A2 - Internal Control

Question 1

When obtaining an understanding of an entity’s internal controls, an auditor should concentrate on the substance of the controls rather than their form because:

Answer 1

Management may establish appropriate procedures but not enforce compliance with them.

Question 2

What component (element) of an entity’s internal control includes the development of personnel manuals documenting employee promotion and training policies?

Answer 2

Control environment

Question 3

An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the:

Answer 3

Substantive tests

Question 4

The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the:

Answer 4

Risk that material misstatements exist in the financial statements.

Question 5

Internal control is relevant to:

Answer 5

An entire entity, an entity’s operating units, and an entity’s business functions.

Question 6

An auditor’s primary considerations in evaluating controls is whether specific controls:

Answer 6

Affect financial statement assertions.

Question 7

Inherent limitations of internal control include:

Answer 7

Collusion, human error, and management override.

Question 8

In obtaining an understanding of the entity and its environment, including its internal control, an auditor is required to obtain knowledge about the:

Answer 8

Design of relevant internal controls pertaining to financial reporting in each of the five internal control components.

The auditor IS NOT required to determine whether internal controls are operating effectively, as part of their obtaining an understanding.

Question 9

An auditor should obtain sufficient knowledge of an entity’s information system relevant to financial reporting to understand the:

Answer 9

Process used to prepare significant accounting estimates.

Question 10

An advantage of using systems flowcharts to document internal information is that :

Answer 10

Flowcharts provide a visual depiction of clients’ activities.

Question 11

When a service organization provides services that affect the initiation, execution, processing, or reporting of a user company’s transactions, those services are:

Answer 11

Considered to be part of the user company’s information system.