Question 1

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. B

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and:

Accepted Answer

A)  Compliance with laws.
B)  Internal control over asset safeguarding.
C)  Internal control over financial reporting.
D)  Suitable criteria.

Question 4

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 5

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 6

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 7

Which statement is correct concerning the definition of internal control developed by the Committee of Sponsoring Organizations (COSO) ?

Accepted Answer

A)  Its applicability is largely limited to internal auditing applications.
B)  It is a 'process' effected by individuals.
C)  It emphasizes the effectiveness and efficiency of operations over the reliability of financial reporting.
D)  It suggests that it is important to view internal control as an end product as contrasted to a process or means to obtain an end.

Question 8

Internal auditors should preferably report to the chief accounting officer of the company.

Accepted Answer

A) True 
 B)False

Question 9

Applying a data analytical approach to tests of controls is least likely to result in which of the following?

Accepted Answer

A)  Testing a number of control simultaneously electronically.
B)  Documenting the engagement through an electronic representation letter obtained monthly.
C)  Testing all incidents of operation of a control during the year.
D)  Following up sample results with an analysis of the entire population. B

Question 10

In assessing the objectivity of a client's internal auditors,the CPA would be most likely to consider internal auditor's:

Accepted Answer

A)  Education levels.
B)  Experience.
C)  Organizational status within the company.
D)  Training and supervisory skills.

Question 11

The external auditors might consider the procedures performed by the internal auditors because:

Accepted Answer

A)  They are employees whose work must be reviewed during substantive testing.
B)  They are employees whose work might affect the external auditors' work.
C)  Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations.
D)  Their degree of independence may be inferred by the nature of their work.

Question 12

The effectiveness of controls is not generally tested by:

Accepted Answer

A)  Inspection of documents and reports.
B)  Performance of analytical procedures.
C)  Observation of the application of accounting policies and procedures.
D)  Inquiries of appropriate client personnel.

Question 13

In a financial statement audit,CPAs are required to assess the operating effectiveness of most significant accounting oriented controls.

Accepted Answer

A) True 
 B)False

Question 14

A control deficiency that is less severe than a material weakness,but important enough to merit attention by those responsible for oversight of the company's financial reporting is referred to as a(n) :

Accepted Answer

A)  Control deficiency.
B)  Inherent limitation.
C)  Reportable deficiency.
D)  Significant deficiency. D

Question 15

Which of the following is least likely to be a factor that might indicate to an auditor that an identified risk of misstatement requires special audit consideration?

Accepted Answer

A)  Complex calculations are involved.
B)  The rate of technological change is moderate in the industry.
C)  The potential for fraud seems high.
D)  Various subjective methods of application of a key accounting policy exist.

Question 16

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 17

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 18

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 19

A report on internal control performed in accordance with PCAOB Standard No.5 includes an opinion on internal control for:

Accepted Answer

A)  The entire year.
B)  The prior quarter.
C)  The "as-of date."
D)  The end of each quarter.

Question 20

In the consideration of internal control,the auditor is basically concerned that it provides reasonable assurance that:

Accepted Answer

A)  Management cannot override the system.
B)  Operational efficiency has been achieved in accordance with management plans.
C)  Misstatements have been prevented or detected.
D)  Controls have not been circumvented by collusion.

Exam 7: Internal Control

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

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and:

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

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

Which statement is correct concerning the definition of internal control developed by the Committee of Sponsoring Organizations (COSO) ?

Correct AnswerverifiedShow Answer

Internal auditors should preferably report to the chief accounting officer of the company.

Correct AnswerverifiedShow Answer

Applying a data analytical approach to tests of controls is least likely to result in which of the following?

Correct AnswerverifiedB

In assessing the objectivity of a client's internal auditors,the CPA would be most likely to consider internal auditor's:

Correct AnswerverifiedShow Answer

The external auditors might consider the procedures performed by the internal auditors because:

Correct AnswerverifiedShow Answer

The effectiveness of controls is not generally tested by:

Correct AnswerverifiedShow Answer

In a financial statement audit,CPAs are required to assess the operating effectiveness of most significant accounting oriented controls.

Correct AnswerverifiedShow Answer

A control deficiency that is less severe than a material weakness,but important enough to merit attention by those responsible for oversight of the company's financial reporting is referred to as a(n) :

Correct AnswerverifiedD

Which of the following is least likely to be a factor that might indicate to an auditor that an identified risk of misstatement requires special audit consideration?

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

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

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

Correct AnswerverifiedShow Answer

A report on internal control performed in accordance with PCAOB Standard No.5 includes an opinion on internal control for:

Correct AnswerverifiedShow Answer

In the consideration of internal control,the auditor is basically concerned that it provides reasonable assurance that:

Correct AnswerverifiedShow Answer

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B

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B

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D

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