Audit Chapter 7
Which of the following controls would most likely be tested during an interim period?
Controls that operate on a continuous basis.
Entity-level controls can have a pervasive effect on the entity's ability to meet the control criteria. Which one of the following is not an entity-level control?
Controls to monitor the inventory taking process.
Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a misstatement in an account balance?
The financial statement amounts exposed to the deficiency.
Which of the following is not a topic that requires special consideration by management during management's internal control assessment process and by the auditor during the audit of internal control?
The role of the auditor in internal control.
Which of the following most likely represents a weakness in internal control of an IT system?
The systems analyst reviews output and controls the distribution of output from the IT department.
AnnaLisa, an auditor for N. M. Neal & Associates, is prevented by the management of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly regarded public accounting firm that the entity hired as a consultant and insists that it is a waste of time for AnnaLisa to evaluate these controls. Inventory is a material account, but procedures performed as part of the financial statement audit indicate the account is fairly stated. AnnaLisa found no material weaknesses in any other area of the entity's internal control relating to financial reporting. What kind of report should AnnaLisa issue on the effectiveness of Lileah's internal control?
A disclaimer of opinion.
In auditing ICFR for a public company, Emily finds that the entity has a significant subsidiary located in a foreign country. Emily's accounting firm has no offices in that country, and the entity has thus engaged another reputable firm to conduct the audit of internal control for that subsidiary. The other auditor's report indicates that there are no material weaknesses in the foreign subsidiary's ICFR. What should Emily do?
Accept the other auditor's opinion after evaluating the auditor's work, and make reference to the other auditor's report in her audit opinion.
A primary advantage of using generalized audit software packages to audit the financial statements of an entity that uses an IT system is that the auditor may
Access information stored on computer files while having a limited understanding of the entity's hardware and software features.
In auditing a public company, Natalie, an auditor for N. M. Neal & Associates, identifies four deficiencies in ICFR. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably likely to result in misstatements that are not material but significant. What type of audit report should Natalie issue?
An unqualified report.
For which of the following internal controls would an auditor be least likely to perform tests of internal controls closer to the "as of" date?
At the end of each day at Federal Bank, the total cash in the vault is reconciled with daily registers of deposits and withdrawals.
A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a
Deficiency in operation.
If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on which of the following for its assessment?
Self-assessment processes in conjunction with entity-level controls.
Significant deficiencies and material weaknesses must be communicated to an entity's audit committee because they represent
Significant deficiencies in the design or operation of internal control.
In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except:
Test some of the work performed by others to evaluate the quality and effectiveness of their work. Evaluate the nature of the controls subjected to the work of others. Evaluate the competence and objectivity of the individuals who performed the work.
Which of the following statements concerning control deficiencies is true?
The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit.
The Sarbanes-Oxley Act of 2002 requires management to include a report on the effectiveness of ICFR in the entity's annual report. It also requires auditors to report on the effectiveness of ICFR. Which of the following statements concerning these requirements is false?
The auditor should provide recommendations for improving internal control in the audit report.
When auditors report on the effectiveness of internal control "as of" a specific date and obtain evidence about the operating effectiveness of controls at an interim date, which of the following items would be the least helpful in evaluating the additional evidence to gather for the remaining period?
The walkthrough of the control system conducted at interim.
Which of the following is an advantage of generalized computer audit packages?
They can be used for audits of entities that use differing IT equipment and file formats.
A walkthrough is one procedure used by an auditor as part of the internal control audit. A walkthrough requires an auditor to
Trace a transaction from each major class of transactions from origination through the entity's information system until it is reflected in the entity's financial reports.
The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.
True