audit 10

1.

1 point

When assessing whether the financial statements are auditable, the auditor must consider

That if all of the transaction information is available only in electronif form without visible audit trail, the company cannot be audited

The integrity of management and the adequacy of risk management are the two primary factors determining auditability

That the integrity of management and the adequacy of accounting records are the two primary factors determining auditability

The control risk before determining if the entity is auditable

2.

1 point

When determining what type of report to issue on internal control under section 404:

A scope limitation requires the auditor to disclaim an opinion on internal controls.

If the auditor gives a qualified opinion on the financial statements, they must give a qualified opinion on internal controls

An adverse opinion on internal control must be given if any weakness in a key internal control is discovered

A scope limitation requires the auditor to express an qualified opinion or a disclaimer of opinion on internal controls

3.

1 point

Which of the following is not one of the three primary objectives of effective internal control

Compliance with laws and regulations

Efficiency and effectiveness of operations

Reliability of financial reporting

Assurance of elimination of business risk

4.

1 point

Two key concepts that underlie managements design and implementation of internal control are:

Absolute assurance and costs

Costs and materiality

Inherent limitations and reasonable assurance

Collusion and materiality

5.

1 point

Narratives, flowcharts, and internal control questionnaires are three common methods of:

Documenting the auditor’s understanding of a clients organizational structures

Testing the internal controls

Documenting the auditor’s understanding of internal controls

Designing the audit manual and procedures

6.

1 point

The scope of the auditors report on internal control is limited to obtaining reasonable assurance that significant weaknesses in internal control are identified

True

False

7.

1 point

To issue an unqualified opinion on internal control over financial reporting, there must be no identified material weaknesses and no restrictions on the scope of the audit

True

False

8.

1 point

Which of the follow ing is the correct definition of control deficiency

A control deficiency exists if one or more deficiencies exist that adversely affect a company’s ability to prepare external financial statements reliably

A control deficiency exists if the design or operation of controls result in a more than probable likelihood that controls will prevent or detect misstatements

A control deficiency exists if the design or operation of control does not permit company personnel to prevent or detect misstatements on a timely basis

A control deficiency exists if the design for operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements

9.

1 point

If the results of tests of controls support the design and operations of controls as expected, the auditor uses ______ control risk as the preliminary assessment.

The same

A lower

a higher

either lower or higher

10.

1 point

Which of the following represents a correct statement regarding internal control testing

The greater the risk, the less audit evidence the auditor should obtain that controls are operating effectively

Testing of internal controls can only be performed by the auditor at the end of the fiscal year

When auditors plan to use evidence about the operating effectiveness of internal control contained in prior audits, auditing standards require tests of the controls’ effectiveness at least every other year

The auditor uses control risk assessment and results of tests of controls to determine planned detection risk and the related substantive tests for the financial statement audit

11.

1 point

The purpose of phase 3 in the “process for understanding internal control and assessing control risk” is to:

Obtain and document an understanding of internal control design an operation

Design, perform and evaluate tests of control

Decide planned detection risk and substantitve tests

Assess control risk

12.

1 point

Which of the following is correct with respect to the design and use of business documents?

Documents should be designed for a single purpose to avoid confusion in their use

Documents should be designed to be understandable only by those who use them

The documents would be in paper format

Documents should be pre-numbered consecutively to facilitate control over missing documents

13.

1 point

Which of the following components of the control environment define the existing lines of responsibility and authority

Organizational structure

Management integrity and ethical values

Management philosophy and operating style

Human resource policies and practices

14.

1 point

Which of the following statements is most correct with respect to separation of duties

Employees

employees who authorize transactions should have recording responsibility for these transactions

A person who has temporary or permanent custody of an asses should account for that asset

Employees who authorize transactions should not have custody of related assets

15.

1 point

Internal controls are not designed to provide reasonable assurance that

All frauds will be detected

Company personnel comply with applicable rules and regulations

Transactions are executed in accordance with managements authorization

The company’s resources are used efficiently and effectively

16.

1 point

When the auditor attempts to understand the operation of accounting system by tracing a few transactions through the accounting system, the auditor is said to be:

testing controls

performing a walk-through

vouching

tracing

17.

1 point

Internal controls:

Consist of policies and procedures designed to provide reasonable assurance that the company achieves its objectives and goals

Only apply to sec companies

Guarantee that the company complies with all laws and regulations

Are implemented by and are the responsibility of the auditors

18.

1 point

In the audit of a private company, the auditor will test internal controls when control risk is initially assessed at:

Low moderate high

No yes no

Yes no yes

Yes yes no

No no yes

19.

1 point

When auditing a private company, the auditor should obtain an understaning of internal control sufficient to

Provide a method for safeguarding assets, checking the accuracy and reliability of accounting data. Promoting operational efficiency, and encouraging adherence to prescribed managerial policies

Assess control risk

Provide reasonable protection against client fraud and defalcations by client employees

Provide a basis for suggestions on the client for improving the accounting system

20.

1 point

The pcaob places responsibility for the reliability of internal controls over the financial reporting process on

The audit committee of the board of directors

The company’s board of directors

The cfo and the independent auditors

Management

21.

1 point

Section 404 of the Sarbanes- oxley act requires that public companies issue an internal control report

True

False

22.

1 point

The procedures to obtain an understanding of internal control are only applied when the assessed control risk is high

True

False

23.

1 point

Which of managements assertions with respect to implementing internal controls is the auditor primarily concerned?

Compliance with applicable laws and regulations

Effectiveness of operations

Efficiency of operations

Reliability of financial statements

24.

1 point

Which of the following are responsible for establishing a private company’s internal control

Audit committee

FASB

Senior management

Internal auditors

25.

1 point

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

A significant deficiency

A material weakness

Control deficiency

Collusion