ACC 403 Quiz #3

D

A CPA had previously communicated a significant control deficiency in consideration with an audit of prior financial statements of a nonissuer. As of the current audit date, the deficiency has not been corrected. What communication should be made by the CPA? A. none, because management has been previously put on notice and now has sole responsibility B. a new communication is required only if it involves an area in which the auditor has not relied on the controls C. a new communication is required only if the auditor has relied on the controls D. the condition should be reported

A

A CPA's understanding of internal control in a financial statement audit of a nonissuer A. is usually more limited than that made in an examination of internal control integrated with an audit of financial statements B. is usually more extensive than that made in an examination of internal control integrated with an audit of financial statements C. will usually be identical to that made in an examination of internal control integrated with an audit of financial statements D. will usually result in a report on the effectiveness of internal control

C

A financial statement auditor is considering internal control for a client with an information system that makes extensive use of information technology. Which of the following statements related to the understanding of internal control for this client is false? A. a lack of control at a single user entry point might compromise the security of a single database B. the auditor may find it necessary to have an expectation of the operating effectiveness of controls for certain relevant assertions C. the auditor must possess all the information technology skills necessary to complete the engagement D. because of the inherent consistency of computer processing, the auditor may be able to reduce the extent of testing as automated control

D

A practitioner has been engaged to examine the effectiveness of a nonissuer's internal control...What restrictions, if any, should the practitioner place on the use of this report? A. this report should be restricted for use by management B. this report should be restricted for use by the audit committee C. this report should be restricted for use by a specified regulatory agency D. the practitioner does not need to place any restrictions on the use of this report

A

A practitioner may accept an engagement to examine the effectiveness of a nonissuer's internal control over financial reporting in effect: As of a Specified Date/During a Specified Period of Time A. yes/yes B. Yes/no C. no/yes D. no/no

D

A proper segregation of duties requires that an individual A. authorizing a transaction records it B. authorizing a transaction custody of the asset that resulted from the transaction C. maintaining custody of an asset be entitled to access the accounting records for the asset D. recording a transaction not compare the accounting record of the asset with the asset itself

C

A secondary result of the auditor's understanding of internal control for a nonissuer is that the understanding may A. provide a basis for determining the nature, timing, and extent of audit tests B. assure that management's procedures to detect fraud are properly functioning C. bring to the auditor's attention possible control conditions required to be communicated to the client D. develop evidence to support the assessed risks of material misstatement

C

A secondary result of the auditor's understanding of internal control in an audit of a nonissuer's financial statements is that the understanding may be A. provide a basis for designing the nature, timing, and extent of further audit procedures B. assure that management's procedures to detect all fraud are properly functioning C. bring to the auditor's attention possible control deficiencies D. develop evidence to support the assessed risks of material misstatements

A

A small private entity may use less formal means to ensure that internal control objectives are achieved. For example, extensive accounting procedures, sophisticated accounting records, or formal controls are least likely to be needed if A. management is closely involved in operations B. the entity is involved in complex transactions C. the entity is subject to legal or regulatory requirements also found in large entities D. financial reporting objectives have been established

C

A well-designed internal control questionnaire should A. elicit "yes" or "no" responses rather than narrative responses and be organized by department B. be a sufficient source of data for assessment of control risk C. help evaluate the effectiveness of internal control D. be independent of the objectives of the audit

B

According to AU-C 315, Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, not all controls are relevant to a financial statement audit. Which one of the following would most likely be considered an audit? A. timely reporting and review of quality control results B. maintenance of control over unused checks C. marketing analysis of sales generated by advertising projects D. maintenance of statistical production analyses

D

After obtaining an understanding of the entity and its environment, including its internal control, the auditor assesses A. the need to apply auditing standards B. detection risk to determine the acceptable level of inherent risk C. detection risk and inherent risk to determine the acceptable level of control risk D. control risk and inherent risk to determine the acceptable level of detection risk

B

Although substantive procedures may support the accuracy of underlying records, these tests frequently provide no affirmative evidence of segregation of duties because 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 a person who performs incompatible functions C. substantive procedures relate to the entire period under audit, but tests of controls 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 inquires and observation of office personnel

B

An auditor is least likely to test controls that provide for A. approval of the purchases and sale of trading securities B. classification of revenue and expense transactions by product line C. separation of the functions of recording disbursements and reconciling the bank account D. comparison of receiving reports and vendors' invoices with purchase orders

B

An auditor is most likely to communicate to those charged with governance that A. the turnover in the accounting department was unusually high B. the auditor encountered significant difficulties during the audit C. the auditor discovered subsequent events D. management agreed with the auditor's assessed risks of material misstatement

B

An auditor might consider the procedures performed by the internal auditors because A. they are employees whose work must be reviewed during substantive testing B. they are employees whose work may affect the nature, timing, and extent of audit procedures C. their work affects the cost-benefit trade-off D. their degree of independence may be inferred from the nature of their work

C

An auditor reports on an examination of the effectiveness of an entity's internal control over financial reporting. If the control criteria used are established by a regulatory agency, the report should A. state that the practitioner assumes responsibility for the comprehensiveness of the criteria if they have not been subjected to due process procedures B. modify the inherent limitations paragraph C. contain a statement of restriction on use if the criteria have not been subjected to due process procedures and are appropriate only for a limited number of users D. identify the control criteria in the scope paragraph

B

An auditor should communicate misstatements to those charged with governance A. if they were not recorded before the end of the auditor's field work B. if they are uncorrected C. if they are immaterial and corrected but frequently recurring D. even if they are clearly trivial

B

An auditor should obtain an understanding of an entity's information system, including A. safeguards used to limit access to computer facilities B. process used to prepare significant accounting estimates C. procedures used to ensure the proper supervision of staff D. programs and controls intended to address the risks of fraud

B

An auditor wishes to evaluate the design and perform tests of controls over a client's cash disbursements procedures. if the controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by A. confirmation and observation B. observation and inquiry C. analytical procedures and confirmation D. inquiry and analytical procedures

C

An entity should consider the cost of a control in relationship to the risk. Which of the following controls best reflects this philosophy for a large dollar investment in heavy machine tools? A. conducting a weekly physical inventory B. placing security guards at every entrance 24 hours a day C. imprinting a controlled identification number on each tool D. having all dispositions approved by the vice president of sales

B

An issuer subject to the Securities Exchange Act of 1934 is required to include in its annual report an auditor's opinion on whether internal control over financial reporting was A. sufficient to meet the needs of the shareholders B. properly designed and operated effectively C. adequate to eliminate fraud D. complete and fair

D

As part of understanding internal control relevant to the audit of a non issuer, an auditor does not need to A. consider factors that affect the risks of material misstatement B. determine whether controls have been implemented C. identify the risks of material misstatements D. obtain knowledge about the operating effectiveness of internal control

B

Audit evidence concerning undocumented monitoring controls ordinarily is best obtained by A. performing tests of transactions that corroborate management's financial statement assertions B. observing the employees as they apply controls C. obtaining a flowchart of activities performed by available personnel D. developing audit objectives that reduce control risk

D

Based on an understanding of internal control completed at an interim date, the auditor assessed the risks of material misstatement at the relevant assertion level and performed interim substantive procedures. The records will most likely be tested again at year end if A. tests of controls were not performed by the internal auditor during the remaining period B. internal control provides a basis for limiting the extent of substantive testing C. the auditor used nonstatistical sampling during the interim period testing of controls D. the remaining period is long

A

Basic to proper control environment are the quality and integrity of personnel who must perform the prescribed procedures. Which is not a factor in providing for competent personnel? A. segregation and duties B. hiring practices C. training programs D. performance evaluations

A

Cain Company's management engaged Bell, CPA, to examine the effectiveness of Cain's internal control over financial reporting....Bell should A. disclaim an opinion as to management's cost-benefit statement B. advise the board that Bell either agrees of disagrees with management's statement C. express an adverse opinion as to management's const-benefit statement D. advise both management and the board that Bell is withdrawing the opinion

D

Control activities constitute one of the five components of internal control described in the COSO model. Control activities do not encompass A. performance reviews B. information processing C. physical controls D. an internal auditing function

B

Control activities include physical controls over access to and use of assets and records. A departure from the purpose of such procedures is that A. assess to the safe-deposit box require two officers B. only storeroom personnel and line supervisors have access to the raw materials storeroom C. the mail clerk compiles a list of the checks received in the incoming mail D. only salespersons and sales supervisors use sales department vehicles

A

Directors, management, external auditors, and internal auditors all play important roles in creating proper control processes. Senior management is primarily responsible for A. establishing risk management and control processes B. reviewing the reliability and integrity of financial and operational information C. ensuring that external and internal auditors oversee the administration of risk management and control processes D. implementing and monitoring controls designed by the board of directors

A

During the audit of internal controls integrated with the audit of the financial statements, the auditor discovered a material weakness in internal control. The auditor most likely will express a(n) A. adverse opinion on internal control B. qualified opinion on internal control C. unmodified opinion on internal control D. disclaimer of opinion on internal control

A

Effective internal control A. reduces the need for management to review exception reports on a day-to-day basis B. eliminates risk and potential loss to the organization C. cannot be circumvented by management D. is unaffected by changing circumstances and conditions encountered by the organization

D

Firms subject to the reporting requirements of the Securities Exchange Act of 1934 are required by the Foreign Corrupt Practices Act of 1977 to maintain satisfactory internal control.....The role of the registered auditor relative to the assessment made by management is to A. express an opinion on the assessment B. report clients with unsatisfactory internal control to the SEC C. express an opinion on whether the client is subject to the Securities Exchange Act of 1934 D. determine whether management's report is complete and properly presented

C

For which of the following transactions would the auditor ordinarily have the greatest difficulty in obtaining assurance that internal control objectives are met? A. collection of interest and dividends by a retailer D. acquisition of production equipment by a manufacturer C. collection of contributions from the public by a not-for-profit organization D. collection of credit sales by a retailer

D

If internal control is properly designed, the same employee may be permitted to 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

A

In an audit agreement, should an auditor communicate the following matters to those charged with governance? Auditor's Judgments About the Quality of the Client's Accounting Principles/Issues Discussed with Management Prior to the Auditor's Retention A. yes/yes B. yes/no C. no/yes D. no/no

B

In an audit of financial statements, an auditor's primary consideration regarding an internal control is whether the control A. reflects management's philosophy and operating style B. affects management's financial statement assertions C. provides adequate safeguards over access to assets D. relates to operational objectives

D

In obtaining an understanding of a nonissuer's internal control is a financial statement audit, an auditor is not obligated to A. determine whether the controls have been implemented B. perform procedures to understand the design of internal control C. document the understanding of the entity's internal control components D. search for significant deficiencies in the operation of internal control

D

In obtaining an understanding of an issuer's internal control, an auditor does all the following except A. inspect documents B. observe employees C. perform a walkthrough of the transaction process D. send confirmations to customers

B

In obtaining an understanding of internal control, the auditor may trace several transactions through the control process, including how the transactions interface with any service organizations whose services are part of the information system. The primary purpose of this task is to A. replace substantive procedures B. determine whether the controls have been implemented C. determine the effectiveness of the control procedures D. detect fraud

B

In performing tests of controls, the auditor will normally find that A. the level of inherent risk is directly proportional to the rate of error B. the rate of deviations in the sample exceeds the rate of error in the account records C. the rate of error in the sample exceeds the rate of deviations D. all unexamined items result in errors in the accounting records

C

Internal control can provide only reasonable assurance of achieving an entity's control objectives. The likelihood of achieving those objectives is affected by which limitation inherent to internal control? A. the auditor's primary responsibility is the detection of fraud B. the board of directors is active and independent C. the cost of internal control should not exceed its benefits D. management monitors internal control

B

Internal control cannot be designed to provide reasonable assurance regarding the achievement of objectives concerning A. reducing the cost of an external audit B. elimination of all fraud C. availability of reliable data for decision-making purposes and protection of important documents and records D. compliance with the Foreign Corrupt Practices Act of 1977

B

Internal control is a function of management, and effective control is based upon the concept of charge and discharge of responsibility and duty. Which of the following is one of the overriding principles of internal control? A. responsibility for accounting and financial duties should be assigned to one responsible officer B. responsibility for the performance of each duty must be fixed C. responsibility for the accounting duties must be borne by the audit committee of the company D. responsibility for accounting activities and duties must be assigned only to employees who are bonded

A

Internal controls are designed to provide reasonable assurance that A. material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties B. management's plans have not been circumvented by worker collusion C. the internal auditing department's guidance and oversight of management's performance is accomplished economically and efficiently D. management's planning, organizing, and directing processes are properly evaluated

D

Issuers are required by the PCAOB to obtain an auditor's report attesting to the effectiveness of internal control over financial reporting (AS No. 5)...Which of the following statements best characterizes the relation between these two standards? A. the two standards have different purposes: the AICPA standards address only controls relating to the safeguarding of assets, while the PCAOB's standards relate more broadly to financial statements B. the AICPA standards recognize that the internal controls are the responsibility of the auditor, while the PCAOB standards recognize that the internal controls are the responsibility of management C. the AICPA standards accept COSO's Internal Control - Integrated Framework as suitable and available framework for control, while the PCAOB standards do not D. both the AICPA standards and the PCAOB standards require management to provide a written assessment or assertion concerning the effectiveness of controls

B

It is important for the auditor to consider the competence of the audit client's employees, because their competence bears directly and importantly upon the A. relationship of the costs of internal control and its benefits B. achievement of the objectives of internal control C. comparison of recorded accountability with assets D. timing of the tests to be performed

C

Management of an issuer subject to SEC requirements requests the auditor to report on whether a previously reported material weakness in internal control continues to exist...Which of the following statements is true? A. the audited financial statements and report on internal control have been released, and no report may be issued on subsequent information B. the auditor may accept the engagement if (s)he withdraws the original report C. the auditor may accept the engagement if management provides a statement that the identified material weakness no longer exists D. the auditor may accept the engagement but must wait until the next year's audit to report the remediation of the internal control weakness

C

Management's aggressive attitude toward financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when A. the audit committee is active in overseeing the entity's financial reporting policies B. external policies established by parties outside the entity affect its accounting practices C. management is dominated by one individual who is also a shareholder D. internal auditors have direct access to the board of directors and entity managment

C

Monitoring of controls is an important component of internal control. Which of the following items is not an example of monitoring? A. management regularly compares divisional performance with budgets for the division B. data processing management regularly generates exception reports for unusual transactions or volumes of transactions and follows up with investigation as to causes C. data processing management regularly reconciles batch control totals for items processed with batch controls for items submitted D. management has asked internal auditing to perform regular audits of the controls over cash processing

B

Organizational charts are useful to an independent external auditor because they A. depict all lines of organizational communication B. provide a starting point for assessing the risk of material misstatement C. ensure the proper division of responsibilities D. are essential to effective internal control

D

Proper segregation of duties reduces the opportunities to allow persons to be in positions both to A. journalize entries and prepare financial statements B. record cash receipts and cash disbursements C. establish internal control and authorize transactions D. perpetrate and conceal fraud and error

C

Regardless of the assessed risks of material misstatement, an auditor should perform some A. tests of controls to determine their effectiveness B. analytical procedures to verify the design of controls C. substantive procedures to restrict detection risk for significant transaction classes D. dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk

A

Snow, CPA, was engaged by Master Co., a nonissuer, to examine the effectiveness of Master's internal control over financial reporting as part of an integrated audit. Snow's report should state that A. because of inherent limitations, internal control may not prevent, or detect and correct, misstatements B. management's evaluation of the effectiveness of internal control is based on criteria established by the American Institute of Certified Public Accountants C. the results of Snow's tests will form the basis for Snow's opinion on the fairness of Master's financial statements in accordance with U.S. GAAP D. the purpose of the engagement is to enable Snow to plan an audit and determine the nature, timing, and extent of tests to be performed

B

Tests of controls are concerned primarily with each of the following questions except A. how were the controls applied? B. were the controls approved by the board of directors? C. were the necessary controls consistently performed? D. by whom were the controls applied?

C

Tests of controls in a financial statement audit are least likely to be omitted with regard to A. accounts believed to be subject to ineffective controls B. accounts representing few transactions C. accounts representing many transactions D. subsequent events

A

The PCAOB's AS No. 5 states that internal controls may be preventive or detective. Which of the following controls is preventive? A. requiring two persons to open mail B. reconciling the accounts receivable subsidiary file with the control account C. using batch totals D. preparing bank reconciliations

D

The Sarbanes-Oxley Act of 2002 (SOX) requires management of issuers to do all of the following except A. establish and document internal control procedures and to include in their annual reports a report on the company's internal control over financial reporting B. provide a report to include a statement of management's responsibility for and assessment of internal control C. provide an identification of the framework used to evaluate the effectiveness of internal control D. provide a statement that the board approves changes in internal control procedures

A

The Sarbanes-Oxley Act of 2002 requires management to include a report on internal control in the firm's annual report...Which of the following statements concerning these requirements is false? A. the auditors should provide recommendations for improving internal control in their assessment B. management should identify significant deficiencies and material weaknesses in its report C. management's report should state its responsibility for establishing and maintaining an adequate internal control system D. the auditors should evaluate whether internal controls are effective in accurately and fairly reflecting the firm's transactions

A

The auditor should perform tests of controls when the auditor's assessment of the risks of material misstatement includes an expectation of the operating effectiveness of internal control or when A. substantive procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion level B. tests of details and substantive analytical procedures provide sufficient appropriate audit evidence to support the assertion being evaluated C. the auditor is not able to obtain an understanding of internal controls D. the owner-manager performs virtually all the functions of internal control

B

The auditor should perform tests of controls when the auditor's risk assessment includes an expectation A. of a low level of inherent risk B. of the operating effectiveness of internal control C. that the controls are not suitably designed D. that the controls are not being aplied

B

The auditor's understanding of internal control is documented substantiate A. conformity of the accounting records with generally accepted accounting principles B. compliance with generally accepted accounting standards C. adherence to procedures for effective and efficient management decision making D. the fairness of the financial statement presentation

C

The design or operation of a control may not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. According to AU-C 265, this circumstance is A. material weakness B. significant deficiency C. control deficiency D. critical deficiency

C

The following are steps in the financial statement audit process: I. Prepare flowcart II. Gather exhibits of all documents III. Interview personnel The most logical sequence of steps is A. I, II, III B. I, III, II C. III, II, I D. II, I, III

B

The frequency of the comparison of recorded accountability with assets (for the purpose of safeguarding assets) should be determined by A. the amount of assets independent of the cost of the comparison B. the nature and amount of the asset and the cost of making the comparison C. the cost of the comparison and whether the susceptibility to loss results from errors or fraud D. the auditor in consultation with client management

D

The objective of tests of details of transactions performed as tests of controls is to A. monitor the design and use of entity documents such as prenumbered shipping forms B. determine whether internal controls have been implemented C. detect material misstatements in the account balances of the financial statements D. evaluate whether internal controls operated effectively

D

The organization chart is a graphic representation of the A. power structure B. communications channels C. locus of decision making D. formal authority structure

B

The primary purpose of obtaining an understanding of he entity and its environment, including its internal control, is to provide an auditor with A. evidence to use in reducing detection risk B. a frame of reference within which to plan the audit C. a basis for modifying tests of controls D. information necessary to prepare flowcharts

B

The primary reason to establish internal control is to A. safeguard the resources of the organization B. provide reasonable assurance that the objectives of the organization are achieved C. encourage compliance with organizational objectives D. ensure the accuracy, reliability, and timeliness of information

C

The risks of material misstatement (RMMs) should be assessed in terms of A. specific controls B. types of potential fraud C. financial statement assertions D. control environment factors

B

The ultimate purpose of understanding internal control is to contribute to the auditor's evaluation of the risk that A. tests of controls may fail to identify controls relevant to assertions B. material misstatements may exist in the financial statements C. specified controls requiring segregation of duties may be circumvented by collusion D. entity policies may be overridden by senior management

B

The ultimate purpose of understanding the entity and its environment and assessing the risks of material misstatement is to contribute to the auditor's assessment of the risk that A. test of controls may fail to identify procedures relevant to assertions B. material misstatements may exist in the financial statements C. specified controls requiring segregation of duties may be circumvented by collusion D. entity policies may be inappropriately overridden by senior management

C

To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques including A. inquiry and analytical procedures B. comparison and confirmation C. reperformance and observation D. inspection and verification

B

Transaction authorization within an organization may be either specific or general. An example of specific transaction authorization is the A. setting of automatic reorder points for material or merchandise B. approval of a detailed construction budget for a warehouse C. establishment of requirements to be met in determining a customer's credit limits D. establishment of sales prices for products to be sold to any customer

C

Under the AICPA's auditing standards, which of the following statements about an auditor's communication of significant control deficiencies is true? A. a significant control deficiency previously communicated during prior year's audit that remains uncorrected causes a scope limitation B. an auditor should perform tests of controls on significant control deficiencies before communicating them to the client C. an auditor's report on significant control deficiencies should include a restriction on the use of the report D. an auditor should communicate significant control deficiencies after tests of controls, but before communicating substantive tests

A

When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate? A. test the operating effectiveness of such controls in the current audit B. document that reliance and proceed with original audit strategy C. inquire of management as to the effectiveness of the controls D. report the reliance in the report on internal controls

C

When assessing the risks of material misstatement at a low level, an auditor is required to document the auditor's: Understanding of the Entity's Control Environment/Overall Responses to Assessed Risks A. Yes/No B. No/Yes C. Yes/Yes D. No/No

D

When communicating significant deficiencies in internal control noted in a financial statement audit of a nonissuer, the communication should indicate that A. fraud or errors may occur and not be detected because of the inherent limitations of internal control B. the expression of an unmodified opinion on the financial statements may be dependent on corrective follow-up action C. the deficiencies noted were not detected within a timely period by employees in the normal course of performing their assigned functions D. the purpose of the audit was to report on the financial statements, not to provide assurance on internal control

B

When obtaining an understanding of an entity's internal control, an auditor should concentrate on their substance rather than their form because A. the controls may be operating effectively but may not be documented B. management may establish appropriate controls but not enforce compliance with them C. the controls may be so inappropriate that no reliance is expected by the auditor D. management may implement controls whose costs exceed their benefit

C

Which of the following are considered control environment factors? Detection Risk/Human Resources Policies and Practices A. Yes/Yes B. Yes/No C. No/Yes D. No/No

B

Which of the following best describe the interrelated components of internal control? A. organizational structure, management philosophy, and planning B. control environment; risk assessment process; control activities; the information system, including related businesses processes; and monitoring of controls C. risk assessment process, backup facilities, responsibility accounting, and natural laws D. assignment of authority and responsibility, management philosophy, and organizational structure

A

Which of the following best describes a CPA's engagement to report on an entity's internal control over financial reporting? A. an attest engagement that results in issuance of an examination report relating to the effectiveness of internal control B. an audit of the financial statements that results in communicating significant deficiencies in internal control C. a prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control D. a consulting engagement to provide constructive advice to the entity on its internal control

C

Which of the following best describes the responsibility of an auditor of a private entity with respect to significant deficiencies and material weaknesses under AU-C 265, Communication of Internal Control Related Matters Identified in an Audit? A. the auditor need not report the conditions if those charged with governance know of them B. the auditor must exercise due diligence in searching for significant deficiencies and material weaknesses C. the communication by the auditor must be in writing D. the auditor's report is a general-use report and may be distributed to the shareholders

D

Which of the following disagreements between the auditor and management do not have to be communicated by the auditor to those charged with governance? A. disagreements regarding management's judgment about accounting estimates for goodwill B. disagreements about the scope of the audit C. disagreements in the application of accounting principles relating to software development costs D. disagreements of the amount of the LIFO inventory layer based on preliminary information

C

Which of the following is a step in an auditor's decision to rely on internal controls? A. apply analytical procedures to both financial data and non-financial information to detect conditions that may indicate weak controls B. perform tests of details of transactions and account balances to identify potential fraud and error C. identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls D. document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing

B

Which of the following is not a medium that can normally be used by an auditor to record information concerning internal control? A. narrative memorandum B. procedures manual C. flowchart D. decision table

B

Which of the following issues related to internal control over financial reporting are required to be communicated in writing to management and those charged with governance? I. deficiencies in internal control II. significant deficiencies II. material weaknesses A. I, II, and III B. II and III only C. III only D. none

C

Which of the following matters is an auditor required to communicate to those in the entity charged with governance? I. Disagreements with management about matters significant to the entity's financial statements that have been satisfactorily resolved II. Initial selection of significant accounting policies in emerging areas that lack authoritative guidance A. I only B. II only C. both I and II D. neither I or II

B

Which of the following matters should an auditor communicate to those charged with governance? A. the basis for assessing the risk of material misstatement when the auditor intends to rely on controls B. the process used by management in formulating sensitive accounting estimates C. the auditor's preliminary judgments about materiality levels D. the justification for performing substantive procedures at interim dates

D

Which of the following matters will an auditor most likely communicate to those charged with governance? A. a list of negative trends that may lead to working capital deficiencies and adverse financial ratios B. the level of responsibility assumed by management for the preparation of the financial statements C. difficulties encountered in achieving a satisfactory response rate from the entity's customers in confirming accounts receivables D. the effects of significant accounting policies adopted by management in emerging areas for which no authoritative guidance exists

A

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal control? A. incompatible duties B. management override C. faulty judgment D. collusion among employees

A

Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidence in support of the effectiveness of controls? A. observing an entity's employee prepare the schedule of past due accounts receivable B. sending confirmation requests to an entity's principal customers to verify the existence of accounts receivable C. inspecting an entity's analysis of accounts receivable for unusual balances D. comparing an entity's uncollectible accounts expense with actual uncollectible accounts receivable

C

Which of the following procedures is not used in tests of controls over purchases? A. examine vouchers and supporting documents for authorization B. trace vouchers to entries in the vouchers register C. confirm inventory held in public warehouses D. reperform calculations on some supporting documentation

B

Which of the following representations should not be included in a written report on internal control related matters identified in an audit under the AICPA's auditing standards? A. significant deficiencies related to the design of internal control exist, but none are deemed to be material weaknesses B. there are no significant deficiencies or material weaknesses in the design or operation of internal control C. corrective action is recommended due to the relative significance of material weaknesses discovered during the audit D. the auditor's consideration of internal control would not necessarily disclose all significant deficiencies or material weaknesses that exist

D

Which of the following statements about an auditor's communication of internal control related matters identified in an audit of a nonissuer is true? A. the auditor may issue a written report to management and those charged with governance that no significant deficiencies were noted B. significant deficiencies or material weaknesses need not be recommunicated each year if the audit committee has acknowledged its understanding of such deficiencies C. significant deficiencies or material weaknesses may not be communicated in a document that contains suggestions regarding activities that concern other topics such as business strategies or administrative efficiencies D. the auditor should communicate significant internal control related matters no later than 60 days after the report release date

D

Which of the following statements about internal control is true? A. properly maintained internal control reasonably ensures that collusion among employees cannot occur B. the establishment and maintenance of internal control are important responsibilities of the internal auditor C. exceptionally effective internal control is enough for the auditor to eliminate substantive procedures on a significant account balance D. a limitation of internal control is that management makes judgments about the extent of controls it implements

A

Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true? A. risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls B. when the risks of material misstatement are high, an auditor should reduce the amount of substantive testing C. reliance on internal control may be sufficient to allow the auditor to eliminate substantive testing for significant transaction classes D. when assessing the risks of material misstatement, an auditor should not consider evidence obtained in prior audits about the operation of controls

A

Which of the following statements indicates the wrong way to use an internal control questionnaire? A. clarifying all answers with written remarks and explanations B. filling out the questionnaire during an interview with the person who has responsibility for the area that is being audited C. constructing the questionnaire so that a no response requires attention D. supplementing the completed questionnaire with a narrative description or flowchart

D

Which of the following statements regarding auditor documentation of the understanding of the client's internal control components obtained to plan the audit is correct? A. documentation must include flowcharts B. documentation must include procedural write-ups C. no documentation is necessary although it is desirable D. no one particular form of documentation is necessary, and the extent of the documentation may vary