Audit Homework 3

A procedure designed to test for monetary misstatements directly affecting the correctness of F/S balances is a A. substantive test. B. test of controls. C. test of attributes. D. monetary unit sampling test.

A

A system walkthrough is primarily used to help the auditor A. determine whether internal controls have been properly implemented. B. determine whether the audit engagement should be accepted. C. test the details of transactions. D. test the ending account balances.

A

A​ ________ exists if one or more control deficiencies exist that are less severe than a material​ weakness, but are important enough to merit attention by those responsible for oversight of the​ company's financial reporting. A. significant deficiency B. fraud symptom C. potential misstatement D. significant weakness

A

Proper segregation of functional responsibilities calls for separation of A. ​authorization, recording, and custody. B. ​custody, execution, and reporting. C. ​authorization, payment, and recording. D. ​authorization, execution, and payment.

A

Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two​ requirements? A. a statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting B. a statement that​ management, the board of​ directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting C. a statement that the external auditors are solely responsible for establishing and maintaining an adequate system of internal control D. a statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting

A

The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk. This lack of knowledge would A. constitute a deficiency in operation of internal controls. B. constitute a deficiency in design of internal controls. C. not constitute a deficiency. D. constitute a deficiency of management

A

The purpose of tests of controls is to provide reasonable assurance that the A. internal control procedures are functioning as intended. B. accounting treatment of transactions and balances is valid and proper. C. entity has complied with requirements of quality control. D. entity has complied with GAAP disclosure requirements.

A

Which of the following is NOT true? A. Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures. B. Tests of details of balances emphasize the ending balances in the general ledger. C. Analytical procedures emphasize the overall reasonableness of transactions and balances. D. Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.

A

Which of the following may represent the biggest challenge smaller public companies and nonpublic companies face in implementing effective internal control? A. no adequate separation of duties B. a lack of adequate documents and records C. a lack of​ competent, trustworthy personnel D. no clear lines of authority

A

Which type of evidence is not used by the auditor to obtain an understanding of the design and implementation of internal control? A. confirmation B. inspection C. inquiry D. observation

A

When one material weakness is present at the end of the​ year, management of a public company must conclude that internal control over financial reporting is A. inadequate. B. ineffective. C. inefficient. D. insufficient.

B

Collectively, procedures performed to obtain and understanding of the entity and its environment, including internal controls, represent the auditor's A. tests of controls. B. audit strategy. C. risk assessment procedures. D. tests of transactions.

C

If the results of tests of controls support the design and operations of controls as expected, the auditor uses _______ control risk as the preliminary assessment. A. a lower B. a higher C. the same D. either a lower or higher

C

It is generally possible for small companies to have all of the following except for A. physical controls over assets. B. ​competent, trustworthy personnel. C. internal auditors. D. adequate documents and records.

C

To obtain an understanding of an entity's control environment, an auditor should concentrate on the substance of management's policies and procedures rather than their form because A. the auditor may believe that the policies and procedures are inappropriate for that particular entity. B. the policies and procedures may be so weak that no reliance is contemplated by the auditor. C. management may establish appropriate policies and procedures but not act on them. D. the board of directors may not be aware of​ management's attitude toward the control environment.

C

Which deficiency exists if a necessary control is missing or not properly implemented? A. control B. operating C. design D. significant

C

Which of the following is not one of the subcomponents of the control​ environment? A. ​management's philosophy and operating style B. organizational structure C. adequate separation of duties D. commitment to competence

C

Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the F/S? A. ratio analysis B. tests of controls C. tests of details of balances D. risk assessment procedures

C

Which of the following statements is most correct with respect to separation of​ duties? A. Employees who open cash receipts should record the amounts in the subsidiary ledgers. B. Employees who authorize transactions should have recording responsibility for these transactions. C. Employees who authorize transactions should not have custody of related assets. D. A person who has temporary or permanent custody of an asset should account for that asset.

C

Who is responsible for establishing a private company's internal control? A. FASB B. internal auditors C. senior management D. audit committee

C

The Sarbanes-Oxley Act requires A. the auditor of public companies to design effective internal controls. B. all public companies to define adequate internal controls. C. the auditor of public companies to withdraw from an engagement if internal controls are weak. D. all public companies to issue reports on internal controls.

D

When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be A. testing controls. B. vouching. C. tracing. D. performing a walkthrough

D

Which of the following deals with ongoing or periodic assessment of the quality of internal control by management? A. management activities B. oversight activities C. verifying activities D. monitoring activities

D

Which of the following is most correct for audits of non-public companies? A. An audit of the design of internal controls is required. B. An audit of the operational effectiveness of internal controls is required. C. An audit of internal control is required. D. An audit of internal control is not required.

D

T/F: Personnel responsible for performing internal verification procedures must be independent of those originally responsible for preparing the data.

True