Question 1

The internal control objective of 'valued' refers to controls in place to ensure thattransactions are recorded in the correct accounting period.

Accepted Answer

A) True 
 B)False

Question 2

Stanley Morgan has learned that it is important to be aware of the attitude and actions of management and those charged with governance concerning the entity's internal control and its importance in the entity. This best describdealing with

Accepted Answer

A)   a key control objective.
B)   the control environment.
C)   mitigation of audit risk.
D)   financial statement assertions.

Question 3

Which of the following statements about internal control is incorrect?

Accepted Answer

A)   Internal control is a very broad concept.
B)   Internal control eliminates the possibility of fraud and error.
C)   Internal control encompasses all of the elements of an organization.
D)   Internal control provides reasonable assurance about the achievement of the entity's objectives.

Question 4

When gaining an understanding of the client's monitoring processat the entity level, factors ordinarily considered include:

Accepted Answer

A)   evaluations or observations made by the external auditors.
B)   management's approach to correcting known significant deficiencies on a timely basis.
C)   both a and b.
D)   none of the above.

Question 5

The auditor had the following procedurin his audit program for a client:
(i)  Review performance versus forecasts
(ii)  Review performance indicators
(iii)  Review exception reports What are these instructions related to?

Accepted Answer

A)   detective controls
B)   physical controls
C)   internal controls
D)   entity-wide controls

Question 6

Lucia Dottore, an audit senior, performed a review of certain application controls at a clothing manufacturing client. Which one of these controls is an input control?

Accepted Answer

A)   Reconciliation of totals where input totals are compared to the output totals.
B)   Output is printed to a secure printer where access is limited.
C)   Reasonable checks: actual data is compared to expected data for reasonableness.
D)   None of the above.

Question 7

The most common ways of auditors documenting their understanding of internal controls include:

Accepted Answer

A)   flowcharts.
B)   narratives.
C)   preformatted questionnaires.
D)   all of the above.

Question 8

The factors to consider when deciding the extent of testing of controls include which of the following?

Accepted Answer

A)   the persuasiveness of the evidence produced by the control
B)   the degree to which the auditors intend to rely on the control as a basis for limiting their substantive tests
C)   how often the control is performed
D)   all of the above

Question 9

The generally accepted objectivof internal control do not include:

Accepted Answer

A)   efficiency.
B)   classified.
C)   recorded.
D)   timely.

Question 10

Which of the following statements is correct?

Accepted Answer

A)   Preventing errors during processing should not be an important objective of every accounting system.
B)   Preventive controls can be applied to each transaction during normal processing to avoid errors occurring.
C)   To be effective, controls over transactions should only include detective controls.
D)   The purpose of preventive controls is to discover fraud or errors that may have occurred during transaction processing.

Question 11

Ben Simon wants to ensure that salin a retail outlet are not recorded at the wrong amount. Which preventive control will help him ensure his objective?

Accepted Answer

A)   the signature of the goods by the warehouse receiver on a receiving report or a bill of lading
B)   a credit check by the credit manager
C)   automatic pricing of sales invoices using a master price file
D)   none of the above

Question 12

Internal control encompasswhich of the following elements of an organization?

Accepted Answer

A)   processes
B)   culture
C)   systems
D)   all of the above

Question 13

Benny Pecarve is planning to visit an airline company to review the collective assessment of the client's control environment, risk assessment process, information system, control activitiand monitoring of controls. What dothis mandate describe?

Accepted Answer

A)   entity level controls
B)   transaction-level controls
C)   both a and b
D)   none of the above

Question 14

Internal control weaknessdecrease the risk of material misstatements being undetected by management's processand controls.

Accepted Answer

A) True 
 B)False

Question 15

For identified risks, management:

Accepted Answer

A)   assesses the likelihood of their occurrence.
B)   decides upon actions to manage them.
C)   estimates their significance.
D)   all of the above.

Question 16

One of the elements of an entity's control environment is management's philosophy and operating style.

Accepted Answer

A) True 
 B)False

Question 17

Internal control is intended to provide reasonable assurance about the achievement of an entity's objectives.

Accepted Answer

A) True 
 B)False

Question 18

The purpose of an auditor's management letter is to inform the client of the auditor's recommendations for improving its internal controls.

Accepted Answer

A) True 
 B)False

Question 19

Internal controls in large and medium sized entitican only provide an entity with reasonable assurance in achieving its financial reporting objectives. Which of the following is not an inherent limitation of internal control?

Accepted Answer

A)   human error that results in a breakdown in internal control
B)   collusion by two or more individuals to circumvent a control
C)   a control within a software program being overridden or disabled
D)   changing audit risk parameters

Question 20

The senior auditor has no physical evidence that a control was performed, who performed it, or how effectively it was performed. What is the nature of this control?

Accepted Answer

A)   internal control
B)   entity-level control
C)   detective control
D)   preventive control

Exam 7: Understanding and Testing the Clients System of Internal Controls

The senior auditor has no physical evidence that a control was performed, who performed it, or how effectively it was performed. What is the nature of this control?

Correct AnswerverifiedShow Answer

The auditor had the following procedurin his audit program for a client: (i) Review performance versus forecasts (ii) Review performance indicators (iii) Review exception reports What are these instructions related to?

Correct AnswerverifiedShow Answer

Stanley Morgan has learned that it is important to be aware of the attitude and actions of management and those charged with governance concerning the entity's internal control and its importance in the entity. This best describdealing with

Correct AnswerverifiedShow Answer

The factors to consider when deciding the extent of testing of controls include which of the following?

Correct AnswerverifiedShow Answer

Internal controls in large and medium sized entitican only provide an entity with reasonable assurance in achieving its financial reporting objectives. Which of the following is not an inherent limitation of internal control?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

For identified risks, management:

Correct AnswerverifiedShow Answer

The most common ways of auditors documenting their understanding of internal controls include:

Correct AnswerverifiedShow Answer

Benny Pecarve is planning to visit an airline company to review the collective assessment of the client's control environment, risk assessment process, information system, control activitiand monitoring of controls. What dothis mandate describe?

Correct AnswerverifiedShow Answer

The purpose of an auditor's management letter is to inform the client of the auditor's recommendations for improving its internal controls.

Correct AnswerverifiedShow Answer

Internal control is intended to provide reasonable assurance about the achievement of an entity's objectives.

Correct AnswerverifiedShow Answer

The internal control objective of 'valued' refers to controls in place to ensure thattransactions are recorded in the correct accounting period.

Correct AnswerverifiedShow Answer

One of the elements of an entity's control environment is management's philosophy and operating style.

Correct AnswerverifiedShow Answer

Lucia Dottore, an audit senior, performed a review of certain application controls at a clothing manufacturing client. Which one of these controls is an input control?

Correct AnswerverifiedShow Answer

The generally accepted objectivof internal control do not include:

Correct AnswerverifiedShow Answer

Which of the following statements about internal control is incorrect?

Correct AnswerverifiedShow Answer

Ben Simon wants to ensure that salin a retail outlet are not recorded at the wrong amount. Which preventive control will help him ensure his objective?

Correct AnswerverifiedShow Answer

When gaining an understanding of the client's monitoring processat the entity level, factors ordinarily considered include:

Correct AnswerverifiedShow Answer

Internal control weaknessdecrease the risk of material misstatements being undetected by management's processand controls.

Correct AnswerverifiedShow Answer

Internal control encompasswhich of the following elements of an organization?

Correct AnswerverifiedShow Answer

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