usually involve all of the following audit procedures except:

Accepted Answer

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

Question 12

In obtaining an understanding of an entity's internal control in a financial statement audit of a nonpublic company,an auditor is not obligated to

Accepted Answer

A)   Determine whether the control activities have been placed in operation.
B)   Perform procedures to understand the design of the internal control policies.
C)   Document the understanding of the entity's internal control components.
D)   Search for significant deficiencies in the operation of the internal control.

Question 13

A customer intended to order 100 units of product Z96014,but incorrectly ordered 100 units of a nonexistent product Z96015.Which of the following controls most likely would detect this error?

Accepted Answer

A)   Check digit verification.
B)   Record count.
C)   Hash total.
D)   Redundant data check.

Question 14

For certain controls,such as segregation of duties,documentary evidence may not exist.An auditor would most likely test the procedures by

Accepted Answer

A)   Reperformance and corroboration.
B)   Observation and inquiry.
C)   Inspection and vouching.
D)   Confirmation and recomputation.

Question 15

Before applying substantive procedures to the details of accounts at an interim date (a date prior to the balance sheet date) ,an auditor should

Accepted Answer

A)   Assess control risk at high for the assertions embodied in the accounts selected for interim testing.
B)   Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole.
C)   Consider the availability of information at a later date that will be necessary for the auditor's procedures (e.g., electronic data) .
D)   Obtain written representations from management that all financial records and related data will be made available.

Question 16

Assume that an auditor estimates that 10,000 checks were issued during the accounting period.If an IT application control which performs a limit check for each check request is to be subjected to the auditor's test data approach,the sample should include

Accepted Answer

A)   Approximately 1,000 test items.
B)   A number of test items determined by the auditor to be sufficient under the circumstances.
C)   A number of test items determined by the auditor's reference to the appropriate sampling tables.
D)   One transaction.

Question 17

After obtaining an understanding of internal controls and assessing control risk of an entity,an auditor decided not to perform tests of controls for purposes of the audit.The auditor most likely decided that

Accepted Answer

A)   The available evidential matter obtained through tests of controls would not support an increased level of control risk.
B)   A reduction in the assessed level of control risk is justified for certain financial statement assertions.
C)   It would be inefficient to perform tests of controls that would result in a reduction in planned substantive procedures.
D)   The assessed level of inherent risk exceeded the assessed level of control risk.

Question 18

The auditor must understand internal control before assessing inherent risk.

Accepted Answer

A) True 
 B)False

Question 19

As part of gaining an initial understanding of internal control,an auditor is required to do all of the following except:

Accepted Answer

A)   Consider factors that affect the risk of material misstatement.
B)   Ascertain whether internal control policies and procedures have been placed in operation.
C)   Identify the types of potential misstatements that can occur.
D)   Obtain knowledge about the operating effectiveness of the internal control.

Question 20

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Accepted Answer

A)   Incompatible duties.
B)   Management override.
C)   Mistakes in judgment.
D)   Collusion among employees.

Exam 6: Internal Control in a Financial Statement Audit

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

For certain controls,such as segregation of duties,documentary evidence may not exist.An auditor would most likely test the procedures by

Correct AnswerverifiedShow Answer

After obtaining an understanding of internal controls and assessing control risk of an entity,an auditor decided not to perform tests of controls for purposes of the audit.The auditor most likely decided that

Correct AnswerverifiedShow Answer

A field test is a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

Correct AnswerverifiedShow Answer

Assessing control risk at a lower level involves all of the following except:

Correct AnswerverifiedShow Answer

Assume that an auditor estimates that 10,000 checks were issued during the accounting period.If an IT application control which performs a limit check for each check request is to be subjected to the auditor's test data approach,the sample should include

Correct AnswerverifiedShow Answer

In obtaining an understanding of an entity's internal control in a financial statement audit of a nonpublic company,an auditor is not obligated to

Correct AnswerverifiedShow Answer

The auditor must understand internal control before assessing inherent risk.

Correct AnswerverifiedShow Answer

Before applying substantive procedures to the details of accounts at an interim date (a date prior to the balance sheet date) ,an auditor should

Correct AnswerverifiedShow Answer

As part of gaining an initial understanding of internal control,an auditor is required to do all of the following except:

Correct AnswerverifiedShow Answer

A customer intended to order 100 units of product Z96014,but incorrectly ordered 100 units of a nonexistent product Z96015.Which of the following controls most likely would detect this error?

Correct AnswerverifiedShow Answer

A high detection risk strategy includes all of the following except:

Correct AnswerverifiedShow Answer

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

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

The normal sequence of documents and operations on a well-prepared systems flowchart is

Correct AnswerverifiedShow Answer

An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts

Correct AnswerverifiedShow Answer

Walkthroughs usually involve all of the following audit procedures except:

Correct AnswerverifiedShow Answer

Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of

Correct AnswerverifiedShow Answer

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