MGMT 443 - Chapter 9 Gleim Practice Questions

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? 1. Deficiencies in internal control 2. Significant deficiencies 3. Material weaknesses

2 and 3 only.

The auditor is required to communicate each of the following items to those charged with governance except

All control deficiencies detected during the course of the audit.

Under the AICPA's auditing standards, which of the following statements about an auditor's communication of significant control deficiencies is true?

An auditor's report on significant control deficiencies should include a restriction on the use of the report.

Which of the following matters in a financial statement audit is most appropriate to communicate with those charged with governance?

An overview of the planned scope and timing of the audit.

Which of the following groups is considered a subgroup ordinarily charged with assisting the board of directors in fulfilling its oversight responsibilities?

Audit committee.

In an audit engagement, should an auditor communicate the following matters to those charged with governance?

Auditor's Judgments About the Quality of the Client's Accounting Principles (Yes). Issues Discussed with Management Prior to the Auditor's Retention (Yes).

Which of the following statements correctly describes the "top-down approach" used during an audit of internal control over financial reporting?

Begin by understanding the overall risks to internal control over financial reporting at the financial statement level.

Which of the following matters is an auditor required to communicate to those in the entity charged with governance? 1. Disagreements with management about matters significant to the entity's financial statements that have been satisfactorily resolved 2. Initial selection of significant accounting policies in emerging areas that lack authoritative guidance

Both 1 and 2.

A secondary result of the auditor's understanding of internal control for a nonissuer is that the understanding may

Bring to the auditor's attention possible control conditions required to be communicated to the client.

Payroll Data Co. (PDC) processes payroll transactions for a retailer. Cook, CPA, is engaged to issue a report on PDC's internal controls implemented as of a specific date. These controls are relevant to the retailer's internal control, so Cook's report may be useful in providing the retailer's independent auditor with information necessary to plan a financial statement audit. Cook's report should

Contain a disclaimer of opinion on the operating effectiveness of PDC's controls.

Which of the following disagreements between the auditor and management do not have to be communicated by the auditor to those charged with governance?

Disagreements of the amount of the LIFO inventory layer based on preliminary information.

Which of the following most accurately describes the process of a walkthrough?

Following a transaction from its origination until it is reflected in the financial statements.

A service organization processes payroll data having a material effect on the financial statements of an audit client. The client has established certain internal controls over input and output data. If the user auditor intends to rely on the operating effectiveness of the service organization's controls, which of the following statements is false?

If certain relevant controls exist only at the service organization and a service auditor issues a report only on the design of the controls, the user auditor may use the report as a basis for reliance on the controls.

An auditor should communicate misstatements to those charged with governance

If they are uncorrected.

To what degree, if at all, is a significant deficiency related to a material weakness?

It is less severe than a material weakness.

AU-C 402, Audit Considerations Relating to an Entity Using a Service Organization, applies to a financial statement audit of an entity that uses services of another organization as part of its information system. For this purpose, the user auditor may need to obtain a service auditor's report. Which of the following is a true statement about a service auditor's report?

It should include an opinion.

Green, CPA, is auditing the financial statements of Ajax Co. Ajax uses the DP Service Center to process its payroll. DP's financial statements are audited by Blue, CPA, who recently issued a report on DP's policies and procedures regarding the processing of other entities' transactions. In considering whether Blue's report is satisfactory for Green's purposes, Green should

Make inquiries about Blue's professional reputation.

The activities of the user entity and the service organization have a high degree of interaction. The user auditor

Need not test the service organization's internal control if the user entity have effective controls related to service organization processing.

Which of the following procedures should a user auditor include in the audit plan to create the most efficient audit when an audit client uses a service organization for several processes?

Review the service auditor's type 1 report.

During planning, an auditor of a nonissuer should communicate which of the following to those charged with governance at an entity?

The audit does not relieve management of its responsibilities for the financial statements.

An auditor is most likely to communicate to those charged with governance that

The auditor encountered significant difficulties during the audit.

Which of the following statements about an auditor's communication of internal control related matters identified in an audit of a nonissuer is true?

The auditor should communicate significant internal control related matters no later than 60 days after the report release date.

When an auditor is to conduct an audit of a service organization, what considerations should the auditor make in the planning stages regarding internal controls of the organization?

The auditor should determine whether management has adequately described complementary user controls.

A client uses a service organization to process its payroll. Which of the following statements is correct regarding the user auditor's use of the service auditor's report on internal controls placed in operation?

The client's auditor can use the service auditor's report as audit evidence for the client's internal controls.

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?

The communication by the auditor must be in writing.

A CPA had previously communicated a significant control deficiency in connection 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?

The condition should be reported.

A service auditor has examined internal controls at a service organization that are relevant to a user entity's internal control over financial reporting. The service auditor's Type 2 report is most likely to include a statement that

The description of the system does not include aspects not relevant to user entities' internal control over financial reporting.

Which of the following matters will an auditor most likely communicate to those charged with governance?

The effects of significant accounting policies by management in emerging areas for which no authoritative guidance exists.

A practitioner has been engaged to examine the effectiveness of a nonissuer's internal control. The practitioner has obtained from the responsible party a written assertion about the effectiveness of internal control. The assertion is contained in a separate report that will accompany the practitioner's report and is based on control criteria issued by experts that follow due process procedures. What restrictions, if any, should the practitioner place on the use of this report?

The practitioner does not need to place any restrictions on the use of this report.

Which of the following matters should an auditor communicate to those charged with governance?

The process used by management in formulating sensitive accounting estimates.

When communicating significant deficiencies in internal control noted in a financial statement audit of a nonissuer, the communication should indicate that

The purpose of the audit was to report on the financial statements, not to provide assurance on internal control.

Which of the following is a requirement for accepting an attestation engagement to report on the controls at a service organization?

The service auditor has the competence and capability to perform the engagement.

A service organization provides processing services for a client's sales orders. Which of the following information is relevant when gathering data for the report on the service organization's internal controls?

The service organization's system calculates accounts receivable balances.

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?

There are no significant deficiencies or material weaknesses in the design or operation of internal control.

A service auditor has examined internal controls at a service organization that are relevant to a user entity's internal control over financial reporting. The service auditor's Type 2 report is most likely to include a statement that

Use of the report is not intended to be, and should not be, used by anyone other than the specified parties.