ACCT 543 Quiz 6

the Sarbanes-Oxley Act of 2002.

A report on internal control effectiveness by the management team of public companies is required by: the Sarbanes-Oxley Act of 2002. the PCAOB. the AICPA. the auditors.

the control environment.

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as: management assertions. the control environment. control risk assessment. functional responsibilities.

additional evidence to support a further reduction in control risk was not cost beneficial.

After obtaining an understanding of the entity's internal control and assessing control risk, an auditor of a non-public company decided not to perform additional tests of controls. The auditor most likely concluded that the: additional evidence to support a further reduction in control risk was not cost beneficial. assessed level of inherent risk exceeded the assessed level of control risk. internal control structure was properly designed and justifiably may be relied on. evidence obtainable through tests of controls would not support an increased level of control risk.

cutoff.

Control activities intended to ensure that transactions are recorded in the right period are designed to achieve the ASB assertion of: occurrence. accuracy. valuation or allocation. cutoff.

perform a great deal of substantive testing during the audit.

If auditors assess control risk at the maximum level, they will tend to: perform a great deal of additional tests of controls. perform a great deal of substantive testing during the audit. perform substantive tests at an interim date. perform more audit procedures using internal evidence.

a statement providing management's evaluation of the company's control environment.

Management's report on internal controls must include each of the following except: a statement that management is responsible for establishing and maintaining adequate internal control over financial reporting. a statement identifying the framework management uses to evaluate the effectiveness of the company's internal control. a statement providing management's assessment of the effectiveness of the company's internal control. a statement providing management's evaluation of the company's control environment.

data preparation.

The appropriate separation of duties does not include: authorization to execute transactions. recording of transactions. custody of assets involved in the transactions. data preparation

Test the operating effectiveness of such controls in the current audit.

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? Test the operating effectiveness of such controls in the current audit. Document that reliance and proceed with the original audit strategy. Inquire of management as to the effectiveness of the controls. Report the reliance in the report on internal controls.

Approving a summary of hours each employee worked during the pay period.

Which of the following activities performed by a department supervisor most likely would help in the prevention or detection of a payroll fraud? Distributing paychecks directly to department store employees. Setting the pay rate for departmental employees. Hiring employees and authorizing them to be added to payroll. Approving a summary of hours each employee worked during the pay period.

The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls.

Which of the following is a definition of control risk? The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls. The risk that the auditor will not detect a material misstatement. The risk that the auditor's assessment of internal controls will be at less than the maximum level. The susceptibility of material misstatement assuming there are no related internal controls, policies, or procedures.

Management's philosophy and operating style.

Which of the following is a factor in the control environment? Segregation of duties. Information processing. Performance reviews. Management's philosophy and operating style

Policies and procedures that provide reasonable assurance regarding the compliance with applicable laws and regulations.

Which of the following is not an objective of internal controls over financial reporting as defined by the Sarbanes-Oxley Act? Policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant. Policies and procedures that provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant. Policies and procedures that provide reasonable assurance regarding the compliance with applicable laws and regulations. Policies and procedures that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant's assets that could have a material effect on the financial statements.

Allowing for greater management oversight of incompatible activities.

Which of the following is the best way to compensate for the lack of adequate segregation of duties in a small organization? Disclosing lack of segregation of duties to the external auditors during the annual review. Replacing personnel every three or four years. Requiring accountants to pass a yearly background check. Allowing for greater management oversight of incompatible activities.

An auditor interviews and observes appropriate personnel to determine segregation of duties.

Which of the following procedures is considered a test of controls? An auditor reviews the entity's check register for unrecorded liabilities. An auditor evaluates whether a general journal entry was recorded at the proper amount. An auditor interviews and observes appropriate personnel to determine segregation of duties. An auditor reviews the audit workpapers to ensure proper sign-off.

An inherent limitation to internal control is the fact that controls can be circumvented by management override.

Which of the following statements is correct regarding internal control? A well-designed internal control environment ensures the achievement of an entity's control objectives. An inherent limitation to internal control is the fact that controls can be circumvented by management override. A well-designed and operated internal control environment should detect collusion perpetrated by two people. Internal control is a necessary business function and should be designed and operated to detect all errors and fraud.