Audit Exam 2 Chapter 7

Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes? Checklist. Confirmation. Flowchart. Questionnaire.

Confirmation

When a CPA decides that the work performed by internal auditors may have an effect on the nature, timing, and extent of the CPA's procedures, the CPA should consider the competence and objectivity of the internal auditors. Relative to objectivity, the CPA should: Consider the organizational level to which the internal auditors report the results of their work. Review the internal auditors' work. Consider the qualifications of the internal audit staff. Review the training program in effect for the internal audit staff.

Consider the organizational level to which the internal auditors report the results of their work

Which of the following would be least likely to be considered an objective of internal control? Checking the accuracy and reliability of accounting data. Detecting management fraud. Encouraging adherence to managerial policies. Safeguarding assets.

Detecting management fraud

Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by: Employment of temporary personnel to aid in the separation of duties. Direct participation by the owner in key record keeping and control activities of the business. Engaging a CPA to perform monthly write-up work. Delegation of full, clear-cut responsibility for a separate major transaction cycle to each employee.

Direct participation by the owner in key record keeping and control activities of the business

Which of the following is not an advantage of establishing an enterprise risk management system within an organization? Reduces operational surprises. Provides integrated responses to multiple risks. Eliminates all risks. Identifies opportunities.

Eliminates all risks

To have an adequate basis to issue a management report on internal control under Section 404(a) of the Sarbanes-Oxley Act, management must do all of the following, except: Establish internal control with no material weakness. Accept responsibility for the effectiveness of internal control. Evaluate the effectiveness of internal control using suitable control criteria. Support the evaluation with sufficient evidence.

Establish internal control with no material weakness

A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with: Knowledge necessary to determine the nature, timing, and extent of further audit procedures. Audit evidence to use in reducing detection risk. A basis for modifying tests of controls. An evaluation of the consistency of application of management policies.

Knowledge necessary to determine the nature, timing, and extent of further audit procedures

An entity's ongoing monitoring activities often include: Periodic audits by internal auditors. The audit of the annual financial statements. Approval of cash disbursements. Management review of weekly performance reports.

Management review of weekly performance reports

Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detective control? Segregation of duties over cash disbursements. Requiring approval of purchase transactions. Preparing bank reconciliations. Maintaining backup copies of key transactions

Preparing bank reconciliations

An auditor may compensate for a weakness in internal control by increasing the extent of: Tests of controls. Detection risk. Substantive tests of details. Inherent risk.

Substantive tests of details

When the auditors are performing a first-time internal control audit in accordance with the Sarbanes-Oxley Act and PCAOB standards, they must: Modify their report for any significant deficiencies identified. Use a "bottom-up" approach to identify controls to test. Test controls for all significant accounts. Perform a separate assessment of controls over operations.

Test controls for all significant accounts